Good day, and welcome to AIG's Third Quarter 2024 Financial Results Conference Call. This conference is being recorded. Now at this time, I'd 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 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. 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 aig.com. Additionally, note that following the deconsolidation of Corebridge Financial on June 9, 2024, the historical results of Corebridge for all periods presented are reflected in AIG's condensed consolidated financial statements as discontinued operations in accordance with U.S. GAAP. Finally, today's remarks related to General Insurance results, including key metrics such as net premiums written, underwriting income, margin and net investment income are presented on a comparable basis, which reflects year-over-year comparisons on a constant dollar basis as applicable and adjusted to the sale of Crop Risk Services and the sale of Validus Re. We believe this presentation provides the most useful view of General Insurance results and the go-forward business in light of the substantial changes to the portfolio since 2023. Please refer to Pages 26 through 28 of the earnings presentation for reconciliations of such metrics reported on a comparable basis. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino.

Good morning and thank you for joining us today to review our third quarter 2024 financial results. Following my remarks, Sabra will provide more detail on the quarter. Then our North America and international leaders, Don Bailey and Jon Hancock will join us for the Q&A portion of the call. Before we begin, I want to acknowledge the devastating impact the recent weather events had on our communities, which underscores the difficult reality of changing weather patterns and the frequency and severity of these events. At AIG, our claims teams have been working hard to ensure that we respond quickly. I'm grateful to our colleagues for their commitment to our clients and distribution partners. This is our purpose and it's when our company is needed most. Now let me move to the highlights of our outstanding third quarter performance. We continue to deliver exceptional underwriting results, maintain rigorous expense discipline, execute on our capital management plan and make excellent progress on our strategic priorities. Adjusted after-tax income was $798 million or $1.23 per diluted share, representing a 31% increase in earnings per share year-over-year, driven by strong core earnings growth and disciplined execution of our capital management strategy. Underwriting income for the quarter was $437 million, which included total catastrophe related charges of $417 million. The calendar year combined ratio was 92.6%. Consolidated net investment income on an adjusted pre-tax income basis was $897 million, a 19% increase year-over-year. Other operations, adjusted pre-tax loss was $143 million, an improvement of $135 million or nearly 50% year-over-year. Core operating ROE was 9.2% with core operating equity of $34.5 billion as of September 30, 2024. In the third quarter, we returned approximately $1.8 billion to shareholders through $1.5 billion of stock repurchases and $254 million of dividends. In addition, we repurchased $520…

Thank you, Peter. This morning, I will provide details on third quarter results for General Insurance, net investment income, other operations and capital. Turning to General Insurance. Adjusted pre-tax income or APTI was $1.2 billion. Underwriting income was $437 million, including $411 million of catastrophe losses. Hurricanes Beryl and Helene were the two largest losses in the quarter. Hurricane Milton made landfall on October 9 and therefore, its financial impact will be recognized in the fourth quarter. Peter commented on the complexity of determining ultimates for natural catastrophes. And at this point, we have a very wide range of estimates for modeling firms. Claims activity to date for Milton has been relatively light compared to storms of similar strength and intensity. Our current preliminary loss estimate for Milton is between $175 million and $275 million. The third quarter 2024 accident year combined ratio as adjusted was 88.3%, about 140 basis points higher than last year, principally due to changes in premium mix and reinsurance structure and favorable actual versus expected experience in the third quarter of 2023. We also had one large closeout transaction, which Peter mentioned that increased the consolidated loss ratio by about 40 basis points. Year-to-date, the accident year combined ratio is 88.1%, down 60 basis points from 2023. The accident year loss ratio was 56.4% for the quarter, including the impact of the closeout transaction and 56.4% year-to-date, flat with the first nine months of 2023. We expect the fourth quarter accident year loss ratio as adjusted, will be in line with the first nine months of this year. Turning to prior year development. This quarter, we had $153 million of favorable prior year development, including $34 million from the ADC amortization. During the quarter, we completed detailed valuation reviews or DVRs on almost $22 billion…

Thank you, Sabra. And Michelle, we're ready for our first question.

[Operator Instructions] Our first question comes from Meyer Shields with KBW. Your line is open.

Great. Thanks, and good morning. I want to start with a question about reserves, if I can. You talked about how recent accident years financial lines are emerging better than expected, but you're not booking that yet. Can you talk a little bit about what's happening in the older accident years for, I guess financial lines or casualty, we saw the one-off issues, but I'm wondering more broadly, is there the same sort of theme in the older accident years that could be getting closer to acknowledgment.

