Good day and welcome to AIG's Second Quarter 2018 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, ma'am.

Thank you, Kevin. 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 second quarter 2018 Form 10-Q and our 2017 Form 10-K under Management's Discussion and Analysis of Financial Conditions and Results of Operations and under Risk Factors. AIG is not under 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 the slides for today's presentation and our financial supplement, which is available on our website. The format for today's call will follow past calls. We will have one question from each analyst and a possible follow-up question and then we would ask that you get back into queue. We would like to answer as many questions as possible this morning and today you'll have the opportunity to hear from members of our senior management including Brian Duperreault; our CEO; Sid Sankaran, our CFO; Peter Zaffino, our CEO of General Insurance; and Kevin Hogan, our CEO of Life and Retirement. With that, I'd like to turn the call over to Brian.

Thank you, Liz. Good morning, everyone, and thank you for joining us. On today's call, we will provide an overview of our second quarter financial results and an update on our strategic and operational objectives for the second half of the year. We continue to work with a sense of urgency as we take actions designed to establish a culture of underwriting excellence and to leverage the strength and flexibility of our diversified businesses to invest what we see meaningful opportunities for value creation. The actions we are taking to design the position AIG for long-term sustainable and profitable growth. For the second quarter, we reported $1.3 billion in adjusted pre-tax operating income which included low cat losses and high severe losses in General Insurance. Our calendar year combined ratio was 101.3 and our adjusted accident year combined ratio was 101. Going forward, we will continue to highlight relevant noteworthy items, but these will be two of our primary metrics. As I mentioned last quarter, we expect to deliver an underwriting profit including AAL and General Insurance as we exit 2018. And we remain confident we will achieve this goal. The restructuring charge we announced this morning reflects our focus on cost reductions in General Insurance and at AIG headquarters, which will continue over the balance of the year and which we expect will contribute approximately two points of decline in the combined ratio. In addition, Validus should contribute approximately one point and we expect the remaining improvement will come from our underwriting actions and reinsurance strategies. Looking ahead to 2019 and beyond, our goal is to deliver top quartile financial performance relative to the industry. General Insurance continue to execute on its other strategic priorities such as improving core performance by refining the portfolio, adding highly respected industry executives…

Thank you, Brian, and good morning, everyone. This morning, I'll comment on our second quarter financial results, our capital and liquidity position and provide an update on Validus and DSA Re. Turning to slide 4, we reported adjusted after tax EPS of $1.05 per share and an adjusted core ROE of 8.2%. Adjusted book value per share which excludes AOCI and DTA had solid growth and was $57.34 at quarter end, up over 2% for the quarter. Book value per share excluding AOCI was $68.40. On slide 5, we've highlighted specific noteworthy items for the quarter. In addition to the items Brian noted, General Insurance second quarter net premiums earned also included $115 million nonrecurring increase related to multiyear installment policies in North America Commercial. Our Life and Retirement businesses delivered another strong quarter with the reported adjusted ROE of 15% which benefited from $51 million of net pre-tax actuarial adjustments. This reserved adjustment was comprised of a $98 million benefit related to the domestic Life Insurance, offset by an unfavorable adjustment of $47 million for Individual Retirement. As Brian mentioned, we also recorded additional pre-tax restructuring charges in non-operating results of $200 million during the quarter, largely related to General Insurance and our ongoing efficiency program, which we expect will generate approximately $450 million of annual run rate expense savings. In addition, we are making progress in reducing non compensation expense such as vendor spend and remain confident in hitting the expense goals required to deliver an underwriting profit. Net investment income from our insurance operations including the Legacy insurance portfolios totaled $3.1 billion in the quarter or almost $6.5 billion year-to-date which is tracking the $13 billion full year guidance that we provided in the fourth quarter. While our returns on alternatives and fair value option securities were…

