Good day, and welcome to AIG's Fourth 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, 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 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, circumstances or management's estimates or opinions should change. Today's remarks may also 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. Additionally, note that 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 Thursday, February 15. Finally, today's remarks, as they relate to net premiums written in General Insurance, are presented on a comparable basis, which reflects year-over-year comparison on a constant dollar basis adjusted for the international lag elimination, the sale of Crop Risk Services and the sale of Validus Re. Please refer to the footnote on Page 26 of the fourth quarter financial supplement for prior period results for the Crop business and Validus Re. 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 today to review our…

Thank you, Peter. This morning, I will provide more detail on AIG's fourth quarter results. But first, as we are getting closer to Corebridge deconsolidation, I would like to start with an illustrative pro forma. With AIG's current ownership of Corebridge at 52%, the next transaction may likely result in deconsolidation. Today, Corebridge is consolidated in both AIG's balance sheet and income statement with offsets of noncontrolling interest for the portion that AIG does not own. You can see those adjustments in the financial supplement on Pages 8 and 11. When we deconsolidate, we will report Corebridge as an investment with dividends reported in net investment income and Corebridge shares included in parent investments. Corebridge's balance sheet and income statement will no longer be in our financials. If we were able to deconsolidate Corebridge now, accounting rules require us to fair value their assets and liabilities and recognize the net difference between that valuation and the current GAAP carrying value in AIG's equity. That process also includes some changes primarily driven by differences in basis and deconsolidation of variable investment entities. The example I will provide is a hypothetical pro forma view. Please remember that there are many factors, and each one impacts the output. This view builds on the remarks I provided last quarter about pro forma adjusted shareholders' equity. For simplicity, in this example, we used Corebridge's current stock price as a proxy for fair value. But the process is more complicated than that and is more dependent on interest rates than stock price as the investment portfolio has to be valued on the day of deconsolidation, which will change based on interest rates. As a very high-level illustration, as of year-end, the fair value of Corebridge's net assets and liabilities was about $2 billion higher than the…

[Operator Instructions] Our first question comes from Michael Zaremski with BMO Capital Markets.

Maybe first on the expense ratio. I appreciate the color, Peter, you gave us on the continued improvement. Anything -- looks like this quarter, specifically, though, it took -- it was a bit higher than expected. Anything we should be thinking about? Or I don't know, if it's profit share, given the excellent loss ratio or just anything, any noise in there or seasonality? Peter Zaffino;Chairman and CEO: Thanks, Mike. We outlined in my script that the business has been taking a lot of additional costs. Think about cyber and usage on the cloud. And so that might have been held centrally in the past. That has now been put into the business. And so you see that they're absorbing most of it, but there is some timing on that. Also in Personal Insurance, there is a lot of noise in the quarter. There's some onetime true-up adjustments. There's also some profit sharing, as you mentioned, in some of our Personal Insurance businesses. And so -- and there was also some catch-up on some of the reinsurance on earned premium. So I'm not concerned at all about the uptick in expenses. It was very nominal. When I look at what the business has actually absorbed in terms of increased costs year-over-year, they've really built capacity to be able to invest in the future. And the fourth quarter reflected that, but there was a little bit of noise as well, particularly on the Personal Insurance side.

Okay. Great. And then my final follow-up is on the -- specifically on the accident year loss ratio. You've -- the Validus is property-centric, and it's going to be kind of fully out of the numbers next quarter. You talked about nonrenewing some property throughout the year. And I understand Financial Lines has got a lot of pricing, but Financial Lines pricing isn't great trailing 12-month basis. So just on the underlying loss ratio, given just all the dynamics, should we be thinking about any material changes to the underlying loss ratio as the year progresses, given the moving parts? Peter Zaffino;Chairman and CEO: I don't think so. I think the accident year loss ratio that we finished the year is what I would expect in 2024. Like you said, there's always a mix of business changes. There's always a little bit of noise. There could be some shift in composition. As you mentioned, property, we think we have tremendous opportunities there based on having 5 or 6 entry points across the world in terms of getting the best risk-adjusted returns. When I look at what we've done in property over the last 5 years, we've gone from combined ratios in North America that are well north of 130 combined into the 70s and 80s now. So I think we have a really good platform. We're able to scale up businesses when we see opportunities. But I would think absent big mix of business changes, I would not expect any changes in the loss ratio. And I signaled on the call that the remediation is largely behind us. I mean, again, you're always going to be reunderwriting, but large programs or portions of the business in commercial, we really like what we have, and I think that there's real good opportunities for growth.

