Good day, ladies and gentlemen, and welcome to AIG’s First Quarter 2019 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Liz Werner, Head of Investor Relations. Please go ahead.

Good morning. And 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 and 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 quarter 2019 Form 10-Q to be filed in our 2018 Form 10-K under Management’s Discussion and Analysis of Financial Conditions and Results of Operations, and 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 the slides for today’s presentation and in our financial supplement, which are available on our website. This morning, we ask again that you limit yourself to one question and one follow up. We're joined in a room today by members of senior management, including Brian Duperreault; President and CEO; Mark Lyons, CFO; Peter Zaffino, COO and CEO of General Insurance; and Kevin Hogan, CEO of Life and Retirement. At this time, I’d like to turn the call over to Brian.

Good morning and thank you for joining us today. Our first quarter results reflect the significant foundational work we've been undertaking since late 2017 and that described to you in detail on our last earnings call in February. I’m pleased with our progress to date and remain confident, and will continue through the remainder of the year. Today we will provide additional detail on our financial results as well as progress we're making on a number of fronts in our General Insurance, Life and Retirement and Legacy segments. We're changing our usual line. So after my opening marks, I will be followed by Peter Zaffino, then Kevin Hogan. And Mark Lyons will close our prepared comments before we move to Q&A. In the first quarter, we achieved an adjusted after-tax EPS was $1 58 compared to $1.4 in the first quarter of last year. This reflects significant improvement in the core operations of General Insurance in addition to increase investment income due to the rebound and equity markets. Mark will provide more detail regarding the positive impact investment income had across our businesses, which represent $0.32 of our EPS improvement year-over-year. In the first quarter, General Insurance achieved an underwriting profit of $179 million in a calendar year combined ratio of 97.4. First quarter accident year combined ratio as adjusted was 96.1. This quarter's underwriting profit represents a significant milestone for AIG, and reflects the tremendous work undertaken by Peter and his leadership team over the last 18 months to radically improve underwriting fundamentals. Overall our approach to reinsurance dramatically reduce risk and volatility, onboard acquisitions and then still continuous expense discipline across General Insurance. We remain confident that GI will continue to improve its financial performance and deliver and underwriting profit for the full year 2019 as already evidenced…

Thank you, Brian. Good morning, everyone. Today I will share high level financial information for General Insurance. I will explain on Brian comments and highlight some of our accomplishments in the quarter, including notable financial progress that’s being realized its result for our underwriting strategy and the overall repositioning of our business. I will provide insight on our revolving reinsurance program, which had substantially reduced and accelerated volatility containment. And lastly, I will provide market observations based on our experience in the first quarter and make some brief comments as we look ahead to the rest of 2019. As Brian noted since the beginning of 2018, we've been undertaking significant foundational work in General Insurance around organizational structure, talent recruitment and improving underwriting capabilities, while at the same time rapidly evolving or reinsurance program and exercising expense discipline. As a result, in the first quarter of 2019, we achieved an accident year combine ratio; including actual CATs of 98.8% or 96.1% as adjusted. The calendar year combined ratio was 97.4%. The accident year loss ratio, excluding cash for the quarter, was 61.8%, a 130 basis point improvement year-over-year, and a 210 basis points sequential improvement from fourth quarter 2018. In the first quarter, we experienced CAT losses of $175 million, which were lower than a year ago. The first quarter expense ratio of 34.3% represents a 230-basis-point improvement year-over-year and a 60-basis-point improvement from the fourth quarter of 2018. The general operating expense ratio was 12.5% for the first quarter in line with the fourth quarter of 2018 and 240 basis points lower than the first quarter of 2018. On a like-for-like basis, excluding the impact of acquisitions, operating expense is declined by approximately 18% year-over-year. These reductions were achieved while we remain committed to making investment in talent, business…

Thank you, Peter, and good morning, everyone. Life and Retirement recorded adjusted pretax income of $924 million for the quarter and adjusted return on equity of 15%. Adjusted pretax income increased by $32 million from the prior year quarter. The primary drivers of this increase were capital market-driven impacting acquisition costs through lower deferred acquisition cost amortization of $46 million due to rising equity markets in the quarter resulting in increased expected future fee income, and net investment income reflecting both higher returns on fair value option securities of $46 million, driven by tightening credit spreads and higher efficient income of $26 million reflecting interest rate declining in the quarter. Our earnings also benefited from non recurring expense items and reserve refinements in our international life business of approximately $25 million. These favorable impacts were partially offset by lower returns from alternative investments, and lower fee and advisory income due to lower asset levels during the quarter, driven by the market downturn at the end of last year. Prior year comparison also reflects a onetime bond payment recovery in the first quarter of 2018. Our full year expectations for adjusted pre-tax income as well as our market assumptions have not changed. There could be some upside to our full year outlook should market conditions hold or improve. Keep in mind the declining equity markets and widening of credit spreads would accelerate deferred acquisition cost amortization and lower net investment income on fair value option securities, respectively. In addition, absent significant changes in the overall rate environment, our current expectation is that base net spreads will define by approximately zero to two basis points per quarter at least through the end of this year. From a statutory perspective, we expect to generate solid earnings and for our strong year risk based…

