Good day, and welcome to AIG's First Quarter 2023 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, Michelle, 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 provided 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. The 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 aig.com. Finally, today's remarks will include 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. 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 earnings call on Tuesday, May 9. 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 first quarter financial results. Following my remarks, Sabra will provide more financial detail in the quarter, and then we will take questions. Kevin Hogan and David McElroy will be available for the Q&A portion of the call. As you saw in our press release, we reported an excellent start to the year. We continue to make meaningful progress across AIG and achieve important milestones, even in the face of ongoing complexity in…

Thank you, Peter. This morning, I will cover 2 accounting changes, provide more details on first quarter results and give an overview of Commercial Mortgage Loans. First, the 1-month lag in financial reporting for the General Insurance International segment was eliminated last quarter. The lag elimination did not impact earnings significantly, but it did affect premiums written comparisons to 2022. Details on the premium impacts are in the financial supplement on Page 26. Second, we adopted the change in accounting standard for certain long-duration products, commonly called LDTI. Yesterday, 8-Ks were filed that provide restated prior year financial results for AIG and Corebridge. The cumulative effect at year-end 2022 was an increase of $1.5 billion to adjusted equity and an increase of $1.0 billion to total shareholders' equity. This impact is consistent with our previous guidance. As a reminder, this is a GAAP accounting change only and does not impact statutory results, insurance company cash flows or economic returns. Going forward, we expect a modest run rate increase in L&R APTI and less market and mortality-driven volatility from the change in accounting standards. Turning to the quarter, as Peter mentioned, AIG's first quarter adjusted after-tax income was $1.2 billion or $1.63 per diluted share, up 9% from last year on a restated basis and up 25% from originally reported. Key trends in the quarter and similar to the last 3 quarters were higher GI underwriting results and higher income from fixed maturities and loans and lower alternative investment income. Compared to the prior year quarter, there was a higher impact from noncontrolling interest from the Corebridge IPO in 3Q '22. Consolidated net investment income on an APTI basis was $3.1 billion. Similar to the fourth quarter, income from fixed maturities and loans in both GI and L&R rose sequentially and…

[Operator Instructions] Our first question comes from Meyer Shields with KBW.

Peter, I wanted to address one aspect of growth. And you covered, I think, a ton of detail, which is helpful. But the net-to-gross ratio didn't change. And I would have thought that based on the current dynamics in the property cat market and much improved performance on a lot of casualty lines that have been heavily reinsured, that we would see AIG retaining more of its gross premium. I was hoping you could talk through that.

Meyer, this is Quentin. I think we're having a little audio technical difficulties. So if you can bear with us for just one moment, we'll be back in just 1 second. [Technical Difficulty] Peter Zaffino;Chairman and CEO: Can you hear me now?

Yes. You're coming through loud and clear, Peter. Meyer, do you want to just repeat your question? Peter Zaffino;Chairman and CEO: I heard the questions, Quentin. Sorry, I actually had a good answer too. I just was on -- not a microphone that worked. So Meyer, back to your question is that we had -- you have to look at the portfolio composition to be able to answer the question. And Validus Re obviously had meaningful growth on gross and net during the quarter. And so, therefore, it's hard to look at the cessions year-over-year when you're having a retro program that fits the portfolio that you're underwriting. We've never had a strategy that we're going to time the market with our reinsurance partners. They've always been strategic. They've always been supportive. They've always deployed the capital in support of AIG. And so we were not going to do anything, other than to try to get the appropriate terms and conditions with them and have not really changed much of our risk appetite in terms of taking that. And I think that has generated a terrific result for us on net premium written, but also on the combined ratios. So I think I wouldn't look into just one quarter in terms of discussions. And as I said, we have a lot in terms of the guidance I've given on PCG, which we will still assume a lot of risk. And I guess -- let's just play it out for the full year. We're not looking to do anything materially different.

