Good day and welcome to the AIG's Second Quarter 2017 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over Ms. Liz Werner, Head of Investor Relations. Please go ahead, ma'am.

Thank you, Anthony. Before we get started this morning, I'd like to remind you that today's presentation may contain 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 10-Q and our 2016 Form 10-K under Management's Discussion and Analysis of Financial Condition and Results of Operations and under Risk Factors. AIG is not under any obligation and 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 the slides for today's presentation and in our financial supplement, both of which are available on our website. This morning, you'll have the opportunity to hear from various members of our senior management team including Brian Duperreault, Sid Sankaran, Rob Schimek and Kevin Hogan. And with us in the room today are Peter Zaffino, Seraina Macia and Doug Dachille. The format will follow the past calls then we'll ask you to ask one question and one follow-up and then please get back into queue for any additional questions. With that, I'd like to turn it over to our CEO, Brian Duperreault.

Well, thank you. Good morning. It's great to be here today and talking to you about AIG. It's been busy few months and I'd like to give you a sense of where we are as a company and why I am excited about AIG's future. The second quarter was a great indication of breadth of our businesses and the opportunities for grow they provide. Overall, our second quarter results were solid. Consumer delivered another strong quarter led by personal insurance profit growth. Commercial continued to execute on its mix shift and managed through a very challenging Property and Casualty market. Before I get into the numbers, I want to note that going forward we will no longer be providing guidance or targets, but today I will speak to the actions that will improve the bottom line and drive shareholder value. Financial targets are important in how we manage the Company, but they have to put in balance. I would like to share my thoughts on Commercial, Consumer, talent, growth and capital. Over the past few months, I spent my time in the field and with our business leaders. As you might expect, I started with Commercial. Our goal in Commercial is to improve the bottom line and the best way to do that near-term is to shift our mix of business while continuing the emphasis on risk selection. The Commercial team has made good progress reducing our U.S. casualty exposure, shrinking the gross book by a third from 2015. Those risks were easily absorbed by the market and we’ve seen a market with capacity and underrated prices, terms and conditions that we find unacceptable. Improvements in our underwriting are emerging and will continue to positively impact our results, but we are not done, we still have portfolio that don't meet…

Thank you, Brian, and good morning everyone. This morning I'll comment on our second quarter financial results and provide an update on our capital and liquidity. Turning to slide 4, we reported after-tax operating earnings of $1.53 per share, driven by solid operating performance, led by our Consumer business and in particular personal insurance. Our results benefited from strong alternative investment returns driven by favorable equity markets and lower than expected cat losses. Even after we’re moving except alternative investment returns, prior year development and lower than expected cat. Normalized EPS was $1.33. Book value per share ex-AOCI grew 2% during the quarter to $76.12 and 4% year-to-date. Book value per share growth in the long-term remains an important objective for us in accessing value creation for our shareholders. AIG's adjusted ROE was 10.5% and is shown on Page 5, and our core normalized ROE was 9.9% for the quarter. Capital management, operating efficiencies and personal insurance profitability positively contributed to the core ROE and were offset by increased commercial loss fix from the second half of 2016. The year-to-date core normalized ROE was 9.2%, and we believe we are on track to demonstrate profitability in our core insurance operations for the full year. Consumer delivered another strong quarter and saw 33% increase in pretax operating income relative to prior year. Consumers normalized ROE was roughly 13% for the quarter and 12% year-to-date. Nearly 90% of Consumer insurance attributed equity generated a double digit return this quarter. Commercial continues to execute on a strategy of mix shift and risk selection in a challenging market environment, which is evidenced in our reduction of net written premiums. Year-over-year comparisons are impacted by the second half 2016 increases in loss picks for U.S. casualty and programs as well as an increase in Property…

