Please standby, we are about to begin. Good day. And welcome to AIG’s Second Quarter Financial Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Ms. Liz Werner, Head of Investor Relations. Please go ahead.

Thank you, Katie. Before we get started this morning, I’d like to remind you that today’s presentation may contain certain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Any forward-looking statements are not guarantees of future performance or events. Actual performance and events may differ, possibly materially from such forward-looking statements. Factors that could cause this include the factors described in our first and second quarter’s Form 10-Q and our 2013 Form 10-K, under Management’s Discussion and Analysis of Financial Condition and Results of Operations and also under risk factors. AIG is not under any obligation and expressly disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Today’s presentation may contain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our financial supplement, which is available on our website, www.aig.com. At this time, I’d like to turn it over to our CEO, Bob Benmosche and we will have the opportunity to hear from each on of our businesses and follow-up with the Q&A. Thank you.

Thanks, Liz, and I appreciate being with all of you. This will be my last call and it’s been a five-year period of a lot of excitement and this quarter reflects a lot of hard work on behalf of all of the people of AIG. As I know you, who all know, we started off with a daunting task of stabilizing this company, then paying back America and we have done that with a profit. And since the re-IPO of the company in 2011, where we share with all of you, we have to rebuild the foundation of this company and do it the right way, and build a great company and expected our stock will follow and not lead what’s happening with AIG. And so you can see the solid performance in this quarter. We have talked about making sure we execute our capital plan and it starts off with selling non-core assets, which we have achieved with ILFC, an outstanding sale with -- to AerCap. We have also been able to repurchase and continue repurchase our shares, but we said to you also that in addition to dividends and share buybacks, it’s very critical that we focus our coverage ratio. So you’ve seen us take advantage of the debt markets and reduce our debt with high coupons and in some cases reissued debt, giving us a net benefited because of the lower cost of adding on that new debt, because we don’t have a leverage ratio problem, it’s a coverage ratio problem that we are working to fix with the rating agencies to make sure that we maintain and quite frankly, I expect to improve our credit ratings. You see strong results across all of our businesses, Property Casualty has been working really hard to get it right…

Bob, thank you. And I’d like to thank Bob for the remarkable leadership he has shown over the last five year and I have experienced four and half of those years and it's truly the most extraordinary four and half years of my professional career. So I think that the employees, shareholder and the U.S. taxpayer owe Bob Benmosche enormous thanks for the contribution he has made. And his leadership is awesome to follow up, but I shall do my very best to continue the legacy of leadership with this company. So I am really honored to have been selected by the Board of Directors to lead the company going forward. There is three points I would make. One, that there will be no abrupt change in strategy. This is clearly a vote for continuity. We are on the right track. We are in execution mode. Second, I remain very committed to focusing on value of us is simply bulking up the volume of the company. And third, I will not be replacing myself with a Head of Property Casualty sector. So beyond that, there will be, obviously, some changes overtime and I will commit myself to remaining very transparent with our shareholders as we fine tune and refine our strategy going forward. But I think that this is ultimately a choice for continuing to execute the strategy that we have a great deal and alignment around in the company. So, over to you, David, to go over the quarter.

Thank you, Peter, and good morning, everyone. First, I’d like to extend my thanks to Bob for his leadership, his courage and direction. It has been an honor for me, as well as what -- as well as colleagues to serve with you Bob. So many, many thanks. Now this morning, I will go over our financial results including the impact of capital management and our solid operating earnings performance. I will also highlight our outlook for continued sources of capital management going forward. Turning to slide four, you can see after-tax operating income for the quarter was $1.8 billion or $1.25 per diluted share. Our operating return on equity was 7.7% since our earnings are tax affected and we're not paying tax that U.S. government giving -- given our NOLs. Our operating ROE if you were to exclude the DTA from average equity was about 160 basis points higher or about 9.3%. Reported net income was $3.1 billion, including a $1.4 billion non-operating after-tax gain on the sale of ILFC and little over $325 million after-tax litigation provision for legacy matters and we also had some other non-operating items. Second quarter book value per share excluding AOCI benefited from the net impact of all of these items and was $67.65 or an increase of 10% from a year ago. Our growth in operating income, which is shown on slide five, reflects improved insurance operating earnings for each of our core businesses. Collectively, the DIB and global capital markets or GCM delivered another solid quarter with over $500 million of operating earnings, reflecting the mark-to-market appreciation in the DIB and the unwinding of certain derivative positions in global capital markets. We continue to proactively and opportunistically reduce the DIBs footprint. In the second quarter, we executed on the make whole…

