Good day, and welcome to AIG's Fourth Quarter 2022 Financial Results Conference Call. This conference is being recorded. Now at this time, I would like to turn the conference over to Quentin McMillan. Please, go ahead.

Thanks very much, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations. AIG's filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q, provide details on important factors that could cause actual results or events to differ materially. Except as required by applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Additionally, today's remarks may refer to non-GAAP financial measures. A reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at www.aig.com. Finally, today's remarks will discuss the results of AIG's Life and Retirement segment and Other Operations on the same basis as prior quarters, which is how we expect to continue to report until the deconsolidation of Corebridge Financial Inc. AIG's segments and U.S. GAAP financial results as well as AIG's key financial metrics with respect thereto differ from those reported by Corebridge Financial. Corebridge Financial will host its own earnings call tomorrow on Friday, February 17, and will provide additional details on its results. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino. Peter Zaffino;Chairman and CEO: Good morning, and thank you for joining us to review our fourth quarter and full year 2022 results. Following my remarks, Sabra will provide more detail on certain topics, including Life and Retirement results and our path to a 10%-or-greater ROCE, and then we will take questions. Kevin Hogan and David McElroy would join us for the Q&A…

Thank you, Peter. Today, I will review net investment income, additional color on our fourth quarter and full year 2022 results in capital management and also update you on the progress we are making on our path to a 10%-plus adjusted return on common equity or ROCE. Turning to net investment income. On an APTI basis, fourth quarter net investment income was $3.0 billion, down $331 million or 10% compared to 4Q '21. Similar to trends throughout 2022, the decrease was due to lower alternative investment income, principally on private equity investments, and lower bond call and tender premiums and mortgage prepayment fees. For the full year, net investment income on an APTI basis was $11.0 billion, down $1.9 billion due to the same trends. For the quarter and the full year, we achieved higher new money reinvestment rates and rate resets from floating rate securities. In 4Q '22, net investment income on fixed maturities and mortgage and other loans rose $224 million sequentially, with 29 basis points of yield improvement, which was ahead of our 10 to 15 basis point forecast. Since second quarter of '22, when we began to bend the curve on investment yields, the increase has been 55 basis points. In 4Q '22, the average new money yield was just over 6% and about 173 basis points above sales and maturities. New money rates were roughly 157 basis points higher in General Insurance and 190 basis points higher in Life and Retirement. In addition, during the fourth quarter, we repositioned some of the General Insurance portfolio to lock in higher yields, while maintaining similar credit quality and duration. This resulted in a modest capital loss of $57 million, but we expect the portfolio to generate higher net investment income in '23 as a result. Given current…

[Operator Instructions] Our first question comes from Elyse Greenspan with Wells Fargo.

My first question is on the path to the double-digit ROE target. So the starting point is the 6.5% from '22, but I know that, that does include some contribution from L&R and will in the near term. So can you help us with what the starting point would be, if you stripped out the earnings contribution and equity of Life and Retirement? Just trying to get a sense of the ROE of the ongoing business and how the walk and that starting point changes, if you weren't including the Life and Retirement business. Peter Zaffino;Chairman and CEO: Thanks, Elyse. I would think in terms of how you should think about this, and for us to get to the 10% ROE, Sabra outlined in detail, there's really 3 major ways in which we'll get there. One is through the underwriting results, the other is expense savings. The other is sort of the capital rebalance with share repurchases and other capital management. So you should think about that as a 300 to 350 basis point target in terms of us getting to the double-digit ROCE. Of course, net investment income can benefit, and that's more of a timing issue. We've never said, even in the prior calls, that contribution from increased NOI. NII will be the one that needs to contribute to get us to the 10%, but I think -- I would think of it in that range for the different components.