Thank you, Sid, and good morning everyone. During the second quarter, we continue to execute on our strategy to improve Commercial's profitability by achieving a healthier balance in our portfolio. We remain focused on disciplined risk selection, advancement of our pricing tools and improving our mix of business as we work to create long-term sustainable value for all of AIG's stakeholders. On Slide 8 Commercial's second quarter normalized ROE of 7.6% which includes the full capital benefit from the adverse development cover, represents an improvement from the first quarter and is in line with prior year quarter, after adjusting for the increase in loss picks reported in the second half of 2016. The adjusted accident year loss ratio of 66.1% reflects elevated non-cat property losses and higher loss picks in Liability and Financial Lines, which offset improvements in risk selection, mix of business and strong performance in special risks. We continue to take aggressive underwriting actions across the portfolios poor performing lines particularly with the U.S. casualty and global property. The chart at the bottom of the slide illustrates our focus on risk selection and improvement achieved in our mix of business over that course of last year. However, the pace of our progress is partially dependent on market conditions and as a result we do anticipate quarterly volatility as we execute our strategy. Turning to Slide 9, Liability and Financial Lines reported a solid second quarter normalized ROE of 11.3%, which reflects the full capital benefit of the ADC and strong performance in Financial Lines. The adjusted accident year loss ratio was essentially flat to the prior quarter after adjusting the second quarter of 2016 for the increase in loss picks recorded in the second half of the year. During the quarter, benefits from risk selection and business mix…

Thank you, Rob, and good morning everyone. As you can see on Slide 12, Consumer produced strong results for the quarter. We earned nearly $1.3 billion in pre-tax operating income and expanded normalized ROE to 13.3%. There were a number of positive developments in the quarter which benefited our returns including an unusually low level of loss activity in the Personal Insurance business and strong tailwinds from equity markets, supporting fee income in our individual and Group Retirement businesses. The strength of the equity markets helped to partially mitigate the challenges and impact of the low rate environment on our results. Lastly, we had a onetime benefit from legal developments and group retirements and a positive adjustment to that in our life business. During the quarter, we continue to take further actions to enhance returns, strengthen our platforms and pursue targeted growth opportunities. Turing to Individual Retirement on Slide 13, uncertainties surrounding the impact and implementation of the Department of Labor fiduciary Rule as well as potential delays and possible modifications to the rule have continued to significantly affect distributors, negatively impacting industry sales in particular annuity products. The impact from our distributors focus on implementing the DoL rule along with more invested competition in the fixed annuity space led to materially lower Individual Retirement sales and net flows from a year ago. In the phase of industry challenges, we continued our disciplined approach with respect to product pricing, product features and asset quality; and continue to benefit from our broad product portfolio and diversified distribution network. Net spreads remained strong but are not immune to low rate environment, while increases in policy fee income reflect tailwinds from robust equity markets. Turning to Group Retirement on Page 14, our investments in VALIC to transform the plan sponsor and participant experience…

Anthony, could we open up the lines for Q&A now?

Thank you. Today's question-and-answer session will be conducted electronically. [Operator Instructions] Our first question comes from Kai Pan with Morgan Stanley.

Thank you and good morning. First, congrats to both Brian and Peter for your new positions. My first question is on reserve. You took another like $400 million gross charges like before the reinsurance recoverable. I'm wondering Brian because you start as actuary in AIG many years ago. What's your reserving philosophy? And do you see will it continue in the near-term to see some slow bleeding in terms of reserve charges or another sort of kitchen sink quarter in the fourth quarter?

Hey, Kai, thanks for the congratulations to start with. And thanks for reminding me, I was an actuary in this company once. Look at reserves, you have to be realistic, you got to be conservative, you have to take fax on when they come in that change your opinion about it and you have to have a consistent approach to your process. So what I've seen is a process that I mentioned in my remarks is sound. I think the positions we're taking are reasonable. I think there is conservatism in there, in their approach. But that doesn’t mean that you can have moments both up and down and in old years. But what I've seen in this quarter doesn’t give me pause, doesn’t increase my anxiety that anything. I think it's -- the process has been reasonable and there are some movements, but as I said earlier, I think the current years are put in a reasonable position even though the green I think they're reasonable, didn’t have much activity there that's probably what I'll there. Thank you.

My follow up is on -- I assume, if I may, on capital management. You said you will take a more balanced approach. You no longer give sort of any target for annual buybacks. I'm wondering what's the balance between buyback in your mind, between buybacks and the investments? How do you value the return on buyback buying to a low yield book value versus potential gross opportunities out there?

