Good day. and welcome to AIG's Second Quarter 2025 Financial Results Conference Call. This conference is being recorded. Now at this time, I would like to turn the call 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 has no obligation to update any forward-looking statements if 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. Following the deconsolidation of Corebridge Financial on June 9, 2024, the historical results of Corebridge for all periods presented are reflected in AIG's consolidated financial statements as discontinued operations in accordance with U.S. GAAP. Finally, today's remarks related to net premiums written are presented on a comparable basis, which reflects year-over-year comparison on a constant dollar basis and adjusted for the sale of the global personal travel and assistance business as applicable. We believe this presentation provides the most useful view of our results and the go-forward business in light of the substantial changes to the portfolio since 2023. Please refer to Page 25 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.

Thank you, Quentin, and good morning, everyone. Thank you for joining us today to review our second quarter 2025 financial results. Following my remarks, Keith will provide more detail on the quarter, and then we will take questions. Jon Hancock and Don Bailey will join us for the Q&A portion of our call. AIG had an outstanding second quarter. We continue to make meaningful progress on our strategic, operational and financial objectives that we outlined at Investor Day. Our momentum continues to build with strong performance across the board. We delivered adjusted after-tax income per diluted share of $1.81, an increase of 56% year-over-year. Adjusted after-tax income for the quarter was $1 billion an increase of 35% from the prior year quarter, driven by our general insurance business, which had underwriting income of $626 million, an increase of 46% year-over-year. Net investment income on an adjusted pretax basis was $955 million, an increase of 9% year-over-year. Accident year combined ratio as adjusted was 88.4%. Calendar year combined ratio was 89.3%, an improvement of 320 basis points from the prior year quarter. We achieved a core operating ROE of 11.7%. We returned $2 billion of capital to shareholders, bringing the year-to-date total to $4.5 billion. We sold $430 million or 13.4 million shares of Corebridge Financial, reducing our stake to approximately 21%. And finally, both S&P Global and Moody's upgraded their financial strength ratings of AIG's insurance subsidiaries during the quarter, which was a major milestone. This is our first upgrade from S&P Global since 2013 and our first upgrade from Moody's since 1990. For our call this morning, I will share a detailed review of our second quarter results, a few observations on the global property market and specifically our portfolio, highlights from our successful completion of AIG Next, which…

Thank you, Peter, and good morning. I'm going to expand on the financial highlights for the quarter. Overall, total adjusted pretax income, or APTI, was $1.4 billion, an increase of 37% from the prior year quarter. This was driven by excellent results from the business and focused execution of our investment portfolio strategy. General Insurance gross premiums written were $10.1 billion in the second quarter, an increase of 4% from the prior year. Net premiums written were $6.9 billion, an increase of 1%. For the second quarter, General Insurance accident year combined ratio as adjusted was 88.4%, an increase of 80 basis points over the prior year quarter. I'll unpack the loss ratio when I cover the segments. Looking at expenses. In the second quarter, General Insurance expense ratio was 31.0%, a 50 basis point increase year-over-year. General Insurance absorbed $83 million of additional expenses that were booked in other operations in the second quarter of 2024. We remain on track to reduce our expense ratio below 30% by 2027. Moving to catastrophes. Charges for the quarter totaled $170 million or 2.9 loss ratio points. Prior year development for the quarter net of reinsurance was $128 million favorable, which included $97 million of favorable loss reserve development and $31 million of ADC amortization. The favorable development primarily stemmed from workers' compensation, largely driven by favorable trends on excess of loss sensitive business. U.S. property and special risks also developed favorably. We strengthened U.S. Casualty by $106 million, which is driven by mass tort and older accident years, of which the vast majority is in accident years 2015 and prior, which are covered by the ADC. We also reapportioned some of the uncertainty provision in casualty lines into the more recent accident years as we outlined in the fourth quarter. This…

Thank you, Keith. Michelle, we're ready to take questions.

[Operator Instructions] Our first question comes from Alex Scott with Barclays.

First one I had is just on the property pricing implications and some of the comments you made around the impact of reinsurance and so forth. I just wanted to make sure I understood that right. I mean it sounded like that net wasn't really much of a headwind actually in the underwriting. So I just wanted to understand if I'm getting that right, if it's more the mix shift and can you still hit the combined ratio targets you've talked about in the past?