Our next question comes from Meyer Shields with KBW.

Great. One quick question just to make sure I understand it. So you talked about pricing assumptions for casualty, assuming loss trends of either high single digits or low teens. Did that match the loss trends embedded in the reserves? Peter Zaffino;Chairman and CEO: Sabra, do you want to talk about the reserves commensurate to the increase in premium and then -- sorry, an increase in rate change, particularly on excess?

Yes. So when we've -- and we've talked about it in the past, we've taken a proactive approach to try and to react quickly to bad news that we see in trends. And as you know, even back in 2017, we moved to increase the reserves on casualty lines. Our underlying assumptions for casualty loss trend is in the 10% range. It does vary between primary and excess. Our book historically has been a little bit more balanced towards excess, and that's why you can see some of the changes in the loss ratios accident year by accident year. I would note that we do our deeper dive on the casualty lines largely in the third quarter. There are some that are in the second quarter, and we did complete those reserves this year without any meaningful changes in the reserves. Peter Zaffino;Chairman and CEO: So another observation, Meyer, on that is that the rates as we got to the back half of the year in Casualty, particularly in Excess Casualty, started to accelerate into double digits. And also not that this is a bellwether because there's different mix of business, but our casualty submissions in Lexington in the fourth quarter were up 100%, which just means it's getting harder to get casualty placements done in the admitted market. Pricing is going up driven by rate, terms of conditions are being tightened and there's more activity in E&S.

Okay. Fantastic. That's very helpful. Second question, I guess, maybe jumping off from that. I guess I'm a little surprised that there's still, if I understand correctly, the same level of proportional sessions on North American casualty despite the fact that overall profitability has gotten so much better and higher interest rates. And I was hoping you could take us through your thinking on that. Peter Zaffino;Chairman and CEO: Sure. Look, our casualty placements have evolved over time to reflect the portfolio, the gross limit deployment. And if I could take you back to even 2016 and '17 where we had quota shares before we arrived where we had a 50% quota share on Primary Casualty and then we had a 37.5% placement on Excess Casualty. That's just continued to evolve as we got into 2018, where we bought a large excess of loss placements for our worldwide Casualty portfolio for 75 ex of 25. And then at the end of 2018, we bought a 50% quota share for our casualty portfolio within the United States. And the reason why I just give you that as a baseline is we've changed, evolved. We've had reinsurance in place since 2016. But when you look at what we place on the quota share today, it's basically 20%. So we've taken that down while we've improved ceding commissions over 800 basis points from the original placement to 20% from north of 50. So I think we have been recognizing that we don't need to do as much proportional. But there's a balance in those placements between the excess and the quota share partnerships with reinsurers. They like a balance between the excess of loss and quota share in terms of our underwriting and feel very comfortable that, that's a good amount to cede off for looking at our overall casualty portfolio.

Our next question comes from Elyse Greenspan with Wells Fargo.

My first question was on the equity that you laid out, Sabra. So $33 billion pro forma adjusted equity. And then I believe you said parent liquidity would come on top of that. So can you just give us a sense of once you're through deconsolidation, what type of liquidity you would like to have in parent? Because I'm assuming it would be $33 billion plus the parent liquidity would be the equity that we should consider in reference to the double-digit plus ROCE target. Peter Zaffino;Chairman and CEO: Thanks, Elyse. I'll turn it over to Sabra in 2 seconds. But I just want to caution us that we tried to outline what we expect shareholders' equity with a variety of different variables, but it was all pro forma. So I think Sabra can answer the question sort of technically as to how we should be looking about our capital relative to how we get to the 10% ROCE. But I just don't want to go into too many more variables because that was a pro forma that had a lot of assumptions. Sabra?