Thanks, Kai. So with the buybacks, it’s a capital management tool, it's not a strategy it's not a growth strategy in particular. And so, if you set yourself as a company that grows and increases its profits overtime in a sustainable way and developing franchise value then you have to take that capital that you're getting every quarter and deploying it. So that means that a buyback process has to be blended in with deploying the capital in some way that gives you a long-term value. So that’s what we do, I mean we got the capital as management in this company. We've been given that responsibility in charge, to do the best with it, to create long-term shareholders value. And as I said, my priority is to take this capital and find ways where we can increase its franchised value of this company. If we can't, obviously, we would return it. But that would be something I would prefer not to do, if I can find something better to use it with. Okay? Good, next question.

Our next question comes from Ryan Tunis with Credit Suisse.

I had a question and John had a follow-up, but I guess my question is just in terms of the improvement in P&C. How long should we expect this to take? I think you mentioned that some of the problematic lines are property, I would imagine that those are little bit faster to fix in some casualty lines? And where should we see the improvements? Should it be more on the expense ratio side or on the loss ratio side? Thanks.

Okay, well. That's always a great question. I was like how is the piece of string? It takes some time in certain lines, takes longer some another and you pointed that out. They've been working on the casualty for some time -- look at probably works that's been here frankly. I mean it's not easy to do what they have done. And I like the fact that they have been intellectually honest with themselves about what's good and what's not good here. And that’s terrific. I mean that’s another hallmark of the great companies. So, this casualty business it takes time earn out, it takes time to yield its secrets, those things were lobbing. I think a lot of that work has been done, but as I said in my remarks, in those still some -- some of those positions that we have, they are still not reducing a good result. And this market is not going to led us, fix it through price terms and conditions, not going to led us. So that means in selection and that means reduction probably. So if you reduce, you are going to have that premium earn out overtime. So you just going to let that -- you just going to have to let that play out, have to watch us, continue deploy the disciplined that has been deployed. Property is usually a little easier to fix. I mean you can see the results quicker because it's really the last couple of years of activity that’s going to be affective. There are some idiosyncrasies in the property book, it takes a little bit longer like this one, one renewal in Europe as an example, maybe we start some multi line businesses. So, yes, where do you see it, okay. If I reduce business, we stop rating premiums, the loss ratio will go down, the expense ratio is going to go up. Okay, net-net, you better off. So that’s why I said don’t quite -- don’t force me to give you expense number and a loss ratio number because it’s a very complicated new ones process. If the property is going to be attacked, your loss ratios probably going to go up because property tends to have lower loss ratios, and I think that’s occurred already in the portfolio management, the Rob has been doing. It's going to continue. So what we are trying to do is make underwriting profit and that’s a combination of those two and they are going to be in balance. And that’s really what you have to look for. Are we improving the underwriting profit of this company? And that’s the real indicator. You got a follow-up?

Good morning, Brian. This is John Nadel. I think it probably comes as little surprise to most folks who known you for most of your carrier then you talk about an interest in inorganic growth on the Property Casualty side. But I was curious about your comments about some interest on the Life Insurance side. It seems to me in the environment where you can actually monetize pieces of the life portfolio at very high levels, giving some irrational exuberance maybe in long-term or long dated liabilities. I am curious as you think about how to bolster either strategically or directionally the life side of the portfolio. What areas geographically your product sets might be interested in?

Well, I'm going to start this but I might ask Kevin to help me out here. But I think if you look at the life business we have, it is localized, it is substantial in the U.S. But in the U.S., it's quite balanced. We have got nice balance in what we described as life. So, my philosophy is always the balance is a wonderful thing because you can shift from one to other as markets present themselves. So if I am buying an IM, after more balance I think the life business recently expanded outside the US, but it should have those same characteristics as we do, as we do in the U.S. Kevin, do you want to add to that?