Thank you, Kevin, and good morning all. So getting right into it, AIG's adjusted after-tax earnings per share was $1.58 for the quarter compared to $1.4 for per share in the corresponding quarter of 2018. In dollar terms, AIG has $1.85 billion of adjusted pretax income and $1.39 billion of adjusted after-tax income. Book value per share, excluding AOCI and DTA, increased $0.52 per share or nearly 1% as compared to fourth quarter of 2018. As respect to adjusted return on common equity, or ROCE, which also exclude AOCI and DTA, AIG returned an annualized 11.6% for the quarter and the segments achieved the following returns and attributed equity. General Insurance achieved a 14%, Life and Retirement a 15% return, Legacy had 4.4% annualized return. AIG is now using the term return on common equity, because this quarter we introduced some preferred into our capital structure. As respect net investment income or NII, it should be noted that due to the markets rebounding from fourth quarter 2018 performance, this quarter had outside gains, the likes of which should not be viewed as recurrent across the next three quarters in 2019. As a result, I will begin my comments about NII across the company, so I don't need to do so with any segment. Net investment income for the first quarter was $3.72 billion on an adjusted pre-tax income basis, and $3.88 billion on a GAAP basis compared to $2.81 million and $2.75 billion respectively in the sequential fourth quarter of 2018. This material improvement was predominantly due the improving equity markets; tighter credit spreads and improved alternative investment performance, but was also partially due to changes in accounting presentation by AIG, affected in the quarter in two ways. Firstly, AIG now recognizes changes in the fair value of equity securities…

Thank you, Mark. I think we can go to questions and answers. So first question please.

[Operator Instructions] Our first question now comes from Elyse Greenspan from Wells Fargo. Please go ahead. Your line is now open.

My first question going back to some of your comments on this call and prior calls, made reference of all these underwriting changes and how they're beginning to earn in, I guess I would like to get a better sense of the forward momentum. I know on last quarter's call you guys had mentioned that the prior management teams go big strategy at AIG resulted in multi-year policies that are still on your books in 2019. So could you just give us a sense of the running of those policies and how that could benefit to incremental underlying margin improvement as we go through the balance of 2019 and into 2020.

Okay, Elyse. Well, Peter, I think you should take this.

Hey Elyse, thanks for the question. So we're a meaningful amount of long-term deals done in the core property book historically. And we had announced that we're changing underwriting guidelines that was something we do not want to do going forward. But as you mention, it takes little bit of time to earn out. So we should see a meaningful reduction in long-term deals by the back half of 2019. So I think as we -- back half of '19, as we enter 2020, we will have cut our long-term deals in half and will start to see the majority of the portfolio increasing in terms of just annual 12 month deals.

And then my second question, you guys referenced strong prices. It seems like you guys saw in March, really improving from the trend, I guess. Could you just give us a sense your forward view on pricing? And then as we think about pricing versus trend, can you give us -- help give us a sense of when that could really start to earn and be beneficial to the margins you saw in the first quarter?

Yes, I’m going to talk about a little bit about this, and let Peter about the pricing. So I just want to point out that this pricing is wanted, needed. The whole industry is recognizing that. In our own case, we had other things we had to do too. So there are more things going on and just getting price on the portfolio. And that is Peter said, the selection process getting the right risk on board positioning ourselves properly in their program at attachment point putting the right limit out et cetera. So a lot of that is causing the improvement around portfolio. Pricing is a component of it, an important component, but a component. Peter, do you want to go a little bit more into the pricing?

Sure. I think we outline a lot of this in the prepared remarks. I think what's happening, which is a little bit different is that we're seeing it across the board. There is a multiple lines. I mean certainly property has underperformed the most. And so whether it's CAT capacity, attritional losses on how capacity has been deployed, we're seeing rate within the E&S as well as the admitted market. So that's, I think, it would be consistent throughout the rest of the year. We've seen it in financial lines. I think, as we can participate in many lines of business, and then in many parts of the program, we're seeing that momentum, as Mark mentioned in his prepared remarks, take up and margin and we would expect that to continue throughout the year. So it's a very orderly meeting. This is one that is not just spiking at one line. It's across multiple lines and in a lot of parts of the world. So I think this is something that hard to predict how long it lasts, but we're going to lead with, again, risk selection, but also making sure we're getting paid appropriately for the limits that we put out and the risk that we're underwriting.