Thank you, Sid, and good morning. My comments today will focus on the progress General Insurance has made in executing against our key priorities and update on the Validus acquisition which recently closed, our second quarter financial results including an overview of current market conditions and our expectations for the second half of 2018. As Brian shared, we continue to focus on achieving underwriting profitability on an exit run rate basis by the end of 2018. Our top priority is to improve the core performance of General Insurance through risk selection, altering our mix of business, managing gross and net limits to reduce volatility and continuing to add high quality underwriters to our team. Tom Bolt, our Chief Underwriting Officer, is partnering with our business leaders to implement a new underwriting framework to better position us in the market. We started to reduce gross and net limits in both property and casualty during the first half of the year. And we are taking actions to improve financial performance in challenged areas of our business. As I've discussed previously, our revised underwriting and reinsurance strategies will result in a better net mix of business and an improved risk profile. Since last quarter, we expanded our European Casualty excess of loss program to cover the entire international business and entered into a new U.S. terrorism facility that reduced net exposures for our in-force commercial property policies. In addition, we're actively engaging with our reinsurance partners on opportunities for the second half of 2018. From an organizational perspective, we continue to make significant progress. The General Insurance leadership team is in place with Anthony Vidovich, our Chief Claims Officer; and Mark Lyons, our Chief Actuary, having joined AIG during the second quarter. As a team, we have invested a significant amount of time…

Thank you, Peter, and good morning, everyone. As you can see on slide 14, Life and Retirement delivered strong results for the quarter with $962 million in adjusted pre-tax income and an adjusted ROE of 15%. As Sid mentioned, our results benefited from net positive actuarial items with positive and negative adjustments in some of the business lines. This benefit was offset by lower yield enhancement and alternative investment income as well as higher gross operating expenses compared to the prior year quarter. Last year, gross operating expenses benefited from the release of a legal reserve in Group Retirement. Asset growth over the last 12 months drove increases in total investment income and fee income. We continue to deploy capital to attractive opportunities, leveraging our broad product portfolio and channel strategy. We increased premiums and deposits across our businesses emphasizing growth in Fixed Annuities, Index Annuities, Group Retirement and Life Insurance and executing opportunistic transactions in Institutional Markets. We continue to see growing contribution from our international businesses and strengthened our U.K. individual life platform with the bolt-on acquisition of Ellipse, a small technology-driven group life business focused on the small and medium sized employer market. Ellipse represents an excellent strategic and financial complement to our U.K. business, which has performed well and already represents around 20% of our worldwide life new business. Now, I will briefly discuss results for each of our businesses. Turning to Individual Retirement on slide 15, Variable Annuities sales remained low in the quarter as we chose not to deploy capital at returns below our hurdle rates. We delivered strong Fixed Annuity and Index Annuity growth for the quarter and net flows improved for both of these product lines. Overall Individual Retirement net flows remained negative and were down from the prior year quarter due…

Thank you, Kevin. Before we open it up to Q&A, I want to highlight all the progress we've made to-date, and how well positioned we are going forward. When I rejoined AIG, I said we would pursue profitable growth that is organic and inorganic. This past July, we closed on the company's first acquisition of size in 17 years by acquiring Validus. You also heard us speak of the year of the underwriter and we created a leadership team of industry experts with proven track records. As said, our composite structure provides meaningful value to our stakeholders and this quarter showed the balance Life and Retirement's consistent earnings double-digit returns and strong cash flow bring to AIG. And finally, we described our prudent approach to managing capital. Yesterday, we announced the partial sale of DSA Re, another significant step to exit our Legacy business allowing us to deploy capital at higher returns. All these actions move AIG towards profitable and sustainable growth. We continue to pursue top quartile performance with a strong sense of urgency. I could not be more pleased with the leadership team and colleagues across AIG, and I'm confident that our financial results will soon reflect their efforts. And with that, we'll turn it over to Q&A.

Thank you. We will now take our first question from Ryan Tunis of Autonomous. Your line is open. Please go ahead.

Hey. Thanks. Good morning. I guess my question was in General Insurance looking at the attritional loss ratio, and even assuming, I guess, just the average cap – I'm sorry, severe loss load. There wasn't any sequential improvement, it was around 63%, 63.1% just like last quarter. Just curious why wouldn't (34:46) I see more improvement there on the non-property side?