Yes, sure, John first of all just as a reminder, we have a very unique position in the United States in the Individual Retirement space, we're a major player in all three of the relevant products, variable investment, fixed annuities and there's little uncertainty in the market right now, but there's going to be a new normal that emerges after the regulatory environment settles down and distributors understand how to respond and nobody's better positioned than we are to be able to serve the needs of that market. And the Group Retirement business is also a business that is extremely well positioned for us. We're in the top three position in the major segment of K-12 upper education and healthcare that our focus is there, so there's tremendous franchise value in these businesses and the spectrum of the entire retirement space that we participate in. And in our life business we worked in the last couple of years to dramatically evolve our distribution and our new business is faster than the quality that we expect and it’s growing quite robustly at this point. We have the opportunity to expand outside the United States and attractive markets according to where our skill sets are and where the opportunities are and you know a few years ago we made a small acquisition in the UK as an example that's actually doing very well. When we started with that business it was entirely an independent financial advisor space we just expanded to our first bank partnership with the Royal Bank of Scotland a program we just launched in the last couple of weeks and we see a lot of upside with that business which is a very attractive albeit relatively modest sized business, but there're plenty of other opportunities for us in various places around the world. We don't provide direction in terms of specifics, but we're certainly in a position to evaluate entry into markets which are attractive which have appropriate legal and structural foundations and which are growth opportunities for us in the medium and long term.

Our next question comes from Jimmy Bhullar with JP Morgan.

Hi, good morning, I had a couple of questions broadly related to things that have already been addressed, but just a little bit more detail. First, on just for Brian, on your comfort with loss ticks and reserves, I'm just little surprised just wondering whether you're basing your views on detailed analysis of reserves or just a preliminary look because for the past several years management's been assuring investors that the Company's becoming more conservative at risk selection, more conservative in setting loss ticks, but we've seen continued adverse development even on recently sold business. And then secondly on M&A, are there any specific, you mentioned what you're interested in -- are there any specific financial targets besides just being a good strategic set that the deals would have to meet for you to be -- for you to execute on them?

Okay, well, let's. Yes, the reserves I can understand your questions around reserves. You know look I'm not the actuary here, so I'm not going to go through the details that the actuaries would do with the finance departments would do. But I am knowledgeable about the business and the process, and so I just spend a lot of time with them understanding how they do it? What they do? What their assumptions are? What the discipline is around the process? How they get their data? And I think what they are doing is sound, and I can’t really comment on what happened before I can only look at what we're doing now, and as I said I think it's reasonable and sound. As far as M&A is concerned, yes, I like accretion. Who does it? I mean I think things should be accretive. It should start with being strategic. I mean we -- we don’t want to double down on things we already do. We want a balance what we’re doing with other things. I'm going to be primarily looking for strategic balance that gives us ways to deploy capital when things we do have issues. Accretion, it’s a wonderful things financially. You would like to see it, improve your profits short-term, but certainly better make it improve the profits long-term. But I also like accretion in terms of people, capabilities, spread. And so that accretion has to be more than just a number, can't just see the profit, better give us a whole lot more capabilities then we have now. Okay next question.

The next question comes from Jay Gelb with Barclays.

On the merger and acquisition front, could you give us some prospective on whether you're looking more for bolt-on size acquisitions or perhaps something larger or transformational?

Look, Jay. If I can find something transformational, who wouldn't do that? Playing the odds the more likely scenario our things that are smaller than what might be described as transformational. Yes, I would mind doing both. But if you’re playing the odds, you got a better chance of doing a series of acquisition then large one, we will see what happens.

That’s helpful, thank you. And then my follow-up on capital management is, I know you not giving targets or guidance. But in this scope of share buyback, should we think of a small fraction of annual earnings as something your mark for buyback and absence of being able to deploy another opportunities?

Jay, if I say I'm not going to give you guidance there I'm not going to give you guidance. So let's leave it at that, but thanks for the question. Next question?

Our next question comes from Tom Gallagher from Evercore ISI.

Brian, I know it's early in your tenure there, but just as you evaluating things. You look at results in the Commercial business. Why do you think AIG has underperformed peers by so much? Is it the right strategy just not enough reserve? Is it too much growth in property? Does something need to be changed with the execution or the strategy? Pretty broad question, but just curious what you're evaluation is there?