Thanks, Meyer. Good morning. I think Sabra provided quite a bit of detail in her prepared remarks, but Sabra, do you have anything to perhaps give a little bit of context on financial lines?

Yes. And let me just make a few comments. I mean, obviously, we had very strong favorable development in the DVRs this quarter. Consistent with our approach, we have allowed favorable development to -- our favorable experience to mature. And this quarter, particularly on shorter tail lines, we had about $300 million of favorable development. I would just note that this quarter did not include workers' compensation that was done in the third quarter of last year and this year it was done in the second quarter and we'll do it in the second quarter for next year as well. What I would just comment on in terms of the -- I'll talk to the excess casualty first because I know that's been in some focus. The trigger for the action in North America casualty, excess casualty was for a particularly large settlement, growth of reinsurance, which was from very old accident years that were covered by the ADC. Absent this settlement, we would not have made any adjustments in that line because the DVRs for that line are done in the second quarter normally. Turning to financial lines. Let me just note that for the quarter in total, we had post-ADC, the adverse development on financial lines was about $28 million in total. That was driven by the adverse development on U.K. financial lines, which again was an older book with -- related to some specific exposures. We did actually recognize favorable development on the U.S. and international portfolios. And I would note that was for older accident years. The favorable development that we recognized is generally in older years where the experience has matured as the policy form is claims made, but we continue to hold reserves, obviously for those older accident years based on the existing claims or other activity within that book. And we will evaluate again in the third quarter of next year is when we'll do our deep dive on the Global Financial lines portfolio.

Great. Thanks, Sabra. Meyer, is there a follow-up?

Yes, just a quick one. Peter, you talked a lot about your expectations for a property reinsurance in 2025. And I was hoping for an update on your thought of the appropriate reinsurance program, property reinsurance program for AIG, whether you're thinking of other -- of changing your net exposure?

I covered a lot in my prepared remarks. Again, I think the industry has become experts on reinsurance pricing. And I expect that the market will be orderly, but I don't expect attachment points are going to come down for the industry. What I was trying to outline in my comments was that most of it is retained by insurance companies today. And so therefore, how we're going to price business going forward, how we're going to understand the frequency of CAT is going to be really important to do as an insurance company and not rely on reinsurance. I don't think we're going to have a material change in our structures. Of course, we have low attachment points. It's very complex and I won't spend a lot of time on it. But we certainly have the balance sheet. We certainly have the risk appetite to take a little bit more net in the event that we want to, but we like having low attachment points on severity and we like having our aggregate that protects us from frequency. And so we manage our net according to our risk appetite. It's within expectations and I would expect us to continue the same strategic philosophy.

Okay, perfect. Thank you so much.

Thank you.

Thank you. Our next question comes from Brian Meredith with UBS. Your line is open.

Yes. Thank you. Peter, I think we're hearing a little bit from other companies about some improvement in your casualty, particularly E&S, casualty lines and maybe properties' moderating. Wonder if you could give us some color on your view of market conditions and kind of organic growth opportunities here in the fourth quarter and heading into 2025.

Thanks, Brian. And I'm going to make a comment. I'm going to have Don talk specifically about Lexington. But you're absolutely right. We see opportunities. Our clients, we have such strong retention and they're looking for us to solve risk issues. New business opportunities are very good. The rating environment is very good. So we're cautious, but we think there's opportunities to grow. In the retail casualty space, in multiple segments that we have as well as in E&S, I mentioned in my prepared remarks that our casualty submissions in E&S have been dramatic and we see great growth opportunities there. But Don, maybe you could expand a little bit on the Lexington.

Great. And if I could, Peter, just maybe a couple of high-level comments on North America overall and then dig deeper into the Lex growth because they are kind of balanced. So the double-digit growth in North America is balanced growth. We're growing the lines where we see attractive opportunities. And to the point of your question, we're growing in all three channels where we operate, retail, wholesale, alternative. Peter covered some of the North American growth drivers, positive rate of 3% across the portfolio, strong retention of 87%, 90% in the admitted lines and then overall strong new business growth of 22%. On Lexington, we do continue to invest in Lex across all lines. So you'll see Lex continue to show up with more resources, more products, enhanced capabilities going forward. On the third quarter performance, as Peter mentioned, 78% per retention, which is really strong, a 24% increase in new business. And to the point of your question, casualty showed up very well in the E&S space in terms of new business for the quarter. We also saw a 35% increase in submission. So the submission activity continues to be very robust in the E&S space for us. It's generated probably by two things. One is just increasing demand for E&S solutions in general and a flight to quality within E&S. For me personally, when I think about the nature of a wholesale broker today versus when I started in this industry, it's a completely different game. The brokers in the wholesale space operate at a different level today, incredibly well resourced, data driven, effectively deployed technology to drive efficiency, which is critical in wholesale. They're also increasingly being embraced by thousands of independent agents for market access and placement capabilities. So Lex will continue to benefit from that trend in terms of the growth of our book and new business. And Peter, just a couple of data points to close out on E&S, which might be helpful. Today, E&S represents 12% of the $115 billion U.S. P&C industry. In 2018, E&S was 7% of a $50 billion industry. So the pie has gotten considerably larger. And the last data point I'd give you just on distribution. The top five wholesale brokers control over 65% of the growing $115 billion U.S. E&S market. Lex is very well positioned in E&S and very well positioned with these top brokers.