Okay. And then my second question, you guys had taken up your loss trend assumption to 6.5% last quarter. I'm assuming that didn't change, but correct me if I'm wrong. And Peter, you spoke to pricing of 6%, which would put written pricing below loss trend, but you also did say, right, that rates got better as we ended the year in December. So would you expect the 6% to go above loss trend in the first quarter? Peter Zaffino;Chairman and CEO: Yes. Thank you. The first part, Elyse, we do not change our loss cost assumptions from what we had outlined in the third quarter, so 6.5% remains our view. When you look at the fourth quarter, like you said, overall, there was around 6%. But when you -- you have to take a couple of things into consideration. One is fourth quarter is our seasonally sort of lowest-sized quarter. But if you look at financial lines, like financial lines is even throughout the entire year, first quarter through fourth, so had a little bit more of a contribution to the overall rate index in the fourth quarter. Our International was very well balanced. We had strong rate in areas where we felt we needed it, which is like Property, Excess Casualty. We're driving rate as we have been for the last several years in Lexington, the Excess & Surplus Lines. And then I look at the full year in terms of North America, the Excess Casualty, Retail Property, Lexington, all getting double-digit rate increases. And so like we have been very focused on the rate above loss cost to continue to develop margin. I think that's been evidenced through the culture that we've developed in terms of underwriting excellence. We are very focused on making sure that we continue that, and it's terms and conditions and adjustments to how we structure businesses going forward. December was much stronger than the first part of the quarter. And as we look to January, that momentum is continuing. Dave, maybe just spend a minute on what happened in Financial Lines and D&O specifically?

Yes. Thank you, Peter. And thank you, Elyse. To Peter's point, we have to be careful around generalizations because we are actually hitting rate over trend in most of our big businesses. The outlier is Financial Lines. And Financial Lines, you also have to unpack a little bit and understand that excess D&O, and excess D&O in large public companies is probably driving some of the macro numbers, but it's not driving the behavior underneath. So in our Financial Lines business, we have professional liability. We have cyber. We have private company business. We have financial institutions. And all those businesses are actually getting rate over trend. But sometimes, when you aggregate up the excess public company business, it suppresses it. And in that case, Elyse, it's hard to rationalize. I'll be very frank. That's a place where, if you're primary, you're still getting rate. You're still getting flat maybe down a little bit, but you have risk-adjusted rate that's helping. In the Excess business, it's been very competitive. It's a different sort of market. And it's actually a market that I would say that cycle manage and companies that are being thoughtful need to actually wrestle with, whether that's a place they're going to trade, okay? If the rates are going down 20% to 30%, it's probably influencing some of the numbers that you look at on an aggregate basis. And inside that portfolio, your decisions are going to have to be made as to how you trade there, okay? In our case, it represents a small amount of the portfolio. But I'm conjecting that, that's actually where the commoditization of the business is going to cause a little bit of pain in the 2023, 2024 year, okay? But it's -- I do -- Peter hit it. We look at rate over trend on a very granular basis, and I think we're comfortable with what that means to our big businesses and even in Financial Lines, what it means to our subproducts there. And I think that's an important part of our story. Peter Zaffino;Chairman and CEO: Thanks, Dave. And don't forget, like the cumulative rate increases we've achieved in D&O over the last 3 years have been north of 80%. So again, it's a line, as Dave says, we're laser focused on. We're not going to chase the market down. But the cumulative rate increases and margin development hasn't been fully recognized, and we're going to look to 2023 with a lot of discipline.

Our next question comes from Paul Newsome with Piper Sandler.

There's been an enormous amount of conversation, and you obviously did a lot to add to about Excess Casualty -- or excess of loss reinsurance and -- but as a large account commercial writer, I assume you're using a lot of facultative as well. And I was curious if the comments that you're making extend into not just sort of excessive loss, but also facultative and even quota share as being as impacted as some of the other pieces of the business and how that would affect AIG. Peter Zaffino;Chairman and CEO: Thanks, Paul. We do purchase facultative in certain segments of our business, but we were really referencing the core treaties. When we look at risk appetite, when we are thinking through our ability to protect the balance sheet and where we want to structure treaties, we don't require facultative reinsurance for other segments in order to supplement the core structure. So when I was referencing in my prepared remarks, the treaty structures, we did an exceptional job. The team really focused on modeling changes, inflationary changes and where we thought capital was going to be less expensive versus more expensive. An example of that would be taking big excess of loss CAT across the world. It gets too expensive for allocation of capital, and that is something we moved away from. So we've built more vertical towers in North America and in international and Japan specifically. So I think the overall market has responded most to Property. Casualty has started to tighten up. I still think that there's ample capacity in quota shares. They may be with some tighter terms and conditions and ceding commissions or, by and large, it was placeable. And yes, facultative, I think, has become harder to place on property just based on the capital available. But for us, we don't heavily rely on facultative to deliver results. It's really our core treaty structures.