Thank you, David. Property Casualty’s second quarter results continued to demonstrate our focus on underwriting discipline in risk selection. While we've said that no one quarter marks a trend, we are pleased to report the Property Casualty reported second quarter operating income of $1.4 billion, our second highest quarter of pretax operating income in over three years. Our focus remains on balancing growth, risk and profitability right across AIG. Turning to slide eight, AIG Property Casualty net premiums written increased slightly from a year ago, excluding the effects of foreign exchange, as growth in our Consumer lines was offset by lower production in commercial. Property Casualty’s accident year loss ratio as adjusted was 62.7, an improvement of 0.5% sequentially or 8.5% higher than year ago. We continued to expect the accident year loss ratio to decline for the remainder of the year but at the slower pace than we have seen in the last couple of years. This quarter included positive net prior year development of $14 million. Our practice of quarterly reserve reviews continues to give us confidence in our current reserve levels. Our expanse ratio declined 0.4 points from a year ago, as lower acquisition costs were offset by an increase in general operating expenses. The general operating expense increase reflects our Japan integration costs, some of which have been deferred from the first quarter into the second quarter. Our expectation is a little less than half of the $250 million of expected integration costs will be incurred this year with the balance to be incurred in 2015. Through the first six months of the year, we have completed about half of the actions associated with the fourth quarter 2013 severance charge of $265 million. We expect annualized savings to exceed the amount of the severance charge and…

Thank you, Peter and good morning to everyone. Beginning on slide 13, the second quarter of 2014 was another strong quarter for AIG Life and Retirement. We extended our record of consistent performance, generating nearly $1.2 billion of operating earnings and delivering both topline and bottomline growth. Our operating earning income benefited from strong growth in fee income as separate account balances increased for the seventh consecutive quarter. Net flows were over $6.3 billion during the last 12 months, further increasing the scale and reflecting the product and distribution diversification of our businesses. Life and Retirement generated nearly $2.6 billion in net investment income in the quarter with the slight decline from the prior year period, primarily attributable to lower returns on alternative investments. We maintain the cost of funds at historic lows in our fixed annuity and group retirement businesses, through disciplined pricing of new business and renewal crediting rates and runoff of older business crediting relatively high interest rates. These trends helped to partially offset the pressure on base investment yields in the current low rate environment. In addition to strong earnings, Life and Retirement delivered $886 million of cash dividends and loan repayments, as well as $642 million of non-cash dividends to AIG Parent in the second quarter. The Life and Retirement businesses have distributed nearly $6 billion of cash and non-cash dividends to AIG Parent over the past 12 months. The segment ended the quarter with shareholders equity ex AOCI of $34.5 billion, $1.3 billion higher than a year ago. Sales was strong during the quarter, reaching nearly $7.4 billion in premiums and deposits, an increase of 9% over the year-ago period. Growth was driven by retail segment, which delivered a 15% increase in premiums and deposits from the year-ago period. Retirement Income Solutions, which includes…

Thank you, Jay. Katie, could we open up the line to Q&A please?

Thank you. (Operator Instructions) We’ll take our first question from Tom Gallagher with Credit Suisse.

Good morning. Peter, first question, I had is, just a follow-up on your comment that you will expect the accident year loss ratio to decline at slower pace in the back half of ‘14. Does that change your overall P&C combined ratio goal that you’ve put out there or your 10% ROE goal overall or is that just push it out a bit? That’s my first question.