Yes, certainly. Look, we have a framework around our liquidity position. And clearly, given the timing of the Corebridge secondaries and the Validus sale in the fourth quarter, parent liquidity was at very attractive and high levels at year-end. The way we think of it in a normal framework is we look at what our forward holding company needs are. So think about common dividend payments of roughly $1 billion a year. AIG-only interest expense, roughly $500 million a year. And then parent expenses, which as we've talked about, we're focused on getting those down to 1% to 1.5% of NPE range. So that's what we think about in terms of a normal liquidity position, which is lower, obviously, than where we ended the year.

And then my second question, appreciate all the color on the call on premium growth, right, I think it was around 9% in the quarter kind of ex Validus and Crop. And so as we think about the moving pieces and just your view of price, loss trend, et cetera, would you expect top line growth kind of on an adjusted basis to be within that range in '24? Are there other things that we should consider? Peter Zaffino;Chairman and CEO: Well, when you take out -- again, there's a lot of moving pieces, but like you take out Validus, Crop Risk Services, and so we have a baseline. And then when we look at our commercial portfolio -- I look at the fundamentals, Elyse, in terms of how are we growing the business. And we gave you highlights in the fourth quarter about our new business, which was simply terrific, and that momentum continues. Our retentions have been fantastic. And so again, it's a portfolio that we have done such a great job to get to a place where we really like and find opportunities for stability and more growth. Agree on the rate. I mean, again, the fourth quarter was just a moment, but we would expect Financial Lines in 2024 not to keep up at the same pace on excess. We'll see as we get into the market, but really like the opportunities in our core businesses to drive growth. Lexington, I know there's been a lot of discussion in this quarter around is excess and surplus lines slowing down, things going back to the admitted. There's no evidence to suggest that's true. Again, submission count is significantly up. And it's not just property. Property, if I looked at the fourth quarter, was the lowest submission count growth, and that was up over 30%. As I said, property's around 30%, casualty was up over 100%, and health care was around 50%. So there's a lot more opportunity to continue to grow in excess and surplus lines. And you know what, the property market, you get to the second quarter and there is your opportunity. So like we have built a reinsurance structure. We've built a gross portfolio that we can flex depending on market conditions. I mentioned Global Specialty. We think there's growth opportunities there. We think there's growth opportunities in our Personal Insurance business. So we're cautious but optimistic that the growth rate that you outlined in the high single digits is going to be achieved. But again, we have to be in the year, and we'll give you updates every quarter, but we're optimistic.

Our next question comes from Mike Ward with Citi.

Maybe kind of a similar question, but specifically on International. I think rate is a little below loss cost. So I was just wondering if you have any commentary on how you see the top line growth there playing out. Peter Zaffino;Chairman and CEO: Mike, thanks for the question. If I look at International on the rate side, just a reminder that we do rate on gross premium written, not net. And so like as you take that from the portfolio, there's a heavy weighting our Specialty business in the fourth quarter. And the Specialty business does have a lot of quota shares and has a terrific reinsurance partnership. But it's almost 50% of the business, roughly between 40 to 50 in the quarter. And so Specialty while had good rate increase in marine, political risk had a weighting on rate in the quarter as well as Financial Lines. Financial Line is about 20% of the gross premium written in the quarter and having a negative that just weights the overall rate environment. But we had very strong rate in property. We had very good rate, as I mentioned in my prepared remarks, of 8% in marine. And so yes, the overall index was at or perhaps slightly below loss cost trend, but it's not something we're concerned about. The other thing too, in Specialty, you should realize is that December 1 is when all aviation renews. And so that was low single digits, again, weighting on it. But it's mix of business, it's gross, and why I say gross is that when you take the gross to net for our Specialty business, it's basically 50% net premium written to gross. And so like we put that in the math in terms of our ceding commissions and profitability of the portfolio. But overall, we were pleased and think that there's opportunities to improve that in 2024.

And then maybe just on the adverse PYD in Russia, Ukraine. Just is that related to aviation? And is that just accident year '22? Because I think there was some adverse in other -- '20 and '19. Peter Zaffino;Chairman and CEO: Sabra, do you want to provide a little bit of update in terms of how we got to the adverse?