Makes sense. Can you also talk about the change in conditions in commercial lines? Obviously, AIG led the market in changing terms and conditions in commercial lines. Is the impact pretty much fully there now today at AIG? And have you seen -- are you seeing any change in the market as well for terms and conditions that's meaningful sort of outside the pricing change? Peter Zaffino;Chairman and CEO: I think we've done an exceptional job on the underwriting side with terms and conditions. I think the entire team has focused over the last several years as not only -- certainly pricing's an output, but how we structure our insurance deals, how we focus on client needs, but also how we customize terms and conditions to make sure that we have the appropriate policies and endorsements in the marketplace. I don't think it's over. It's something that's a nuance. But as we look to the property market in 2023, it's one of the areas where, when you report out rate, you really have to understand the risk-adjusted implications of rate increases. For instance, in Excess & Surplus Lines property, I expect to see higher deductibles, more wind deductibles, tighter terms and conditions. We've seen what used to be all risk, which covered all perils, now to name perils, and so you can strip out a lot of coverage in terms of when you're placing it, whether you're trying to solve for wind or quake or flood, you don't provide all of the perils. And so if you said to me, what's one of the big areas that you'll see an improvement in 2023, it will be on the terms and conditions and how we price those perils. And I think we will offer, particularly in Excess & Surplus Lines, the appropriate coverage, but we will be restrictive on terms of conditions if we don't feel we're getting paid for. So I don't think it's over.

Our next question comes from Erik Bass with Autonomous.

Just hoping you could help us think about the base NII trajectory for 2023. So we've seen a nice step up in the past couple of quarters, and you gave some guidance for the first quarter. But how much of the increase is coming from resets on floating rate assets? And how much is the tailwind from higher reinvestment yields and the portfolio changes that you're making that should continue to build throughout the year? Peter Zaffino;Chairman and CEO: Thanks, Erik. As you know, this has been an active strategy for us, particularly over the back half of 2022. I think the team has done an exceptional job. And Sabra, maybe you can just provide a little bit of insight in terms of some of the NII and the reinvestment rates.

Yes, happy to do that. And I would just note, we added a new footnote on Page 47 of the financial supplement that gives you the walk of the yield on fixed maturity securities and loans. So you can see the quarter-to-quarter improvement in the portfolio yield on that portfolio, which basically begin to bend the curve in the second quarter for a step-up in yields. And we also, there, give you the impact of the other yield enhancements, which year-over-year was about a $400 million headwind for AIG consolidated NII. But to go back to your question about the path forward, and I'll put alternatives to the side. I mean, those are obviously volatile quarter-to-quarter. But like I said, that was 340 basis points of headwind year-over-year. 2021 was an exceptional year for alternative returns, whereas full year 2022 was about a 5.6% yield. So more in line with our average assumption. But to go back, so in the quarter, as I said, the new portfolio yield or the new money rates were just above 6% and about 173 basis points over the assets going forward. And if you look at in the quarter, fourth quarter '22 grew about $160 million just due to the rate resets and about 14 basis points from the pickup in yield on the portfolio. Now in 2023, the impact is going to really depend on the path and timing of market rates, fed rate hikes, changes in credit spreads as well as the movement in the yield curve. As you know, the GI has got a shorter duration than L&R. And right now, we've got an inverted curve. So depending on where you're investing, and you're going to have different impacts on your yield. So what I would just kind of point you…