Great. Thanks, Don. Brian, do you have a follow-up?

Yes, absolutely. A bigger picture question here, Peter. So I think you said that you're expecting a 10% core ROE for 2025. If I look at peer companies, they're kind of trending in the mid to even higher-teens. Yes, what's your kind of longer-term view of kind of ROE aspirations you think you can get to peer ROEs and what do you think it's going to take to get there? Is it more margin improvement, you need to kind of grow acquisitions? Just curious bigger picture, your thoughts there.

Yes, thanks, Brian. I mean, obviously, we've been talking a lot about the 10% and gave guidance in my prepared remarks about getting to that in 2025. There's a variety of ways in which we can get there. We talked about our combined ratio and the opportunities to improve that. We have such a great underwriting culture and believe that there's lots of opportunities, of course, is market dependent, but our leadership position in the market allows us to remain disciplined and focused on clients. There's -- the other variables, I mean, certainly it's our equity base. We talked about that a little bit and that we believe we can grow into it and that's of course going to generate more earnings opportunity, our net investment income, net premiums written both from a peer growth in terms of strong retention, more new business, but also reinsurance structures, how we look at proportional versus excess of loss and there's ways in which we could have some tailwinds there. Quality of our reserves, which we continue to emphasize, Sabra gave a lot of detail in her prepared remarks and on the answer just now. So we have a lot of confidence there. Capital management actions. We have lots of flexibility subject to when we close Nippon and do other capital market transactions, but there's lots of ways in which from a capital management standpoint allow us to improve. Our ability and track record to successfully manage volatility is very important. And then the last one is our expense management is very disciplined. We are executing on AIG Next. That showed itself in the third quarter. We're not looking to hit the ball out of the park every quarter leading in 2025. We pulled guidance forward that we will be able to get other operations, which was substantially higher to a $350 million lean parent, but also get the expenses either eliminated or into the business without increasing the combined ratio. We're well underway. You can see evidence of that in the third quarter. You'll see more evidence of that in the fourth quarter. So there's a bunch of ways in which I think that we can deliver it. And once we get north of the 10%, we'll provide guidance after that. But thank you.

Thanks.

Thank you. Our next question comes from Rob Cox with Goldman Sachs. Your line is open.

Hi, thanks. So I think you guys had previously noted M&A potentially becoming a more meaningful consideration for capital deployment, but you also mentioned revisiting share repurchase guidance as you expect some further liquidity coming in next year. Can you give us an update on your appetite for M&A and how that might help you reach premium leverage objectives quicker than organically?

Sure, Rob. Thanks. I'll start with the second part. The guidance we gave was that we would do $10 billion of share repurchases in '24 and '25. And so like you can see through the third quarter, we are well underway executing every quarter. We'll have more liquidity coming in. And so that's the priority with the proceeds coming in from Nippon and as I said, other marketed deals and liquidity that we currently have at the parent company. In terms of M&A, we have given ourselves lots of options. We have the financial strength, the financial flexibility to explore inorganic opportunities. We're always looking at ways in which we can add strategic relevance and something that's compelling to AIG. We already have sizable very high-quality businesses in major markets. I mean, you know about the U.S., U.K., Japan, Singapore, Europe. We believe we can grow those businesses organically, but there may be more opportunities to expand inorganically as well. We're going to remain very disciplined, but we are going to look at businesses and opportunities in inorganic that may complement our geographical footprint or product capabilities. There's opportunities maybe to go into spaces that we're not in today, maybe some of the SME or looking at ones that enhance scale of businesses that we already have market leadership that just will accelerate our ability to execute our risk-adjusted returns. So I want to remain very disciplined, very patient, but we have the financial flexibility and the strategic intent of growing.