Yes. So Alex, what I was trying to outline in my prepared remarks was, we are a big buyer of reinsurance on property. Everybody knows that. We have low attachment points. We have high exhaust. In a market like this, we benefit because if the rates are going down on reinsurance, on CAT as an example, that does benefit the original pricing. If you're funding it net, what I was saying, look, if I look at our own AALs, like if the market gets softer, I don't reduce the AALs, they stay the same. And so what I was trying to say is that when you look at the amount of reinsurance that we would purchase, we're getting risk-adjusted reductions that are at or greater than what we're pricing our original policies, that's a benefit. So there's no headwind there. But if you're funding it net, your AALs are still the same. So you have to take a look at your attritionals a little bit sharper, I believe, because the overall pricing is going down, if you don't have the commensurate rates going down on your catastrophe, that's a headwind. We don't have that. And so that's what I was just trying to unpack in sort of the different components of property. Now look, the combined ratio could go up a bit. We have great combined ratios. I've given some clarity at Investor Day and prior quarters that we posted in many of our businesses in the 70s combined ratio. So if it goes into the low 80s, it's still a great business. We are tempering our growth there because I don't know what happens to the rest of the year with CAT and it's just something we want to be cautious with, but we still want to retain the business. We still want to price it appropriately and believe that we can have very strong returns in the current environment as I look to 2025.

Yes. That's helpful. Second one I had is sort of a follow-up on what I mentioned on growth. I mean, if the growth environment turns out to not be quite as good as expected, what will you do with the capital situation you have? Because I see premium to equity, I think it's a little below like 70%. I think that's the lowest in the peer group I look at, and that sort of not even that heavily influenced by the Corebridge proceeds when you have the holdco. So what will you do in the event that the growth outlook doesn't end up being what you had hoped for what you outlined at the Investor Day. How quickly would you take action to try to get some of that capital redeployed elsewhere?

Well, I outlined at Investor Day that over a period of time, undefined, but it would be a medium term that if we can't deploy the capital for growth, we will return it to shareholders. But we do believe -- look, it's a moment in time with the property, the second quarter before CAT season, the property lines run really well. And I'm going to ask Don and Jon to comment on this because we're seeing other opportunities for growth. I think that we're getting mass a little bit with property. We outlined it we've sort of bifurcated it because it's sort of anomalous to what's happening in the rest of our lines of business. But we don't need the capital to execute on our sort of capital management strategy out of the subsidiaries. And we really believe we can grow into it over a period of time. If we can't, and the market stays in a place where we have excess capital, we'll return it to shareholders. But I don't think that's the place we are. It's a moment in time in this particular quarter. I think we got to look out over the next few years. And I believe AIG now has a business that can grow. When we had the market turn last time, AIG wasn't prepared. We were still re-underwriting our portfolio. We still had a bottom 15%, 20%. We were growing in lines, repositioned the portfolio. The market turns this time. We have massive opportunities to have exponential growth, and we will execute on that. But Don, maybe let me start with you about what you're seeing in Casualty and then maybe I can shift to Jon talk a little bit about Specialty.

Okay. Rates are very strong in the casualty market right now. We've got gaining momentum there, both Lex Casualty and Retail Casualty grew rather substantially 19% in the second quarter, with Lex Casualty submissions are up 39% in the quarter. So gives us a lot of faith in terms of the Casualty opportunities we've got on a go-forward basis. In Financial Lines, Keith talked a little bit about the rate environment there, gaining stability much less of a headwind going forward. We're definitely going to see the rate opportunities as we go forward there and the growth opportunities to follow. Glatfelter is a machine for us, highly dependable growth engine for us. And with the work we've done with Glatfelter to kind of rebuild our programs business, that increasingly is a huge driver of our growth as we go forward as well. So that's going to start to deliver even more as we go forward. We covered some of those businesses in Investor Day. And I would just say this about Lex, too, that outside of the Large Account Property segment, every other segment within Lexington is growing quite nicely. And we had 28% increase in our submissions at Lexington in the quarter, which, again, is a strong indicator for future growth opportunities. Last thing I would just say, our distribution model is highly aligned to drive everything that I just talked about. So we see more and more opportunities ramping up as we go forward, and we continue to be a very strong brand at Lex, Glatfelter and AIG with our distribution partners and our insurers.

Thanks, Don. That's helpful. Jon, maybe just talk about like Specialty and how we're positioned in the market would be great.

Yes, certainly. I mean, Specialty, we've highlighted this at Investor Day. We talk about it a lot because it is such a fantastic business for us. We've delivered 5% growth in the quarter, 7% year-to-date. And for sure, there is increasing competition and rate pressure generally. But global specialty as much as anywhere is an area we have real clear differentiated proposition. We're a leader. We're not an index for the market, and we're positioned, I think, better than anyone to achieve superior terms and manage through the cycles, and that's what we've been setting ourselves up over the years. And I think it's also worth saying on Specialty is, we're still seeing that good growth. The profit is phenomenally good. We're confident that, that maintains. It's a big part -- in the quarter, and I agree with you, Peter. I mean, a quarter is not a good judge of any growth plan. There's a lot of noise in any single quarter, look at the longer term, and that's what we build, certainly a specialty book for. If I stick to the quarter, Specialty is 45% of the International Commercial business on a gross basis. But it's only 28% of net premiums, and that's in part due to those reinsurance protections that you talked about, Peter. And those reinsurance protections do make the results better. It might mean we give up a little bit of margin in a hardening and rising price cycle, and we do that to manage the volatility, but it also significantly mitigate the downside in the market that we're in now. So that's a strong thing and that's part of a long-term sustainable reinsurance strategy, helping us manage across the cycles. Yes, bear in mind as well, we've seen maybe 70% cumulative rate increase in Specialty over the last few years, a 20-odd percent in Energy. So we're really well positioned. We've got long-term strategic partnerships with those reinsurers. That's a big part of our proposition. So the future is really strong for Specialty.