Tom, I think, simple answer, just push it out a bit. I think that we’re clearly experiencing some headwinds in the pricing of U.S. property cat which is an element of our commercial business. But there is softness in a couple of other sectors as well. So the pace at which we get to our ultimate profitability goals is a function of market conditions, but certainly our ambition is to get there and at this point to speculate on exact pace is to speculate on the market cycle. As I mentioned in my remarks, we are diversifying our book of business. So we are less subject to the cycle and focusing on sub-segmentation at a more and more granular levels so that we have greater confidence in these trends in a more sustained way.

Okay. And then just a related question, if you strip out the noise, it doesn't appear that accident year casualty results and commercial improved very much this quarter. First question, is that right? And secondly, what's going on behind that?

I think that the casualty area has gone through the greatest change. So an enormous re-underwriting of the book over the last four, five years, a quite considerable change in our claims practices and so the emergence of loss trends has a fair amount of noise in it. So our actuaries are being quite cautious in recognizing improvements and we are always on a look out for any emerging threats. So I think that we feel confident that the casualty businesses has moved from a significantly wrap negative line of business to now earning its sort of cost of capital. But we still see a room for improvement and growth in this sector, as we applied more refined underwriting tools and better claims practices. John, do you want to elaborate on that anything further?

I think that’s right and Tom, there wasn’t real improvement in the casualty loss ratio in the quarter, that's right, but the accident year loss ratio pressure was really in the quarter driven by a short-tail losses, not just severe but on the attritional side as well. Some of it in the U.S. weather-related losses, some of it in non-property, short-tail lines as well. But to Peter’s point, we’ve done a lot of hard work on the casualty side and we do expect a bit of improvement in the loss ratio performance and that business going-forward.

Got it. And then just one for David on capital management. The first $960 million legal settlement that occurred in July, was that accrued for in 2Q results or is there some loss forthcoming in 3Q related to that?

That had been previously accrued.

Got it. And then is it fair to assume that $2.5 billion refi of the higher coupon hybrid to debt, we should take that as a sign that you really don't need to reduce leverage on a go forward basis in terms of financial debt. I take that to mean that because that obviously improves your coverage ratio and if that’s the case, can we then further assume that pretty much most if not all dividends and tax sharing payments would be available for share repurchase after you have paid interest in corporate expenses?

Well, first of all we don’t give guidance Tom on specific composition of our capital management. It's opportunistic and it’s taking advantage of market conditions, our view of the environment and our balanced approach to both equity and debt. So I wouldn't -- be careful making any sort of broad-based assumptions about what we will or won't do with respect to the mix of debt capital management and equity capital management, they are both important. We obviously have remained committed to capital management and lowering the cost of our overall cost of capital and we’ll do so. I think, you can look to as I said in my remarks, a portion of our after-tax operating earnings, DTA monetization and the monetization of non-core assets to fuel that capital management going forward. So we will continue to be active in both debt capital management and equity capital management for the foreseeable future. That’s a critical value driver for us and we’ll continue to do that.

Okay, got it. Thanks.

We’ll take our next question from Josh Stirling with Sanford Bernstein.

Hi. Good morning. Thank you. Thanks for taking my call. So first let me say, Peter, congratulations on your new role. And Bob, I think we’d all like to say thank you on behalf of AIG's investors, really was very dark days and with your leadership and all of the firm's hard work, it has been really a dramatic recovery so we all wish you the best in your well-deserved retirement.

Thank you.

Thank you.

If I could, two questions. So Peter, the pricing environment has changed a lot in the past couple of quarters. Pricing is now flat and you are seeing pricing actually fall relatively notably in property lines. How can we get comfortable with this? You are saying that you are going to manage the value over volume. You said perhaps property is still at positive RAP and you are going to maintain against your pricing targets. But it’s little -- it’s hard to see from the outside what your pricing targets are, what RAP is by line of business, what RAP you are targeting for example and ultimately I would love if you could just sort of walk us through how you are thinking about your current rate adequacy by line of business, maybe on your RAP measure or on even simpler, what are the target combined ratios you guys are actually trying to get to? And where on the business you are writing today, do you think you still actually have rate need?