That's helpful. And then secondly, I just was hoping you could help us think about the trajectory for the other operations loss both before and after the Corebridge separation. So it sounds like GOE there should go up in 2023 because of some of the Corebridge expenses, maybe that's offset a little bit by interest savings. But then you'll get a big step down when you deconsolidate Corebridge, when the $300 million comes out. Is that the right way to think about it? Peter Zaffino;Chairman and CEO: Yes, Erik, it is. We -- in Other Operations, think about it in a couple of components. I think you've outlined most of them, is that upon deconsolidation, we would have $300 million or there thereabouts go with Corebridge. I mean, there could be some stair step up. I mean, it's hard in 2023 to look at each quarter because we're building Corebridge, as we've talked about before, as a stand-alone public company. So those amounts will be in each quarter, depending on the progress that we're making. So think about the $300 million. I think we'll have savings in Other Operations throughout the year separate from that in the $100 million to $200 million range. And then as we get to the future target operating model, we've given guidance from the past that we anticipate that we'll get around $500 million, not out of all -- that will not all come out of Other Operations. It come out of the combination of what is General Insurance in the parent company today. But that will take deconsolidation. It will take us to get to the target operating model. But I think in the short run, you should think about Corebridge's $300 million, and that between $100 million to $200 million of other reductions in Other Ops is how I would think about it in 2023.

Our next question comes from Alex Scott with Goldman Sachs.

First one I had is just on net premium written growth in General Insurance. I mean we saw it slow in 2022, particularly towards the back end of the year. And it sounds pretty interesting, some of the opportunities you have, both in Validus Re and Lexington. But I just wanted to get sort of a high level perspective from you on what the strategy has been to sort of slow some of that premium growth in the back half of this year. And how you see that potentially inflecting as we go into 2023? Peter Zaffino;Chairman and CEO: Thank you for the question. You have to really look at the full year, I believe, in terms of showing the progress of what we've done as a company. First and foremost, again, I'll mention it again, which is a culture of underwriting excellence. When we look at Commercial with a 340 basis point improvement in the fourth quarter in terms of its action year combined ratio, ex CATs, 440 for the year, I mean that's substantial progress. I mean, we made enormous improvements in profitability. And so we've shaped the portfolio the way we like it, where again, the fourth quarter, not all roads lead to Financial Lines. But again, it was just a disproportionate amount of premium relative to the overall size. Fourth quarter's small. We saw real good growth in the businesses that we want to grow in, which is in the Excess & Surplus Lines, Global Specialty. But as we've been talking about, I hope it's evidenced through what we did at 1/1, which is why we wanted to put it in the prepared remarks, which is, I kept talking about taking aggregate down where we didn't think we were getting the appropriate risk-adjusted returns. But when…

That's really helpful. Second one I had is more specifically on Casualty -- Excess Casualty pricing. We've heard some peers kind of talk about pricing and expressed the need for it to reaccelerate. And I think some investors seem to be getting a little more cautious about the potential for continued deceleration there. I felt like your prepared remarks were a little more optimistic. I'd just be interested in your perspective on the portfolio at AIG, what you're seeing in the market and where you'd expect things to go there. Peter Zaffino;Chairman and CEO: We watch it carefully. I mean Excess Casualty, we're still getting very strong rate we have for the last couple of years. And that didn't stop in the fourth quarter. My prepared remarks were really just focused on, I don't think the market that we entered in the fourth quarter is the market that we're in. There's been a lot of changes over the last 60 days. And like every other line of business, it needs to stand on its own. It needs to develop margin. We want to be conservative in our position and making certain that the underwriting terms and conditions are appropriate. But we're watching it carefully. I haven't seen a substantial downturn in terms of pricing. It's been right in the sort of same range for, as I said, the last 6 quarters. And it's something that we're going to watch very carefully in 2023. Okay. We greatly appreciate the engagement and all the questions and appreciate the interest. And so I just wish everybody a great day, and thank you for being here.

Ladies and gentlemen, this concludes your conference for today. Thank you for your participation. You may now disconnect.