Peter, do you want to do this?

Sure. I think we have. If you were to take our 2017 year-end exit and you adjust and taking what we saw for increased frequency on the severes, what we've done in terms of some of the Personal Insurance has actually seen a benefit of around 100 basis points. I think some of that is just, again, masked with some of the other things that are happening where we had a little bit more frequency on attritional and our International Commercial and a little bit of business mix shift in the United States, and saw a little bit more frequency in our high net worth book than we have on keeping up with loss cost trends. So I think all-in-all, we had seen a slight improvement. It's just that there's a little bit more variables in the second quarter that doesn't necessarily identify it.

Yeah. Thanks. And then...

Okay, Ryan?

Yeah, sorry, I guess just on reserves curious about an update on what you guys have, I guess, gotten through year-to-date? And is it that there's more in the Casualty stuff still to be looked at in the third quarter and fourth quarter? That was one question. And the second part of that was mentioning in some lines you guys are seeing some signs of elevated loss trend but then your actual or expected still look pretty good on the reserves. I guess just trying to square those comments and why we shouldn't necessarily be concerned that pickup in loss trend could translate to some charges. Thanks.

Okay. Well, we did about 20% of the reserves in the second quarter. Obviously, 80% to go, some of that was Casualty, there's some Casualty to go. But I think you had to keep in mind that we look at all of it. I mean we don't just look at the 20% and not look at the 80%. So if we had seen something untoward, we would have pulled it forward. We didn't see that. So, I think, all-in-all I'm quite pleased with where we are with the reserves activity. Yeah, you could see increases in maybe some loss activity which might adjust our 2018 accident year numbers, so we would raise those a little bit but that would not necessarily affect loss reserves for 2017 and prior. And there, things are holding well. So we're not, as I say, going back to looking at 100%. All of that seems to be fairly stable. So I hope that answers the question, Ryan. Next question – next questioner? Josh?

We will now take our next question from Josh [Deutsche Bank Securities].

Hello. Thank you. So my two questions are very similar. One is what is the improvement expected on a run rate basis from the inclusion of Validus' numbers into your combined ratio? And two, how much improvement do you expect to see in the expense ratio in 4Q from the restructuring initiatives you report during the quarter?

Yeah. In my prepared remarks, I said one point for Validus.

Only one point, okay.

Well, you know it's about 10% of the portfolio and it produces a good combine. So I think that's a pretty good number one point because it adds a very significant good underwriting combined business to our portfolio. But it is 10%. I also said that we've got a restructuring charge in the second quarter, we're going to continue to do work in the remaining second half of the year. All-in-all with the restructuring and other things that we're addressing in expense, we would expect the expense ratio for General Insurance to improve by two points.

In the next six months or over the longer-term?

Well, no, I put that out so you could get some understanding of when I talk about entering 2019 that business would be showing a 2% expense ratio improvement. Now, you know you could have expense ratio improvements but it won't necessarily all show up in fourth quarter because you could still have some spend -- partial spend in the quarter that would be discontinued by the end of the year. So it's an entry rate into 2019.

We will now take our next question from Yaron Kinar of Goldman Sachs. Your line is open. Please go ahead. Yaron Kinar - Goldman Sachs & Co. LLC: Thank you very much. My first question is around -- some clarifications around the exit target for 2018. When you say exit, is that a 4Q target or is that really where you're starting 2019? And then, when you've talked about the 1% improvement -- potential improvement from Validus, is that with or without PGAAP adjustments, namely is it with lower amortization for deferred assets -- deferred acquisition cost, sorry?

Well, let's take the exit first. So the fourth quarter will be based on earned premiums that were produced over the previous -- written premiums over the previous 12 months. So I'm not saying the fourth quarter is going to be under 100, but what I'm saying is the earned premiums that we produced which enter into 2019 in the first quarter we expect to be producing a combined ratio under 100. And we would expect further improvement through the year. I'm not going to tell you what my numbers might be. But I'm trying to get across to everyone that there is improvement in this book. It's not a straight line, but the line is an improvement line. And we will start to show underwriting profitability, not anywhere near where it should be, but we'll start to show underwriting profitability as we enter 2019 and exit 2018. And Validus is the – it's the published results to Validus, so it's going to include all the adjustments that would be made. Yaron Kinar - Goldman Sachs & Co. LLC: So in other words the Validus part will not include the deferred acquisition amortization?