Thanks Tom. I guess I could give you a very detailed expensive discussion about all the parts that could cause this, but I think in its simplest form if you're going to outperform the market, you need some maneuverability in that. And I think we got to be a very, very large player particularly in the large Commercial space, such that there really wasn’t a lot of room to manure. And therefore, your ability to select goes down, your ability to get prices that you want to goes down. So what I'm seeing them doing is the intelligent thing, which is to cut back to those areas where they select with the same professionalism or that in did price with the same professionalism that naturally produces smaller book of business, but that book of business should be sound. And the other way of process surrounded should be sound going forward. And that drives the need to reapplying what Commercial is, so it's not just a largest of the large risk, but it’s a balance of full gambit of Commercial business particularly in the United States.

Got you. And then just as a follow-up. You said the 16 billion of reserves that were reviewed this quarter related to some of the more challenging lines. Would it be fair to say that in response to evaluation or reserves from the time you joined through -- into the future that you feel like that was the hardest part, that you feel pretty good overall about the reserves as you think about balance sheet risk and aggregate? Or is it still more with the job with evaluation of reserves.

I think we have to have a disciplined process around this. You don't save everything to the last quarter. So, they chose these, they chose I think wisely because they were some of the more challenging lines as I said. That doesn’t mean that, there isn't a review of the entire portfolio just mean that there is a debt review in one quarter for certain segment, but you are looking at all because we have to set all the reserves. And so as we look at the rest of the portfolio, there wasn’t anything that would have caused just not concerned to do and earlier in that review put it that way. But we will see what happens in the third quarter, but I think I would take that as some comfort.

Our next question comes from Paul Newsome with Sandler O'Neill.

I was wondering, if you could -- maybe just kind of review where you did end up at the end of the day relative to the old target of the capital return in such, throughout the trade. I realized that’s not prospectively what you are focused on, but I think some general thoughts is to whether you not, you think this game was ultimately successful in region strategy is ultimately successful?

Hey, Sid, why don’t you take that one.

Thank you, Brian. Paul, as I said in our remarks, we've retuned over $20 billion of capital in the past 18 months. It would be announcement of our dividend. So we have done that and the most important thing that we've alluded to here is we have an extremely strong balance sheet and are well positioned for the future. So, $7.8 million apparent liquidity and extremely good cash flow projection. So I think I can leave it that.

The follow up -- yes, I am thinking capital allocation respectively. Am I right to think that we should end up with more capital allocation towards the life businesses in general? And maybe you could talk a little bit about that?

I think this is -- it’s a great question. I mean the Life business was going to be the area where we felt we had a strongest change of delivering superior returns and by the way that’s doing pretty well. Then, the answer will be, yes. I think everybody is presenting me with ideas about where we could deploy it and the best story wins.

Our next question comes from Meyer Shields with KBW.

I think my first question is for Rob. I'm just trying to understand given the -- cutting it so much really, really bad business in Commercial while we didn’t see improvement in the underlying accident loss ratio and financial liability.

What I want to emphasize within Liability and Financial Lines is that we've had a lot of effort to improve our risk selection of business mix and reduce the reserve volatility. And just remember, we've achieved an 11.3% ROE this quarter, and so first thing I would say is, if you just pause on that we believe that we've got a clear path to an ongoing double digit ROE which is sustainable, and that's really reflecting the quality of the mix of business that we've achieved. I think we had a great quarter with respect to Special Risks as I mentioned. So actually Q2, our return there was even better than Liability or Financial Lines. And so, it really brings you back to property and I think Brian talked a bit about that, I think what I would emphasize for you is there's really three elements to us for Property. We've done a very good job of managing our cat exposure both with improved modeling, risk selection and user reinsurance. Our sub-year losses as a percentage of the premiums that we're earning in Property and Special Risks have continued to come down, year-over-year. And that leaves us with improving the attritional loss ratio in the property book. And as Brian mentioned you know in particular, we've got our sight set on Northern Europe, but there's timing issues associated with when you can actually make those moves, so just to put it in context for you, 55% of our property book in continental Europe were used on January 1st. So the next bite of the apple is not until January 1st of 2018, and the two most challenged countries in Northern Europe are Denmark and Germany and 70% for their book renews on January 1st. So, there's just structural impediment to being able to move it faster, but if you ask about the confidence and the actions that we've taken. I'm completely confident that we've been taking the right actions to achieve the results.