Okay, great. Thank you. And as a follow-up, on GOE and General Insurance, it didn't necessarily appear like it decreased as much as the run rate in the first half of the year. So I was just hoping you could discuss kind of the puts and takes in the General Insurance GOE ratio and if this level of improvement is sort of in line with expectations.

Yes. I was actually quite pleased with the third quarter in GOE because we looked at other operations and the significant improvement that we made there on the GOE line year-over-year and then sequentially, but also we are absorbing a lot of the expenses as they get pushed into the business. And so while the personal insurance year-over-year, the nominal was down and then on commercial, it was slightly up. When you look at putting $50 million more of cost in, the run rate is actually quite attractive. And so we have two major initiatives that have begun to earn in the third quarter, but you'll start to see a lot more of that in the fourth quarter. And as we get to 2025, one was our voluntary early retirement plan that we had announced in the United States. And then we did a restructuring international that just really happened in September. And so you'll start to see more run rate as we get into the fourth quarter and next year. But I'm really pleased with what we did in the third quarter and believe we are showing a lot of sequential improvement in executing to this future state operating model that's going to be much leaner, much simpler and much easier to follow.

Awesome. Thanks for the color.

Thanks, Rob.

Thank you. Our next question comes from Alex Scott with Barclays. Your line is open.

Hi, good morning. I got a follow-up on just sort of the leverage. And I guess thinking through both leverage down at the operating companies as well as financial leverage. But when I look at the ROE, that seems to be the place where you're under index versus some of the peers, not so much like the actual combined ratio and so forth. So I was interested in, I guess on the debt leverage side, are we at a place where leverage can actually begin to come up as you see opportunities, particularly if you do engage in M&A? And then on the core operations, I mean can you frame at all like how much dry powder you see in terms of being able to lean into some of these opportunities if they get better at casualty?

So thanks, Alex, for the question on leverage, yes, we have a lot of -- I think it goes into what I said about potential M&A where we've given ourselves a lot of financial flexibility if we find something compelling and attractive. I think the high teens of a leverage to total capital, including AOCI, we're very comfortable with, but absolutely what you were asking is a truth, which is if we find opportunities, can we increase our leverage to be able to execute on that? The answer is yes, we can. And we're going to be very mindful. Obviously, the primary use for proceeds from the Corebridge sell-down will go to share repurchase, but we could continue to work on leverage a little bit to give us even more financial flexibility over time. In terms -- I just want to make sure I understand the second part which is having -- we have a lot of capital. I don't think it's a moment in time and to quantify what we think is excess today, I don't think is something that is overly constructive just because we intend to grow into that. We have shown real opportunities in our business to acquire new business. We had a terrific new business quarter. That momentum continues. And I think look at them, property was probably the one that was sort of slowing down in terms of pricing, but Milton and Helene have changed a lot. And I think that there'll be more flight to quality and there'll be more flexibility for AIG in terms of our ability to drive property growth and on a risk-adjusted basis throughout the world. And so like I think the balanced portfolio opportunities to grow, being able to take more net and being able to hit that 10% ROE is our near-term objective.

Got it. That's helpful. And then maybe a quick follow-up on personal lines in North America. Can you just give us an update on sort of where we stand with that MGA structure that was put in place and over what period of time you'd expect that combined ratio to come down below 100%?

Yes. Thank you for the question. I mean, North America personal is in transition as we as we've spoke about. It's hard in the primary high net worth business to affect change fast, but we're making great progress. In the quarter alone, the attritional loss ratio has improved on a meaningful basis, GOEs down. What you're seeing is the acquisition ratio increased quite a bit as we transition to the MGU. Now there's a few things happening that will reverse that in 2025. One is we're at scale, everything is fully put into the MGU and we expect the ceding commission that we paid to go down, I think in a meaningful way. And so the acquisition expense ratio will improve accordingly. I want to talk a little bit about like the strategy that we talked about, which is going into more non-admitted and how that's going to accelerate progress. And we announced it last quarter, but just a couple of statistics that will frame why it's early days, but it's working. The rate environment that we're in on an emitted basis in high net worth, we increased 10% in E&S. It went up 20% on our held book. Our partnership with Ryan Specialty, they're building infrastructure, building sales capacity. We're appointing a lot of retail agents that had no access to AIG or capital for high net worth before our signing up. We expect that to accelerate and continue to grow. In the third quarter, our new business, 50% of it was E&S. Again, we had good growth. I mean, the nominal is not going to move the needle, but we have momentum there. And I would expect in 2025, E&S alone in our strategy will grow the top line 10%. The demand is going to be significant. Our ability to be able to respond to that demand is there with plenty of capacity and an appetite that is going to allow us to improve the risk-adjusted returns and the overall combined ratio.