Okay. Perfect. That's helpful. And I don't know if this is even a good question. But does the changing approach to North American Personal Lines have any implications for the International Personal segment? Peter Zaffino;Chairman and CEO: It really doesn't, Meyer. I mean they're really distinct businesses. I mean, certainly, our Travel and Warranty have platforms that are global and that give us capabilities across the world. But as you know, Private Client Group, in particular in the U.S., is a unique asset. Again, the guidance I gave in the prepared remarks, it's one that we believe we will grow the net premium written because we don't believe we need the quota shares anymore after the excellent job the team has done in repositioning and re-underwriting that portfolio. We have substantially less cat in aggregates that we once did. So I think that's something that will be a little different in terms of -- if you look at International. While International, we have a terrific Personal Insurance business. Some of it was affected by COVID. It's growing back, between Japan's Personal Insurance, our Global Accident & Health, which is predominantly International as well as our Travel and Warranty, which are rebounding in terms of growth. So I don't think that there's a lot of correlation between International and North America. But both we believe in and we're investing in, and you'll continue to see improvement. It will just be at a different pace because of the anomaly of the high net worth business.

Our next question comes from Paul Newsome with Piper Sandler.

I also had a couple of questions on the Personal Lines business, sort of micro and macro. My understanding, and tell me if I'm wrong, is that much of the change to the MGA is scale related. And does that mean that we should expect the expense ratio to fall over time as the MGA gain speed? And maybe just correct me if I'm wrong, does that shift around how we think about sort of the relationship between expenses and losses in that business over time, not necessarily next quarter, but over time? Peter Zaffino;Chairman and CEO: Paul, let me make sure I understand the question. I mean are you asking in terms of what's going to happen to the expense ratios over time as we start to reposition and grow the business?

Yes, I am. Peter Zaffino;Chairman and CEO: Okay, thank you. This year, as I said in my prepared remarks, we are going to see a lot more net premium written. The reason for that is as we were repositioning the business over the last 2 years, we bought very low excess of loss catastrophe reinsurance. We bought a substantial quota share. We ceded a significant amount of Syndicate 2019, which also had retrocession behind that in a variety of forms. And so the net premium written was not that large as you've seen. And so part of the repositioning with Stone Point and having an MGA, one is that we think there's tremendous growth opportunities that exist in the business with other capital providers and believe that how we have repositioned the business through rate increases and disciplined underwriting on the admitted side, and then also the non-admitted became an option for us to have flexibility in form and rate. And so that was very positive for us in terms of repositioning the business. As we look to 2023 and beyond, we believe that the business is going to perform much better, much more profitable. And we don't need to cede off as much on the quota share. So as a result, in this particular calendar year, what you'll see is a lot of net premium written growth, improved loss ratios and both the expense ratio on an acquisition basis as well as the general operating expenses will improve. And so the overall combined ratio will improve dramatically. We're not going to be where we want to be in 2023, but believe by the time we hit 2024, those results will continue to improve.

That's great. And maybe a big picture talking about a little bit more of the big picture cat exposures. I mean it looks like -- I'm just looking at the General Insurance overall, the cat load has pretty much stabilized, but that's been a huge part of the improvement over time. Do you think we're pretty much done? And again, I'm not talking about next quarter. I'm talking about years to come, from making this portfolio of businesses have the cat load that you want. I mean is this sort of the run rate we should be thinking about in the long term? Peter Zaffino;Chairman and CEO: The team has done an incredible job of underwriting the Property line of business across all of AIG over multiple years. Our ability to reposition that portfolio, we talk a lot about aggregates, we talk a lot about reductions and we talked a lot about where we want to grow. I think we were in a terrific place as we enter 2023 from that hard work. And when I look at where we decided to grow, we constantly talk about where the best risk-adjusted returns available in the marketplace, where is our capacity most valued and where we value for clients. So when I look at where we've grown, Validus Re certainly was a big part of that. Lexington has been hitting it out of the park on just about every aspect, whether it's top line growth, retention, new business, rate, like how they actually are more relevant in the marketplace. Working with Dave McElroy and the team, we've taken back some of the Retail Property. But then in other parts of the world, we've taken it back up. So like we've repositioned the portfolio and then have coupled that with the reinsurance to reflect the portfolio it is today. So if I summarize what happened at 1/1 is that we saw terrific opportunities for Validus Re to grow. So we took the PMLs up there a little bit. We dramatically took the PMLs down in the Private Client Group substantially. Again, I gave the return period, that every return period from 1 in 20 to 1 in 1,000 was substantially reduced on all peril and, in particular, on wildfire. And we actually took the commercial book. Despite our growth in Lexington and Global Specialty, we took those PMLs down as well. So overall, when you look at the increased PMLs in the first quarter of Validus Re and the reductions that we had in the Commercial business and the Personal business, our overall PMLs are down year-over-year. I think that's a tremendous outcome when you look at where we're growing, how we're driving risk-adjusted returns, how we couple that with reinsurance and our overall net PMLs are down at all the critical return periods. So I think all of that's been purposeful. The team has done an unbelievable job executing.