Thank you, both, very much. Okay next question?

Our next question comes from Mayer Shields with KBW.

I wanted to just check in on the reapportionment of reserves to accident years '21 and '22. And I guess I know we're only looking at net numbers, but should we have seen something like that affect '23 and '24 as well?

Thanks, Meyer, I'm going to recap a little bit what I said and that Keith alluded to in the fourth quarter of sort of last year. We had this provisional reserve that we create in 2022, and then we did add to it in subsequent years to add to margin and it was really in response to some of the uncertainty with inflation, other variables sort of post pandemic and then sort of the social inflation environment that we're in. The provision, which included IBNR had been carried in lines that we thought would be most susceptible to the rising inflation. And the uncertainty provision was set above loss picks from our actuarial reviews that didn't have any reflection for any emergence or anything of that nature. And so we began the process of completing reserve reviews, apportioning them into lines of business that we thought were appropriate. And I think that's what you had started to see in the fourth quarter of 2024, and it will actually go through the fourth quarter of '25. So the accident year is the most recent ones, it wasn't that much, number one. Number two is a zero-sum game. Those reserves are already set. We just are putting them into lines of business that we think are the most appropriate when we look at the wide range of outcomes of Casualty, we just thought it was prudent to reapportion those accident years. There's nothing in the underlying portfolio that would suggest that those additional reserves are needed, but we have the uncertainty provision, and we're allocating them to lines of business throughout 2025.

Okay. That's helpful. And then a bigger picture question. When you talk to your insurers, I know there's a lot of concern in the insurance industry about social inflation. Is that translating into increasing demand for liability coverage? Is that manifesting itself in the market yet?

I'll have Don comment a little bit on what we're seeing sort of in the casualty market. What I would say, Meyer, is that there is a strong pull for underwriting companies that have expertise in Casualty lines. So it's not just capacity. If you're going to lead, do you understand the complexities that exist within their business, their industry group, their structures, how do we help them think through the total cost of risk working with our partners. And I think when AIG had a slight pullback in casualty, there was a lot of demand from our clients asking for us to be more involved. And so I think the way in which we react to that is by trying to create solutions for our clients in the environment that we're in. So Don, maybe just quickly just what you're seeing in casualty to Meyer's question around client demand and how we're helping them on an advisory basis.

Yes. Yes. The social inflation and some other factors in the casualty market, add the market appropriately disrupted and generally disciplined, and we expect that to continue. Social inflation, Meyer, it's a long-term issue. And why that matters is that casualty is a long-term relationship as opposed to a property relationship oftentimes. So these are 20-, 30-year relationships. So when we look at the question you're asking, buyers are definitely in a flight-to-quality mode where they see that long-term partner because of social inflation, being even more important and being even more critical. So our brand in this place, our multiline capabilities, our platform, our financial strength become incredibly attractive for brokers and buyers out there. So the flight-to-quality is real, and we'll see that as we go forward.

Our next question comes from Elyse Greenspan with Wells Fargo.

My first question, I wanted to go to the pricing discussion. You guys said excluding property, North America Commercial is up 6%. And you pegged that as in line with loss trend. I might have assumed just given the casualty makeup of the book that loss trend would have been above 6%. So maybe if you could just help by kind of parsing it out on the loss trends that you're seeing within kind of some number that's less than 6x property in that North America book? .

Thanks, Elyse. Look, we're not going to break it down by line. And if you look at where we're getting strong rate, it would be where there's a bigger loss cost trend. So if you think about Excess Casualty, in particular, some of the Retail Primary Casualty, we are looking at why we took out properties, it's a part of the index, but I think the loss cost trend is where we had outlined it on sort of on an index basis, and I think we are covering loss cost on casualty and other lines, excluding property.

Okay. And then my follow-up, has there been any significant change in price that you guys have seen in July relative to the Q2 just because I think, right, property is probably perhaps a bigger makeup of the second quarter. Just trying to get a sense of any kind of pricing change on quarter-to-date in the Q3..