Well, I think first of all, let’s put the pricing environment in perspective. The pricing environment three and a half years ago when I started the job, was massively inadequate in the United States, but reasonably adequate in Europe and the rest of the world. There’s been tremendous upward movement in pricing, steadily quarter-after-quarter, since that point. And so we've had a good improvement in the pricing environment across lines, all lines of business in the U.S. And the pace of that increase has slowed but has reversed itself narrowly in U.S. property cat and that's really where the greatest impact of alternative capital and the reinsurance soft market had an impact. We have been diversifying away from U.S. property cat for about five years and diversifying our property portfolio around the world. So we’ve diminished our exposure to that particular cyclical phenomenon. I think that the use of wrap today equips our underwriters and our account relationship managers with much better tools to make a well-balanced judgment over how to manage the portfolio of multi-line relationships with customers to take a balanced view of short and medium-term profitability across lines. And so while, we may not want to renew the same scale as previously, we certainly want to be relevant to our customers and offer capacity and maybe at a different attachment point where we feel we’re getting a better value for the risks that we’re taking. So I just think, we’re much better equipped to deal with the inevitable cyclicality in the pricing environment. And we have a tremendous diversity of business by geography inline, so that we can redeploy the capital to where it's best rewarded in a customer friendly way that maintains valuable relationships. But I don’t know whether John you want to elaborate on that.

Yeah. I think, Josh, what I would add is that it’s not a market, right. There are many markets around the world and outside of the property cat market in the United States, the rate environment was quite stable. In the U.S. in fact, as you know, we have our biggest exposure, all of our other major lines of business, so our rate increases in the second quarter, so longer tail lines. We saw good discipline in the quarter, albeit not at the same rate of increases as we saw earlier in the year and last year. But we were disciplined in the quarter about the property cat business. In the U.S., we walked from more than $200 million worth of property cap business in the U.S. As Peter mentioned, from time to time, we’ve moved up on programs where we had important customer relationships or so of attractive opportunities at different parts or different layers in a program. But when Peter mentioned the diversification, we saw good middle market property growth. We saw a good growth in property outside the United States. We’ve had a large limits initiative underway, highly engineered portfolio, growth initiative over the course of last several years, that all performed reasonably well in the quarter. So it’s again, it’s kind of not one market and it’s not just about price either. We have invested a lot in risk selection, managing our mix of business, important claim improvements and more granular pricing strategy. So obviously, price matters ultimately, but there are other techniques that are important leverage for us as well.

And I just would add that the one AIG that we talk about, when you think about our global footprint and how we are coming across to our multinational science, we bring the full AIG to each country. We’re up until a couple years ago, each country was on its own. So part of what you seek here is the transformation of the company to a more global company, not because we are in many geographies because we operate as one AIG to our clients around the globe and that’s helped us a little bit here as well.

So, thank you. If I ask just -- I will just ask one follow-up on that. If pricing is being a bit more of a headwind, how would you walk us -- can you walk us through the other initiatives you’d use to try to achieve the low 90s combined ratio? And is that still a realistic prospect given that the environmental tailwinds have fundamentally shifted? Thank you.

Well, I think, if the softness segments are so pervasive that the pricing adequate segments don't make up for the lost volume, clearly fixed cost become a very major focus, if we’re going to avoid negative operating leverage. So that’s going to be an important thing to focus on. It's something that we started focusing on long before this change in the pricing environment because we always believed that managing down our fixed cost was essential to not feeling tempted to price the marginal deal to maintain volume. So I think that continued focus on sustainable expense improvement, use of shared services, use of automation, modernizing our infrastructure gives us a flexibility to back-off on volume when it’s not properly priced and then scale it up again when it is. So I think that managing the cycle is dependent on continuing to work on our core infrastructure.