Well, we haven't concluded on our PGAAP work. We'll update you in the third quarter on our numbers if that's what you guys are asking for the size of that. Yaron Kinar - Goldman Sachs & Co. LLC: Okay.

We will now take our next question from Mr. Kai Pan of Morgan Stanley. Your line is open. Please go ahead. Kai Pan - Morgan Stanley & Co. LLC: Thank you and good morning. First question to follow up in the combined ratio. And if I start with 101 percentages combined ratio in the second quarter you take out two points from above average severe losses and then two points improvement from expense ratio and one point from Validus, then adding back four points AAL you're essentially at breakeven 100%. So my question is that you probably won't stop there. So where do you see opportunities for further improvements beyond 2018?

Well, thank you for the arithmetic on that. I said why wouldn't it be the top quartile and how do we get there? You got to continue to address the underwriting that we've been doing. We have to see the results and believe the results saying Casualty where it takes a while for the improvements to manifest themselves. So we will have loss picks which we will be -- which will have some conservative nature to them as all reserves should and we'll let those emerge and we'll see what happens. So our expectations and improvements we're doing will show up even great over time, but we need to see it. And you need to see it. So it's a market that is dynamic and prices are -- movement all the time. So you have to continually address what you're doing on a daily basis. And that could mean, you buy more reinsurance, it could mean the volumes go down, it could mean that prices are hardening and your volumes go up. So it's an actively managed portfolio. That actively managed portfolio will continue to improve and one of the big issues is our expense levels. Our expense levels even with that 2% improvement is nowhere near where it needs to be. So you'll see us address not just the pricing side and the loss ratio, but you'll see us address -- continue to address the expenses. Expense management is a way of life. It's got to be a way of life in this company. And I think those are the two things will get us down to -- get us to that top quartile position. Kai Pan - Morgan Stanley & Co. LLC: That's great. My follow-up on the DSA Re, do you think the partial sale make it even harder or easier to eventual divest the remaining 80%? And what are your plans for the other three Legacy books?

Well, okay. So it's a partial sale, make it easier or harder. Well, we have a partner and we are working together to create the companies -- a truly standalone company with an operational capability that I believe would make it easier not harder. And it gives us the optionality to do that or not do that. So I think it's a very good trend that we have. The rest of the Legacy, as Sid pointed out, we've been managing the Legacy for a long time. I think the results speak for themselves. We'll continue to look at it. If there's opportunities to do something else with the remaining Legacy, we will. But I think it's getting to a point where it stops being as noteworthy. Sid?

Yeah, I mean I think with this transaction that addresses the vast bulk of our Legacy portfolio, there are some remaining pieces which are both on the liability side and investment side. But we'll deal with those, of course, in what I would call normal course here. I think we're very pleased with the progress that this transaction represents.

Next question.

We will now take our next question from Elyse Greenspan of Wells Fargo. Your line is open. Please go ahead.

Hi, good morning. So my first question, going back to the General Insurance margin discussion, so if we back out the severe losses -- the access level you guys are about in line with like you said the exit run rate from last year. So you've spoken a lot of time on the last several calls about all these business mix improvement initiatives, re-underwriting, purchasing and more reinsurance which seems to be a big part of the improvement you expect. Should we start to expect to see some of that flow through in the back half of the year in the third quarter or the fourth quarter that would drive some improvement away from the expense initiatives and bringing on Validus? Or just given how the earned comes in, is that more a part of improving on the combined ratio once we get into 2019?

Peter?