Our next question comes from Michael Ward with Citi.

I was hoping you could discuss how you think about your excess capital just given the macro volatility. You raised some debt, it sounds like, for some prudent liquidity and for buybacks. I guess given the share price, I guess, the buyback could have been a little bit higher. So just wondering from here, should we expect that you'll sort of hold a bit more capital against uncertainty? Peter Zaffino;Chairman and CEO: Thank you. We were very disciplined in terms of the $750 million debt raise. Again, I'm going to let Sabra comment a little bit more on liquidity and capital. But when I look at all the different components of our capital strategy, I think we executed incredibly well in the first quarter. I mean our primary focus is to make sure that we have the appropriate capital levels in the insurance company subsidiaries for growth, and so it gave us tremendous opportunities at 1/1 as it will give us for the entire year. Very focused on our leverage ratios and being at the lower end just to give us financial flexibility. And of course, I've been leading everybody every quarter saying, we're looking at the dividend and to have a 12.5% dividend increase not only helps complete some of the capital management strategy we've been talking about, but also shows the confidence that we have on our earnings and how we're managing liquidity. But I'll have Sabra comment a little bit on the parent liquidity and our approach to capital. And it is proven to be conservative at this time. Sabra?

Thank you, Peter. Yes. And I would just comment that, first of all, we look at our capitalization, both in base and stress scenarios. I mean this is just what I would call basic risk management procedures that we do. And we're very comfortable with our balance sheet even in the current environment where, obviously, there's a lot of stress on the system with the debt ceiling and the rest. From where we sit today, we have very strong robust capital and liquidity. And as Peter noted, the Board was comfortable raising the dividend for the first time in many, many years because of the significant turnaround of GI underwriting results over the past 5 years. So as we sit here today, yes, we'll continue to evaluate our financial flexibility for additional share repurchases, keeping in mind that our first goal is to maintain a strong balance sheet that can withstand turbulent times.

Very helpful. I guess maybe on the Crop deal, I guess, I was just wondering are there -- if you could maybe point to any other sort of targeted units where you could do sort of similar value unlocking deals there as you sort of work towards margin improvement and simplification. Peter Zaffino;Chairman and CEO: Great. Thank you. We're always looking at the portfolio and looking at areas where we can add, where we can improve the overall structure of AIG and looking at the different parts of the world that we compete in. I think Crop is a little bit anomalous just because we really do believe it's a very good business, but you know how it works, which is driven by commodity prices and yields. And I think that having scale is really important. While the top line that we publish on a gross and net basis is significant, that's gone up 40%, 50%, if not more, over the past several years based on those components. And we believe that Crop Risk Services, in order for it to achieve its ultimate potential that being part of a bigger enterprise and one that valued it like Great American, was the prudent approach for us at this time. And so that was something that was specific to that business. It was specific to how we look to strategically position AIG for the future and also making certain that with Crop Risk Services, it had a great opportunity to scale and realize this potential. So I feel like we really found a very good partner and that's really what drove the outcome for CRS.

Our next question comes from Alex Scott with Goldman Sachs.

First one I had for you is on the separation at Corebridge. I know you mentioned the base case is still secondaries, but I think you also mentioned that you were considering some alternatives. So I just wanted to see if you could extrapolate on that a bit at all. What kind of alternatives could you look towards? And how could some of those things potentially improve things for shareholders? Peter Zaffino;Chairman and CEO: Yes. Thanks, Alex. I'll try to expand a bit on it. Because as you can imagine, there's not a lot of more detail that I can really share beyond my prepared remarks. We do believe the secondary is the preferred path. But obviously, it's subject to market conditions as we saw in the first quarter, but we're prepared to go in the second quarter. Our objective has not changed, which is for AIG to reduce its ownership stake in Corebridge over time. And so I think it's prudent, looking at a variety of different options to make sure that we're driving value for shareholders and provide a path that will recognize the value of Corebridge. Corebridge has done a terrific job since we've announced that we were going to commence upon doing an IPO, getting themselves positioned to be an independent public company and the stock was trading at a deep discount in the first quarter. I mean one of the alternatives, I don't think we're going to go much beyond this, was what we announced on Laya Healthcare. And so making sure we're sticking to the core business of Corebridge. And we'll just give you updates as the weeks and over the next month progresses. But we're prepared and are very excited about hopefully getting the secondary done in the second quarter.