Sure. And I'll just start by overall. As I mentioned, we did have some favorable prior year development from older catastrophe years. So those were basically in years 2018 through 2020. If you look at the more recent accident years, as we indicated, we did put up $75 million of additional reserves related to Russia- and Ukraine-related claims. We've been evaluating our exposure for some time. And based on the analysis where we are at the end of the year, we felt it was appropriate to increase our reserves for the quarter. But I would also note that in the 2022 accident year, we did have some adverse development on winter storm Elliott, which was at the very tail end of the fourth quarter of 2022. And then in the older accident years, as I said in General, we netted to a favorable reserve development. But we did have some adverse development in the 2018 and 2019 accident years on some mergers and acquisitions-related exposures.

Our next question comes from Brian Meredith with UBS.

First question, I'm just curious, as we look at this, you're getting close to the 600 million kind of share count. As we think about that and the use of proceeds from Corebridge, are you willing to go kind of meaningfully below that? And if not, what is the other kind of potential uses of capital here that you're thinking about to mitigate dilution from selling down your remaining interest in Corebridge? Peter Zaffino;Chairman and CEO: Thank you, Brian. It's a good question. It's a little leading, but we had outlined the capital management strategy for the first 6 months, and that gets us below the [ 650 million ] share count at a base assumption of a stock price around where we are now. And so there's a few variables that could accelerate that or slow it down depending on market conditions and share price. But we know we have the liquidity, and we just wanted to outline what we thought we would do within the first 6 months. The next is dependent upon when we do a secondary sell-down, which I would expect before the end of the second quarter another sell-down, which gives us more liquidity. And the primary focus is going to be on share repurchase and dividend payment and believe that we can then get by the end of the year down to the lower end of the range or the 600 million. Once we're closer to that, we feel like we've made enormous progress on all the elements of our capital management strategy. It has been very balanced and believe we would have to give guidance after that in terms of what we intend to do. But I kind of want to get to the range first, in the 600 million to 650 million, and then get to the lower end of the range with proceeds, and then we would provide additional guidance.

Great. That's helpful. And then, Peter, I just want to chat briefly on the Financial Lines business. And it seems like everybody is cutting Financial Lines. I'm just kind of wondering like who is actually running the business? And do we think we're getting closer to a bottom here? And do you think that's still a significant headwind to 2024 premium growth? Peter Zaffino;Chairman and CEO: Thank you, Brian, for the question. And I've been trying to find a way to bring in McElroy to close it out. So Dave, why don't you give Brian some insight, and then we'll send it back to me, and we'll finish up.

Thank you, Brian, and thank you, Peter. The -- yes, honestly, Brian, you see the weighting of the Financial Lines in our portfolio. It's a bit of an outside influence. But we've also gone through the year, and I think we trade the market we're in, not the market we hope for. So the -- I think we've been prudent around letting excess underpriced business go. I think we've been good about holding on to our primary business. So I think that actually really has held up well. I'd also think that it's always worth understanding there's a lot of other products in the portfolio. And they've held up well, whether that's private company business or professional indemnity or the fidelity businesses. Those are strong, and we actually anticipate those will continue to hold up in '24, okay? The seminal event is 2023 showed up with different securities class action experience than the '20 to '22 cohort here. It actually looks more like '16 to '19. The question will be whether the industry reacts to that, okay? Much more severity flowing through that year. It obviously exposes the verticality of loss. I do think it's put a little bit of a floor on the market going into 2024. We're seeing that. We're seeing that now. There's definitely going to be more control in primary, but I'm not going to be -- we won't sit on the front cover of CNBC -- or sitting in the middle of CNBC, but we like the business. We like the pricing of the business. And we also think that it's tethered to the economy. As that shows up, that will also help with new business opportunities that we see both in M&A, both in IPOs and both in structured. So it is the first time in 3 years that I might give it a little bit of optimism. Peter? Peter Zaffino;Chairman and CEO: Thanks, Dave. Thank you very much, and thanks, Brian. Thank you, everyone, for coming to the earnings call today and greatly appreciate the engagement. And I want to thank all of our colleagues around the world for all they've done to progress the strategic progress that we've made and just have delivered tremendous results. So everybody, have a great day, and thank you.

Thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.