Yes. This pricing isn't just the first quarter phenomenon. It's been building through '18. And so it'll bleed in as earn these premiums. And as Mark pointed out, there seems to be some acceleration.

Okay. Thank you very much.

Okay. You're welcome. Next question, please.

Our next question comes from Yaron Kinar from Goldman Sachs. Please go ahead. Your line is now open.

So two questions. First, I think in the press release, Brian, you talked about an expectation that this year will be profitable on both from the calendar year and accident year basis? I was just curious is that with catastrophes your commentaries on?

Well, with catastrophes, I can't tell you whether we're going to have a large catastrophe or a small catastrophe or, I mean, we have this thing called AAL, which I did insert into the number. And as we said, it's 3, 3.5. I don't really want to talk about it after that. So I mean, look, I think over a long period of time, there will be years where we have catastrophe years we don't, but on the average, we expect to make an underpinning profit. And I expect to make an underwriting profit this year. But I can't predict whether it's going to be a big CAT year or not. But I mean, on some kind of an average basis, certainly that is our belief, a very strong belief.

Okay. So basically, this comment is without using AAL still seems some normalized catastrophe load?

We already put AAL in. I mean, I said we put an AAL in the first quarter. And it was -- there were some tickets under 100.

Right.

You put an AAL and for the whole year, I'm saying, we believe it'll be under 100, but I can't tell you the actual CATs. That's that's my point.

Okay. Appreciated. And then, my second question is on NII. So Mark, if I do the math or the sum of the price that you laid out, I guess about $13.7 billion of NII for the year. And I think that's a little bit above the $13 billion guidance that measure previously offered. So how should we think of NII on a normalized basis from here?

Well, first off, some features would give you partial credit, and some features just a binary and say yes or no. So I'll give you partial credit on that. So you've reflected the $450 million of investment expenses and take gross to that, but you have to recognize that the original guidance of $13 billion did not include the re-class. And depending on whether you look at the last quarter whether re-class $116 million or you look at a longer period of time where it's closer to $150 million, which will be $600 million, I would get closer 13.2, 13.3, if that’s helpful.

Yes. But you also had a re-class of the equity per value adjustment rate. So …

That's right. $39 million in the quarter.

Okay. So you got the 13.2, 13.3 with both re-classes.

Yes. If you reflect that, you will be approximately there. Next question please.

The next question is from Paul Newsome from Sandler O'Neill. Please go ahead. Your line is now open.

I was hoping you could talk a little bit about capital volatility just on a normalized basis. There has been so much change with your business mix and reinsurance in the light. And I guess I seriously think of insurance companies having their toughest CAT quarter in the third and second -- sort of the second worst may be first and second are about the same. You think that AIG is going to follow through the traditional pattern? Or with all these changes, do you think there will be a difference in your normal capital volatility quarter-to-quarter?

I would love to give this to somebody else. So we will try to start with. And so I think, yes, there is an inherent seasonality to CATs because of the storm seasons, which are third and fourth quarter, equates can happen anytime. I mean, we've had weather in the first quarter was storm losses, winter storm losses et cetera. But yes, by enlarge, so we have the first half would be a little lighter than the second half that’s just traditional. I don’t think that’s changing now, but I don’t -- first lot of all, I don't know they want to talk about ALL than it were. But anyway, we think about it as an annual number because you really have to think about it at least on an annual basis. Peter, do you want to say something?

There is one thing I would add Brian because the question was also around volatility and we use that word a lot in our scripts, but in addition to putting together much more comprehensive program and in addition to making it an aggregate, our standard deviation and expected volatility around our different return periods has decreased by 50%. So while it's not certain, the expected value around whether its ALLs or PMLs has reduced significantly in terms of what we think is going to happen. So that is something that through the entire reinsurance design had been very beneficial and gives us more confidence.

And one thing I would add into that, because it's a good question, Paul, is in my prepared remarks I tried to show that the risk is also helpful in that regard. And the CAT programs that were put in place let alone the carveouts of DCG gives materially better vertical and horizontal protection regionally and globally. So I think that helps with the containment. And I would ask it to not forget one thing we talked about last quarter, which was the way the gross underwriting changes are in is because they started earlier, it gives one view, but the reinsurance mostly attached the latter half of 2018. So that was risk-attaching, some of that inures to the benefit of the CAT program, which is also occurring. But the point is we will get increasing protection in volatility reduction as we go from quarter to quarter to quarter in 2019.