Got it. Follow-up I had is on corporate expenses. I think it was the first time you guys gave a bit more explicit guidance around where corporate expenses for RemainCo could shake out at that 1% to 1.5% premiums. And I just wanted to make sure I understood some of the mechanics. I mean when I think about that level, I mean, is that what I should expect in sort of Corporate GOE, overall Corporate costs? I mean how do I think about that? And then just a technical kind of question. The investment that I think you mentioned leading up to that, will that go through operating and also be reflected in Corporate? Peter Zaffino;Chairman and CEO: Yes. So we try to provide as much detail as we could on the expense savings. Certainly, let me start with AIG 200 because we still have more to earn through on AIG 200 savings in 2023 and 2024. So over 50% of that will be earned in mostly through the second and through fourth quarter of 2023. We have begun to separate Corebridge. And -- but upon deconsolidation, approximately $300 million of the AIG Corporate expenses will move to Life and Retirement. So that's another variable that you need to consider. We also gave guidance as we're working through our future state business model, $250 million to $350 million of parent expenses. And then the remaining will be worked through to fit the business model in terms of what we're designing for the future of AIG. We want to make sure that we have a lean model that's not synonymous with expense cutting, but it is how we're going to be in each market, how we face off with our clients and our distribution partners to maximize growth and all the…

Our next question comes from Brian Meredith with UBS.

Peter, you gave us a lot of detail on the growth in the Commercial Lines. There's, obviously, very strong growth. I'm trying to just dumb it down a little bit here. If we look at what the growth is X, let's call it, Validus Re crop, what would have looked like? And what was the tailwind from Validus Re crop just from the Commercial Lines growth on a year-over-year basis? And the reason I'm asking is, those are obviously very big first quarter premium numbers. So I just want to make sure I'm not extrapolating that for the remainder of the year. Peter Zaffino;Chairman and CEO: Thanks, Brian. Certainly, Validus contributed a meaningful amount to the growth. But look, we bought a lot of retro. It's the first quarter. It's not all property. So each quarter is a bit different in terms of not being able to straight line it. Crop Risk Services had low single-digit growth. So that was not a contributor at all in terms of net premium written. We had very strong, as I said, growth in our Specialty business, in Lexington, in our Property, offset a little bit by Financial Lines. But I put the guidance in there because I feel very confident that we're going to have strong growth throughout the year. Even though the quarters are a little bit different, businesses like Europe is heavy 1/1. And we start to have sort of different mix of business over the second, third and fourth. But I feel seeing the pipeline, looking at how you grow, I mean, the first thing I would look at is what's the client retention and how is the new business, what's happening with rate and are we growing in the businesses that we want to. And I think we are checking all the boxes here and see that those businesses have more opportunity in the future, not less. And so I think the growth that you saw in the first quarter, obviously, there's a mix of business, but I would expect to see similar growth throughout the rest of the year.

Okay. Very helpful. And then second question, just curious, some other companies are talking about how the Commercial Property markets are even further firming up in the second quarter. There's more business available. Are you seeing the same kind of dynamics or things actually continuing to improve here in the Commercial Property markets? Peter Zaffino;Chairman and CEO: Yes. Thanks, Brian. Yes, we are seeing that. I mean, again, it's early in the second quarter, but views on April. And as we look to the rest of the second quarter, we're seeing Property continue to firm up and getting stronger than it was in the first quarter. So that's something that we're trying to be focused on clients, making sure we're driving value and we have a lot of capital to deploy. So we expect to be trading actively in the second quarter. Okay. Well, thank you, everybody. Sorry for the 1-minute hiccup on the microphone, but greatly appreciate you dialing in, and I wish everybody a great day. Thank you.

Thank you. This does conclude the program. You may now disconnect. Everyone, have a great day.