Yeah. So what Brian said in his opening comments, I mean really the components we talked about expense, we talked about Validus, we expect to see improvement in the accident year loss ratios over time and so was an example of that. We're getting rate on property. We saw a positive trend. It was one quarter, but on the attritionals and property. And so if you normalize out some of the severe and see some of the attritional as we go from a large limit strategy to a more concentrated, we still have a very big presence in the market in terms of our ability to put out limit, but we're going to watch deductibles, we're going to watch in terms of how much risk we take on any one in particular account. But that also goes into how we are positioning excess Casualty financial lines and a lot of our businesses across all of AIG. And then I think the reinsurance, Elyse, was what we had talked leading up until now has been heavily focused on reducing volatility, making sure we're addressing some of the large limit. We saw benefit in the PML. We've seen benefits in AAL and property. And as we look to the back half of the year, we're going to look at our entire portfolio, in particular, Casualty and be very strategic on how we look at the reinsurance with partners in the reinsurance market and we would expect to see a benefit from that in 2019.

Okay, thank you. And then my second question you guys just recently closed on the Validus transaction. Brian, you've spoken a lot about M&A and your aspirations to continue to grow the company. Now that that deal is done we're sitting halfway through the year, how are you thinking about additional M&A opportunities from here? And what things are you considering on both the Property Casualty as well as the Life Insurance side?

Yeah, thanks, Elyse. Well, I think I've said this quite a few times in these calls about what priorities we would have. And yes, I always look for acquisitions. But we have our standards and Validus was a great example of our standards. I mean it filled in parts of portfolio that we didn't have, it added great people and capabilities to the company. So we continue to look for businesses that do that that, that bring great people make us better and add to the portfolio mix. So Life Insurance would be a place I would look if I could. So where we have somewhat -- we're somewhat confined geographically if we could spread our capabilities out, we have got great skill sets around retirement, the demographics of this world are pretty consistent, people getting older and more in need of our capabilities every minute. If we could find that, that'd be great. We have an international footprint. I'd love to maximize that better than we have in the past and then there's elements of our General Insurance business in the U.S. where we're dominated with large Commercial where I'd like to have some balance large and small. Now, having said that, acquisitions are very difficult to predict, a lot of things have to go right and I can't tell you we'll do one anytime in the near future. I just don't know. But I do look and you can't find a great one if you're not looking. So we look. Okay, next question.

Thank you. Our next question comes from Mr. Tom Gallagher of Evercore. Your line is open. Please go ahead.

Good morning. First, say, just on DSA Re, the $3 billion potential GAAP book value write-down that you'd referenced for the reinsurance. Would that – if you do take that and that assumes if you divest it, would that reduce allocated equity to the Legacy segment or is that not going to be an adjustment there? And my related question is because if you strip out the $3 billion from DSA Re, it would imply you still have, what, $5 billion or $6 billion of allocated equity in Legacy. So I'm just curious, what is left in there and is there that much capital or equity still in the run-off lines?

No, Tom, I think you're spot on. The intercompany that we referenced is in Legacy, and so any impact would reside in the Legacy segment to book equity. And the remaining – in response to Kai's question, the remaining pieces of Legacy outside of DSA Re and this would be relatively small. So there's a small subset of insurance liabilities, which we feel we largely can manage in normal course and then a small subset of invested assets, which I think our CIO, Doug Dachille and the team have done a great job on over the last couple of years.

Got it. And then my follow-up is, Brian, if I'm following the numbers here correctly, you get the 1 point from Validus, an improvement in the combined that you're expecting 2 points on expense ratio. And if you're run rating right now 103, 104, those two levers pretty much get you to your target. Does that imply you're not expecting much improvement in the underlying loss ratio or is that incremental? How should we think about that?

Well, I highlighted the two just to let you know that there is quite significant clear work that has already been done. So the rest of it is the activity around the loss ratio, and we expect that to improve. We expect that to improve. And I said the further improvement between that – the reinsurance is also an additional part of how that's going to improve. And you want to make sure you cross the line. So, you need to make sure you go a little farther than maybe indicated so you go far enough. So we would expect all of that puts and takes to get us under that 100 as we cross into 2019. Next question?