And then any updates on the capital management thoughts. They weren't any buybacks this quarter, but you did raise some capital. I just want to see if there's any additional thoughts you got there?

Look, we were largely blacked out first quarter. So at the end, because of those offerings you mentioned. So I think we continue to look at it. My philosophy hasn't changed. I think it's an appropriate capital management tool. And as we go through the year, we'll look at how we want to use that capital. And so no changes there. Next question please.

Certainly sir. This question is from Josh Shanker from Deutsche Bank. Please go ahead.

I was interesting in understanding about the timing of the reinsurance purchasing for the remainder of the year. You have said about two-thirds of the reduction, I guess, was sum of AIG's and Validus' 1Q '18 premium year-over-year was related to reinsurance buying. Are you buying more reinsurance, which will have a similar effect in the quarters to come? Or the first quarter the big by quarter? And then how does that affect expense ratio as we go forward?

Peter?

We have the only probably material impact that we foresee as of now is how the sort of casualty quarter share will earn through the year for the U.S. That's a big session. And then one that just commenced on a risk attaching base from the first quarter. So that was the most material. I don't believe that we will see any other material purchases on property. So we've done a lot on the -- per risk, as Mark mentioned, on the aggregate. We have done some facultative purchasing to make sure that we take out the volatility of our long-term deals on property. And I don't think that as we look to the remaining part of the year, we have thought about the impact of reinsurance and do not believe it will impact our expense ratio as we get into the second and third quarters.

Next question?

Our next question is from Ryan Tunis from Autonomous Research. Please go ahead.

Question for Peter and maybe Mark can help. But some of your reps, I know you're not disclosing those anymore. But could you give us some idea of how those ran here verses I think $125 million as expected level last year? And also, in terms of the GOE run rate, it was $839 this quarter in General Insurance which is down about $50 million from 4Q levels. Is that $839 million number a pretty good one to use over the remainder of the year, do you think?

So let me comment on severes, and I will turn it over to Mark. But in the quarter, we had less gross activity than if you look that our multiple quarter average. But I think the bigger issue was just in terms of how we address the property for risk and buying down and taking out volatility in addition to one of the areas of our business, which had a little bit more frequency on severity. We ended up working through a quarter share to mitigate a lot in the volatility. So I think it was, one was the growth, but more importantly is what we've done to protect volatility through reinsurance. Mark, anything you want to add?

Yes, I would just say on this severes without getting into any specifics. It was a very late view of it, so it's, which is another reason. But with the front end underwriting changes, Peter talked about the reinsurance stages again, but there was nothing adverse and severes.

Do you want to comment on the GOE?

The GOE, because the $839 million you are quoting incorporates Validus, so we intent to do quarter-over-quarter that excellent to that to get apples to apples. So it's probably a more realistic way, but I think you should be thinking more in terms of ratio rather than on the dollar sense. We have had two consecutive quarters of GOE being 12.5% around premium. And that can move a little bit as a function of miscellaneous items and accounting that could affect our premium and things like that. But that's probably the preferred way to look at.

And I just had a follow-up on, I mean, we should on CAT volatility. But curious on how you guys are thinking about volatility within the attritional loss ratio. So if you have a view of what the central tendency is, let's say 631 you think is a good run rate. How many points away from that is you think one synergy could easily be explained by adverse luck. Is it one point now? Is it two points, because companies like Travelers were used to being less than a point for quarter can be just explained by adverse activity. Are we at that point yet or could we still see two to three points swing is also what you think really running at?

I think it's Mark.

So couple of thoughts come to mind. One is that, one, I don't want to look at it that way. I can go back. But we have a massively diverse global geographic presence and different characteristics. As a company you mentioned is much more of a frequency driven company, and therefore more predicted. We have a lot of -- we're changing that mix next to be much more mid and smaller, but in-force book still has a lot of severity characteristics both frequency and high severity characteristics. So I would say there is the fair amount. The reinsurance is going to contain that because you asked a net loss ratio question. So it's going to contain that more, but I would expect it to be wider than Travelers.

Okay. Next question?

Next question is from Andrew Kligerman from Credit Suisse. Please go ahead.

Just want to follow-up on Paul's question about the buybacks and understand you're in blackout period. But given your debt to capital is pretty close to 30%. Is it fair to assume that you probably don't want to do much by way of buybacks for the balance of the year?