Thank you.

Thank you.

Thank you. Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Hi, thanks. Good morning. My first question was just on the North America commercial. If I adjust out the one-off -- the one-off in the quarter, right, the -- it came in at 61.1% on an ex-CAT accident year loss ratio basis. You guys are at 61.9% in the first half of the year. So I was just hoping to get more colors on what drove the improvement in the quarter and if that's sustainable into the fourth quarter and 2025.

This is not going to be like the 91.6% question, is it Elyse? Don, do you want to just give a little bit of insight in terms of what's happening with the loss ratio?

So in the North American portfolio this year, we've seen some different movements, Peter. And in some of it, if you look at, we have some one-off movements that certainly moved the loss ratio on this one, which you talked about in your prepared remarks. We talked a little bit about the one-time closeout deal that we did that moved it up. So adverse implications.

I think, look, and in the commentary, Elyse, we sort of backed out the two -- they weren't headwinds, they were just anomalies relative to what the prior year was. And then the mix of business will continue to change. We see real opportunities to grow in -- in casualty and so those may have a different loss ratio relative to the overall portfolio. We think there's going to be growth opportunities in property based on the market dynamics that are shifting in 2025 and we see that the headwinds on pricing in financial lines are slowing down. We are not going to continue to ride that way down. And on lead, first excess and leading in D&O, I think Don highlighted this is that we've seen a slowdown in the rate reductions. And as we look into 2025, that's all going to stabilize. So I think that mix, if you take out the two things we talked about, which was significant outperformance in property and short tail last year in the third quarter along with the closeout that looks like a loss ratio that's sustainable.

Okay. That's all. Yes, that's my follow-up, I guess, would be, Peter, just building upon that comment as you view the market conditions out over the next year, how do you expect the mix to shift between property and casualty relative to where it is today?

It's hard to tell because I -- as I mentioned before, I think the property slowdown in terms of rate increases should start to reverse as you get to next year because there's so much net that's been retained by insurance companies that they're not getting the appropriate risk-adjusted returns for the cat loss at the low return periods and the increased frequency and severity. So I think that's going to reverse. Casualty is very strong, and Don went into length on excess and surplus lines. And then also you know we're seeing slowdown in financial lines. And so I think that the overall index, I think is going to sustain, but we'll see when we get into the market and see what happens within particular property, but I'm optimistic, that's why I put some time into it in the prepared remarks that we see a rate environment that's going to improve. I don't know, Jon, maybe like we -- just before the call ends, you can give a little bit of perspective in terms of where you see opportunities as we look to 2025 and international.

Yes. Thanks, Peter. And I'll try not to repeat everything you've said, but you're right, the dynamic between the first-party lines and the third-party lines is there across international as well. And we've seen first-party lines, we're still seeing good rate and price on property classes. But for me, bit like Don with Lex, we've got these jaws in Global Specialty and Talbot. Global specialty, we are the number one writer of business around the world. We're number one in energy, we're number one in marine. We're top three in aviation. We're number four in credit. And we're growing that business really well. You referenced in your prepared remarks, Peter, 6% growth in the quarter, but actually huge growth in energy, 25% new business growth in marine in the quarter. We're seeing a different dynamic at the moment where we've grown our international specialty book by 10% in the quarter. Yes, Talbot, again, another 6% growth, but the specialty lines at Talbot, the products at Talbot is really renowned for political risks. Marine and energy growing by 18%. If you look at -- add that to the fact that submissions are 25%, up in both Talbot and specialty, our quote rates are higher, our bind rates are higher. And we've got huge opportunity there and we're the best of the market at it. So we'll still keep seeing the opportunity.

That's great, Jon. Thank you very much and I agree. Before I finally close, I do want to take a moment to thank Sabra for her many contributions at AIG. Over the past five years, Sabra has always been willing to take on a variety of important complex roles and in each instance, she's always done everything she can to add significant value. So thank you, Sabra, including the most recent role as CFO. We wish her nothing but the best in her future endeavors as we welcome Keith Walsh as our new CFO. I also like to thank all of our colleagues around the world for their continued dedication, commitment and teamwork and execution and I want to thank everybody for joining us today. Have a great day.

Thank you for your participation. This does conclude the program. You may now disconnect. Good day.