Thank you. Our next question comes from Mr. Jay Cohen of Bank of America Merrill Lynch. Your line is open. Please go ahead.

Thank you. On reserves, you have a new Chief Actuary one with really great experience. Is there any plan to change the methodology with which you examine and assess your reserves?

Yeah, he's a great addition. We talked about him earlier. Well, look, he's a thorough professional and he will, I hope, do continuous improvement on what we do so that we remain – that we continue to improve constantly. So I can't imagine that we would stay status quo. Now having said that, I've said earlier in previous discussions, I'm comfortable with our methodology and process, but everything can be improved. So I fully expect that he will continue to improve it. Yes, absolutely. Go ahead, Jay.

Got it. And then the second question, with the transaction with Carlyle, does that transaction suggest the pace of the run-off of DSA will accelerate or slow down or not change?

Sid?

Well, I think, Jay, it's Sid, as we've reminded you, I think obviously the liabilities for DSA of course are very long duration in nature, so well north of 10 years. So just simply by executing the transaction, I think we've accelerated the pace. And everything we do is around evaluating what maximizes value and we felt this transaction maximizes value for us.

Yeah. I mean, it's going to run off the way it runs off. I mean, I don't think the sale of it in any way changes how it's going to run off. If it goes faster, it goes faster.

Okay.

Next question?

Our next question comes from Larry Greenberg of Janney Montgomery Scott. Your line is open. Please go ahead.

Good morning. And thank you. So it looks like you removed the AAL line from the supplement this quarter. I'm just curious your rationale for that? And then if you could, I know with Validus you, I believe, said that your aggregate shouldn't increase. But can you give us an idea of how to think about CAT loads going forward?

Sure. Let me – I'll let Peter talk about the Validus and the aggregate and everything. So look, we are cognizant of AAL, mentioned it earlier. We know we've got to recognize that there is a recognition of the long-term nature of the catastrophe exposures that we take on. But I want to be consistent with the way we report versus everybody else and so we will update our thinking on AAL. But I just – I'm not going to go through all the arithmetic of with and without so that when we talk about our numbers, they're easily comparable to the rest of the industry. But you will have the information that you need to do whatever you need to do to include the AAL. Now, Peter, do you want talk about the Validus and our aggregates?

Yeah. So we talked, I think, in the past couple of quarters about the PML reductions. The AAL's for AIG alone dropped about 20% from five to four through actions of re-underwriting as well as reinsurance. When we were doing diligence on Validus, again, we will need to refresh it but we just basically kept them flat where they had about an 8% load for AALs and made that – the combination has AIG and Validus down about in the 4.5% plus or minus range. So even with the addition, we're below where we were at this time last year and as we exited 2017 and expected that the combination will be slightly lower than where last year. We'll give you an update as we look to the third quarter and fourth quarter.

Okay. Thank you. And my second one and this is probably not a question you would look for to answer, Brian. But I think the world is just kind of wondering. There was a restructuring program prior to you getting to AIG. And I think the world is just wondering if anything was really accomplished during that time? I mean it really feels like you guys have had to go back to ground zero and start from scratch and just wondering if you'd be willing to comment on that.

Well, I don't know, Larry. In fairness a lot was done. $2 billion of expenses were taken out. I mean, please, that's a lot of -- that's heavy lifting. That's a lot of stuff. But once that was all done and you take a look at the results, the expense ratios remain high. And so, all it said was more needed to be done. That was a beginning but not an end. And I said expense management, it's got to be a way of life around here. And so we'll continue to look at it. We have to address, maybe some things weren't addressed. We're addressing it now like our manual processes and things like that. But no, I don't want to -- no, it's not fair. There was a lot of good work being done prior to my arrival in expenses. We just have to continue it. That's all.

Well, we are running out of time. So I think at this point, we should end this and I just want to, once again, thank the investor community for staying with us on this. It's not a straight line, but it is an improving line and the results will begin to show themselves. I want to thank all my colleagues the great work that you're doing as we make this company a great company. So thank you, everybody.

This concludes today's call. Ladies and gentlemen, thank you for your participation. You may now disconnect.