Great. Let me just ask you a quick technical question. Charlie and John, you guys -- just trying to parse what you have said about reserves and the fact that commercial accident year loss ratios especially with backing out severe losses have been basically stable for the past year. Should we be interpreting that you are -- that you are sort of basically holding your accident year loss ratio picks flat and that is the reason we are not seeing improvement and that you are just intending to let the favorable development in commercial sort of eventually power through and sort of demonstrate -- bring you guys to your low 90s combined?

Josh, I would say that it’s a mix of up and down in loss picks but as shorter tail losses move more towards normal levels. As I said, we have elevated levels of short-tail losses through the first six months and the second half last year, and we are comparing against a better-than-expected first half of last year, I would add, as we move to more normal levels, the longer tail loss fix are slightly ahead of where there were a year ago.

Okay. Thanks. Good luck from here.

Charlie, Charlie…

Charlie, yeah.

Do you want to chime in on this?

I think, John said it well. I mean every quarter, we do look at our current accident year loss fix against loss cost trend and rate change, and as John said, there are adjustments in each direction and I consider where we have set them to be absolutely our best estimate at this stage.

Okay. Thanks. Good luck from here.

We’ll take our next question from Jay Cohen with Bank of America Merrill Lynch.

Yeah. Thank you. I guess this is one for David. You talked about the amount of capital that still resides at the DIB and the global capital markets business, but it’s beginning to run off quicker, when should we expect some of that capital to begin to get freed up?

Yeah. Thanks, Jay. And I will lead off and maybe Brian in the team back in New York can add on. We have said over the course of period of 2000, up until about 2018, about 80% or so of the liabilities will mature in the normal course, if you do nothing. We have obviously been more proactive and opportunistic in calling some of those. I think the dynamic that is -- that will impact the amount of capital that gets freed up is actually as the underlying assets monetize, because we are paying off the debt essentially with cash that we had accumulated and so there is not great deal of capital charge and capital tied up in the term debt and the cash that's sitting there. So, again, it will -- we still -- still we would expect a very significant portion of the capital freed up over the period of time. Maybe, Brian, if you want to add a little more color?

David, I think you hit the key points. As we have said in the past, some capital will be freed up between now and ’18, but the bulk of the capital will come out post ’18. The way we run the DIB is something that we call the ace test that ensures. We have adequate net asset value and adequate liquidity to meet both contingencies and obligation as they come due. And as David said as assets monetize as the ML3 assets pull to intrinsic value that capital would get freed up. And in some ways it’s also more function of our ability to proactively go after the liabilities or having to wait till it actually mature.

Got it. Thanks guys.

Okay. Thank you, Jay.

We’ll take our next question from Mike Nannizzi with Goldman Sachs.

Thanks. Just a couple of quick ones and then maybe a broader question, on the Consumer business in the U.S. the combined DIB below 90. I just wanted to get an understanding of sort of what happened there, how much of that was the reprice warranty business and is that sustainable for you?

Kevin, why don’t you take that?

Okay. Yeah. Thanks Mike. Yeah, the warranty is an important part of the improvement as you, I think, are aware, we had another bit of loss ratio in certain products last year and we took quick underwriting action which took hold. But in addition to what we did in the warranty, we have also been consistently filing some rate improvements in the PCG property portfolio which is starting to earn in.

Got it. Okay. Great. And then same question on the MI. It looks like the underlying feedback after development was just below 60? How should we be thinking about that business?

I am sorry, the mortgage insurance?

Yeah. The MI, the united guarantee, it looks like ex-development ran at a sub-60 combined? Is that -- is there anything in that like underlying that we should think about or is that kind of where you expect that you would be running that business?