I might add that. You know look, it's a very competitive market so you know you can have a very nice piece of business portfolio today and then it's tax and price terms and conditions and you got to react to it. So you know it's a constant play. This is something kind of market where you can just go out and write a whole bunch of new business and declare success. So I think Rob is Rob, he is fighting with pressures of the market at the same time to continue to keep his Liability business in particular in a position to returning that, those good returns on equity. Do you have follow on?

Yes, just a quick one, Brian. You mentioned in your introductory comment and I think you're right that AIG is no longer should qualify for non-bank city status. Can you talk about what that would imply if that designation was removed?

We'd imply we wouldn't have the fed as a regulator, we regulated again by the states. We're still regulated by the states. So, we would lose the fed as the group supervisor, simple as that.

Our next question comes from Brian Meredith with UBS.

Thanks, welcome back Brian. First question is. How long do you think it takes to get the platform in Commercial Line space Brian to where you'd be comfortable in kind of growing organically profitably?

By the way thanks, it's nice to be back, Brian. Well, in the Commercial -- the Commercial book is, it isn’t just one thing right. So, you heard from Rob that the specialty business has been performing well and the financial or the financial and liabilities are performing well. So, those are areas that we look to expand in growth as the market and let's say our professionalism allows us to do that. In some of the cash business, I just don’t see it, I really don’t see it. And property is a mixed bag, property is a mixed bag because there is something that like in Europe that we should be doing, we will be doing those both to improve the book and business that we can go answer and that in a greater way. So it’s a broad front kind of business and again it's concentrated at the higher end. So the other thing is to get into down, down the risk chain as well and expended in that area.

And going down the risk chain that was my next question for you. Do you have the distribution relationship to kind go down that risk chain right now? And is this the platform there to go down? Or is your some build out still need?

No, the answer is not really and that been an area that AIG has done well overtime, and so we don’t have the classic distribution channels for the small business. Now, we have Seraina who is sitting here with us right now, developing a portfolio of business and the technology around it, which would go after that business but in a way where we would develop to technology the kind of distribution we would need. So that’s at the lower end of that business. We have Rob at the higher end of the business. And we do play to some degree in that and that tends to be match our existing distributing channels where the business is on the larger end of the middle market or it’s the business that has the certain characteristic terms in this risk profile, where may be its not a large sales or large employee population company where they has certain characteristic that naturally fill our skills sets. So, Rob will be working in that area stronger. Seraina will be working in her area stronger. And we'll see what else out. Next question?

Our next question comes from Jay Cohen with Bank of America Merrill Lynch.

Just I guess may be one last try this capital management topic. Brian, should we expect an outright pause in buybacks in the near-term as you start to build up capital?

Look, this is great. Thanks a lot. Okay, so I think I said it already look at the -- let's just do it in probability, right. The chances that we will be buying, at the levels that we've been buying, a very low, let's just put it that way. But that doesn’t mean we won’t necessary use that tool. What Sid said is, it’s a tool and you use the tool opportunistically. So if I see that it is the right thing to do, the opportunity is there for us, I will deploy the tool.

Okay understood. Second question, maybe for Rob and for you. On the Commercial side, it sounds as if the premium declines are now likely to continue and that makes sense. Will you have to take another step at expenses as well as just to descend to some extent the expense ratio?

Let me answer that. I said it earlier like expense discipline is the way of life, I mean if you don’t have -- if you are not running your company, it's one of your leverage, if you are not running your company with attention to your expense in this kind of market and this is usually the kind of market we are in. Then you are going to fail eventually. So, yes, expense will continue to be something we will look at all the time, all the time. But I want to emphasize that we will spend money too. And if we have a rising expense ratio with an improving bottom line, I'll be happy guy too. So I'm not -- I want to put it -- it’s a balanced situation where we will continue to reduce our cost, because our cost structure is high. But we are going to invest in areas that one will help us, we'll repeat when gives us a growth are. And if I had to choose between reducing the volume because it's not reducing the profit, but that would cause the expenses to go up, I am going to make that choice all day long. That’s it, everybody else up.

Thank you, operator. We appreciate you joined our call this morning. We know you have a lot of calls, so with that I think we will close day and we will look forward to following up with you on any additional question.

I just want to thank all the people in AIG for great work.

That does conclude today's conference. Thank you for your participation.