Look, if we had insight that we could give you, we would give it, but it's just too early, Elyse, I mean, because we're still aggregating July. I don't see -- we haven't seen any trends that are concerning different than what we reported for the first half of the year. And I think we really just need to play out the quarter as we go into the last 2 months of the quarter. So I just think it's too premature to outline anything in July or there's nothing that we've seen that is significantly different than what we reported in the second quarter.

Our next question comes from Mike Zaremski with BMO.

Question on the meaningful expense ratio improvement. So just kind of on the cadence. Should we be thinking that the improvement is going to be a bit more kind of back-end loaded given the top line being weighted -- weighed down a bit by property rates or is that kind of not that much of a -- this operating leverage is not that much of a factor at this point?

Let me start with this. And I will like just provide a sort of high level than any details you want to add to it, please do. One is, we started this sort of process of apportioning parent expenses into the business in the third quarter of last year. Was it fully lower in the third and fourth quarter? No, but it was mostly there. So I think when you look at the first half of the year, it's kind of a continuation of what we did from other ops GOE into the business. I don't think the second quarter is an accurate run rate. I think it starts to bend the curve a bit in the third and fourth, where there's less going into the business when you compare it to sort of the second quarter. There's some onetime sort of headwinds in the second quarter. But like we're really just focused on getting to future state, which I think we've done an exceptional job in terms of the parent company. The business has done a tremendous job of absorbing those costs? And I thought it would actually be a longer transition it has not been. And then you have to recognize, too, we haven't fully earned in all the AIG Next. While we have completed the $500 million, we still have more to earn-in in terms of incremental in-year benefits in the third and fourth quarter. So look, this isn't guidance that you ought to like take it way down, but it is guidance saying that I think you got to look at it for the full year, like the first half was a little bit more bumpy than I think the back half will be, and we're going to watch sort of the earned premium and making sure that we don't have any issues on the expense side. But Keith, I mean, a couple of variables you may want to add?

Yes. Just 3 quick points, and Peter said it well. The first thing it's not linear, right? Quarter-to-quarter, I think, is a good way of looking at. Looking at it over the course of the full year is a better way. Just a couple of quick points. In my script, we talked about -- I wanted to give you a fully loaded view of expense, looking at GOE plus other operations expenses to get a feel for, are we getting the expenses? And the answer is yes, right? You see minus 3% in the first half of the year when you load fully -- full expenses together and plus 1 in the quarter and that compares to 6% -- 4% and 6% growth on the top line, respectively. So we're getting the operating leverage. Point two, if you look at the expense ratio, it's up 20 bps adjusted for travel in the first half, and that's with more than 100 basis points of parent cost push down. So we're getting -- again, the ratio is underlying improving. And the third thing to Peter's point he made is that the noise from this, the parent pushdown will dissipate over time. This quarter, we had $90 million of expense. It was $184 million in the prior year. The third quarter had $144 million. So you're starting to see -- and once we get to fourth quarter, that will completely dissipate as we get into 2026.

Okay. Perfect. That's helpful. My follow-up questions on the E&S marketplace. I believe, Peter, you cited submissions in Telex being plus high 20s, which just seem like -- I don't think you disclosed it every quarter, but it seemed like a very high level. Can you maybe just kind of talk about dynamics in that marketplace? I guess some folks ask us that given property is correcting a bit off of very healthy levels, we shouldn't eventually the retailers look to kind of find capacity and move some of that property out of the E&S market, which could slow the submission rate, at least, I guess. So any comments would be helpful.

My first comment is to be careful who you speak to, because this dynamic is very different than any other market where industry executives that have been in the wholesale and retail will expect this to be a market that just transitions back into retail. And that may or may not happen. We're not seeing it. I mean so we keep citing the submission count is because it's not that we're surprised, but we're like unbelievably encouraged because in a market that typically would find Retail Casualty and Retail Property being more in demand, that doesn't seem to be the case. And so when we look at our own growth, Lexington Casualty is growing very strong. Property, to be honest, held up better than the Retail. And that's from the Middle Market play that we had in the past. And I think that wholesale brokers have become more than E&S market placement. They are now a broad range of whether it's through MGAs and MGUs or actually being placement mechanisms for the 40,000 independent agents that exist within the United States. So I think that the market is seeing some pricing pressure, but so is the Retail. And there's no evidence from us that it's slowing down in terms of submission count. And we outlined at Investor Day is that if we can start to harness that submission count and get it to better buying ratios because it's a business that we like, we still see growth opportunities. It's not that we're saturated with the submission count that we're maximizing our own growth potential or the industry is. And there may be new entrants, new participants, but very relevant in terms of the market that we trade in. So we remain encouraged, cautious because we want to watch what's happening within the property, but overall, it's holding up really well. Thank you very much. Appreciate everybody participating. I want to thank all of our AIG colleagues for yet another outstanding contribution to this quarter, and I wish everybody a great day.

This does conclude the program. You may now disconnect. Good day.