I don’t want to predict anything here. Do I want to, don't I want to. I mean, I think we have both do it quarter-by-quarter and really understand uses of that capital? So we have a buyback authorization in place continues to be there to be used. I don’t want to commenting more than that.

All right. And then just with regard to the personal line. So I know Mark earlier was talking about two third of the normal -- when you take out the acquisitions et cetera, net written premium was down 17%, two thirds due to the reinsurance. And now just looking at the personal line, North America down 6%, international down 12%, could you give us a sense of what the reinsurance component of that decline was? And also you mentioned in the release A&H premiums were lower. Is there some competitive situation going on with that that's putting pressure on A&H?

Peter?

So on the Personal Insurance in the United States, our travel book, our warranty book came in exactly where we had thought it would in terms of a combined ratio for the quarter. So we're really talking more about the high net worth book. And looking at the composition of that book, we not only had that contribute from the sort of global aggregate where we lowered our attachment point, we also bought more per risk. We also bought Asia-Pacific CAT program that has different attachment points depending on peak zones for our high network book that we think will dampen volatility, and also allow us as we want to reposition in certain peak zones. The portfolio and accelerate our underwriting, we just hired a terrific individual in capital Kathleen Zortman who has decades of experience in driving high net worth portfolios, who is really excited. She's joining us. And that will happen in the second quarter. And we'll begin to accelerate like we have on other portions of the portfolio, and an improvement in terms of its footprint. And the reinsurance is, I think, very responsible. And it will respond well throughout the year depending on what will happen in terms of CATs.

And so the question was …

And then something on the A&H, it's not -- we should not bring anything on A&H. It's a terrific portfolio, performs very well in terms of its combined ratio. And it's an area where Brian and I very much want to grow our book, and we should take a longer term view, but it's an area where we think will have growth over the long term.

And we've been so far. And we just …

We just have named a global leader Ed Levin. And so he joined us. And we have the strategy in place and beginning to accelerate our growth. It'll take some time. But, we really excited about that portfolio. I wanted to come in for us long term.

Sort of one last question, and then we'll wrap it up. So operator, the last question, please.

Certainly. And this comes from Tom Gallagher from Evercore. Please go ahead.

Thanks. First question on P&C. You had big growth in specialty risk in terms of net premium written just curious what kind of combined ratio that's being booked at? Is that going to add meaningfully to underwriting improvement as that earns in? And can you just provide a little color what -- kind of what drove that significant growth?

It was mostly the acquisition. We had Talbot and CRS, which is the crop. And so that's in the specialty classes. Now look at Talbot is a terrific syndicate and has very balanced portfolio with marine, specialty classes, including energy, political risk and political violence. And we've been working very hard to determine what's going to fit within AIG, what's going to fit within the syndicate. And do believe that that business will perform well over the short, medium and long term and will contribute like Validus to our overall improvement in combined ratio. But it's very good, and on a calendar year basis performed on quite well in the quarter.

And then just a follow-up on net investment income, Mark, I was following the stable asset class returns versus the more volatile ones. And just looking at the $29 billion that you characterized as more volatile, if I'm looking at your guide for full year NII, I think that only would imply something like a 3% return on that $29 billion carrying value portfolio. And you have, I think plenty of higher returning asset classes in their like private equity in the like. First off is that right? And secondly does that imply your $13.2 billion NII guidance just conservatively assuming returns on that portfolio. Can you provide some color on that? Thanks.

First off the Tom, the first question would be what period of time should you assess volatility. I purposely look this something that work for this since up, which was current in four prior quarters or five quarters. That particular one average 5.8% over that period of the swing of 2% to 9% that shows you some of that volatility. So that’s implying like another $1.7 billion on 5.8% basis, which to the $12.5 billion takes you $14.2 billion. You have to take out to $450 million annually for investment expenses, and then the re-class impact that wouldn’t have been in there in the original guidance for $13 billion even. And that composite gets you down to the $13.2 billion to $13.3 billion. But I think what question you have to answer for yourself is what's the proper volatility measurement I just gave you an example of what.

Thank you everybody.

So before we end the call I want to thank everyone who is dialed in, to your remarks. I’m approaching my two year anniversary at AIG, and I couldn’t be proud of what we're accomplishing at this great company. And I’m grateful for the tremendous support we're receiving across the industry. And I want to thank all our colleagues at AIG for their hard work, dedication and resiliency. We still have a lot of work ahead of this. But our first quarter results demonstrate that we're on the right path. So thank you very much. Have a great day.

Ladies and gentlemen, that's now concluded today's conference call. Thank you for your participation. You may now disconnect.