It’s a business where you have a very attractive combined as long as the housing market stays as firm as it is and as long as employment trends stay as firm as they are. And so we think about it with a cat load that's over and above that steady state combined ratio against the cyclicality. But it’s a very attractive return on risk business at this point in the cycle and as you can see from the delinquency trends very, very attractive. About two-thirds of the business, the results are on business post-crises. So, it’s cleaner and cleaner reserve book at this point.

Great. And then just question, just talking about reserves there a bit? I mean, when we think about, we talk a lot about the combined ratio at the P&C company. I mean, obviously the mix of business is changing from what you wrote historically? How should we think about capital, the capital you are going to need on a run rate basis to sort of run that business as the reserves for some of the longer tail lines run-off, some of which you are not really writing anymore? Is there -- is that something that we should be sort of thinking about as you -- especially if you potentially stop growing or grow less quickly then in some of these capital intensive lines? Thanks.

Yes. I think we have explicit run-off portions of the causality lines which we showed incorporated and other that consume a certain amount of capital and that runs often. And as I said in sub-segments, which are still in the commercial line segment, where we are deemphasizing and shrinking certain long-tail lines, which are capital intensive. But that capital freeze up gradually at those the tails of those businesses start to play out. So, I would say, so four to 10-year sort of the time horizon for that capital to be freed up. But it’s quite substantial and we are redeploying that freed up capital gradually into shorter tail lines where we are getting a better return on risk and so, I think that we are somewhat opportunistic in terms of where we deploy that capital and we have a lot of different choices because of the breadth of our franchise.

Yeah. Mike, I would say in the commercial portfolio at the end of 2010 property was about 16% of our net return premium and is now close to 25%. At the same time, our specialty classes and financial lines grew a bit as a share of the total of two largely coming at the expense of U.S. causality over that period of time.

And I should add that we saw increase in property, there has been no increase in our MPL because we have been diversifying away from the U.S. property cat exposures.

Great. Thank you.

We will take our next question from Jay Gelb with Barclays.

Thanks. Good morning. Peter, two questions for you, one, you initially mentioned that you saw -- you would see no abrupt changes in strategy and we are focused on continuity? Does that mean you anticipate any changes in strategy?

I anticipate changes in strategy as the opportunities arise, but nothing that I would want to signal at the moment, because I think that, Bob, and I have been highly aligned on strategy for the last one and half year. So unless something any external environment changes abruptly in which case we might have to consider abrupt changes. The team as a whole has really coalesced around our current strategy and is in execution mode. So, I think, that's really the signal. This is a great confidence in the team, great confidence in the momentum that we have built and changes in the strategy will be largely refinements in the execution.

Okay. Thanks for that clarification. The other question I wanted to ask is, for you to maintain the head of the Property Casualty business? Do you view that as a temporary situation or perhaps permanent, given the size of AIG, it feels like that’s a pretty big load for one person to carry running more than or essentially being Chief Executive Officer plus being responsible for the largest single unit of the company? And related to that, have you received commitment from other leadership of AIG to remain at the company?

So in the Property Casualty, increasingly John and Kevin running the Consumer and Commercial segments, have assumed the broader strategic leadership that those two very large segments deserve. And we are very focused on making the whole company more flatter in the hierarchy and so want to minimize the layers of management between the CEO and the trenches to improve our responsiveness to customers and market. And so in my view redundant to think about the Property Casualty layer going forward, the leadership that John has on the Commercial and Kevin has on the Consumer provide absolutely right amount strategic leadership that’s needed. So I don’t see any challenges there. And as far as the commitment of the senior leadership of the company, I think we’ve all been through a lot together over the last five years. There were a plenty of reasons for anybody to further to tow in over the last five years I am very hopeful that everybody who went through the challenges over the last five years looks forward to the next five years with as much enthusiasm as I do.

Thank you very much.

We’ll take our…

Katie, I think, we are going to -- we are at the top of hour, so I am afraid we are going to have to get back to everybody who has dialed in and we will certainly appreciate everybody’s interest and look forward to speaking with all of you this afternoon.