Ladies and gentlemen, please stand by. Good day and welcome to the AIG’s Second Quarter 2019 Financial Results Conference Call. Today’s conference is being recorded.And now, at this time, I would like to turn the conference over to Ms. Liz Werner, Head of Investor Relations. Please go ahead.

Thank you, Jake, and good morning everyone. Today's remarks may contain forward-looking statements including comments relating to Company performance, strategic priorities, business mix, and market conditions. These statements are not guarantees of future performance or events and are based on management's current expectations. Actual performance and events may materially differ. Factors that could cause results to differ include the factors described in our first quarter 2019 Form 10-Q, our 2018 Annual Report on Form 10-K, and other recent filings made with the SEC. 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. Additionally, some remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement, and slide presentation, all of which are available on our website, www.aig.com.This morning, you'll hear prepared remarks from our CEO, Brian Duperreault; our COO and CEO of General Insurance, Peter Zaffino; our CEO of Life and Retirement, Kevin Hogan; and our CFO, Mark Lyons. During the Q&A, we ask that you limit your questions to one and with one follow-up.And at this time, I'd like to turn the call over to Brian.

Thank you. Good morning and thank you for joining us to review our second quarter results. As we continue to position AIG for long-term sustainable and profitable growth, disciplined execution of our strategy is reflected on our strong performance in the second quarter and first half of 2019.Adjusted return on common equity for the second quarter was 10.4% and 11% year-to-date. Adjusted after-tax income was $1.3 billion or $1.43 a share for the second quarter and $2.7 billion or $3.01 per share year-to-date, nearly $1 per share improvement over the first half of 2018.Throughout the first half of 2019, we remained focused on the foundation work that continues across AIG, particularly in General Insurance, which delivered a second consecutive quarter of profitability with an accident quarter combined ratio including actual CATs of 98.7% or 96.1% as adjusted, Calendar quarter combined ratio was 97.8%.The turnaround in General Insurance which has been led by Peter Zaffino and his team is impressive. AIG is taking a leadership position in its approach to disciplined underwriting and innovative reinsurance strategies and we have strong momentum heading into the second half of 2019. I can confirm that we expect to achieve underwriting profitability for the entire year. Peter will provide more detail in his remarks on the significant progress being made in General Insurance.With respect to premium rate trends, I want to follow up on my comments from the first quarter. Rate increases accelerated in the second quarter, in some cases materially. I've seen a number of market cycles and each one has different characteristics. I would describe this market as one where there was more underwriting discipline and rigor around the deployment of capacity, rather than a major decline in capacity.That discipline seems to be playing out through the pricing models and underwriting processes that…

Thank you, Brian. Good morning everyone Today, I will provide an overview of several highlights in the second quarter. I will provide detail on the financial performance of General Insurance, highlight rate actions which Brian mentioned, provide insight into the progress we're making in our businesses, and the tangible impact of focused and disciplined actions are having that changed the composition of our portfolio. I'll briefly update you on Validus, summarize progress on our reinsurance program, and lastly share some observations as we look towards the second half of 2019.We continue to execute on focused actions across General Insurance that will position our businesses to be leaders in their respective markets. These actions include enhancing the quality of our underwriting and desired risk appetite, evolving our reinsurance program to reflect our improving book of business, and exercising expense discipline in order to provide bandwidth for future investment.We are operationalizing these actions throughout General Insurance by embedding more disciplined end-to-end business processes. I'm very pleased with the demonstrable impact these actions are having on our business results, as evidenced in our improved financial performance in the second quarter, and the first half of the year. I believe this is not only sustainable, but will improve over time.Building on our momentum from the first quarter, we achieved an accident quarter combined ratio including actual CATs of 98.7%, an improvement of 460 basis points year-over-year, and an accident quarter combined ratio as adjusted of 96.1%, an improvement of 490 basis points year-over-year. The calendar quarter combined ratio was 97.8%, an improvement of 350 basis points year-over-year.The accident quarter loss ratio, excluding CATs for the second quarter was 61.3%, a 410-basis point improvement year-over-year, and a 50-basis point sequential improvement from the first quarter 2019. This quarter-over-quarter improvement was a result of the change…

Thank you, Peter, and good morning everyone. Life and Retirement recorded adjusted pretax income of just over $1 billion for the quarter and adjusted return on common equity of 17.3%. Adjusted pretax income increased by $87 million from the prior year quarter. A primary driver of this increase was a one-time gain of $138 million for a private equity holding following an initial public offering.Our earnings also benefited from the broader capital markets environment. Net investment income reflected both higher returns on fair value option securities of $48 million and higher call and tender income of $22 million due to significantly lower interest rates. Additionally, favorable mortality drove an increase of $35 million. These favorable impacts were partially offset by an allowance for reinsurance recoveries of $38 million in our Life Insurance business and expected spread compression in our Retirement businesses.New money rates are below portfolio yields across our retirement portfolios resulting in reduced but still attractive spreads in many products. The prior year comparison for adjusted pretax income also reflects net positive actuarial adjustments of $51 million in the second quarter of 2018, a benefit of $98 million in life insurance and an unfavorable adjustment of $47 million in individual retirement.Our market assumptions for the full-year have not changed and recent market volatility is a reminder that the second half may be much more challenging from a capital markets perspective. While our first half results provide some balance for the full year outlook, declining equity markets would, among other things, negatively impact fees as well as deferred acquisition cost amortization. Further with recent large declines in US interest rates, our current expectation is that base net spreads will decline to the higher end of our approximately zero to 2 basis points range per quarter.Finally, declining interest rates would typically…

Right, thank you, Kevin and good morning all. AIGs adjusted after-tax earnings per share was $1.43 for the quarter compared to $1.05 per share in the corresponding quarter of 2018. In dollar terms, AIG had nearly $1.7 billion of adjusted pretax income and $1.3 billion of adjusted after-tax income. Book value per share, which excludes AOCI and DTA on an adjusted basis increased to $1.42 per share or nearly 2.6% as compared to the first quarter of 2019.As respect to adjusted return on common equity adjusted return on common equity or ROCE, which also excludes AOCI and DTA, AIG returned an annualized 10.4% for the quarter and the segments achieved the following returns on attributed equity. General Insurance achieved the 10.3% return. As Kevin mentioned, Life and Retirement is 17.3% return and Legacy with a 5.2% return. As mentioned last quarter, AIG now is using the term return on common equity because the last quarter we introduced some preferred stock into our capital structure.Net investment income or NII for the second quarter was $3.74 billion on an adjusted pretax income basis and $3.75 billion on the GAAP basis, compared to $3.72 billion and $3.88 billion respectively in the sequential first quarter of 2019. This level of NII had the benefit of an approximate $0.13 per share after tax gain, associated with an IPO in our alternative private equity asset class. This $142 million pretax gain is reflected in Life and Retirement for $138 million, and $4 million within our Legacy segment.Strengthening equity markets and tighter credit spreads also helped this quarter's investment results. I am pleased to recall that effective last quarter, AIG implemented two changes in the accounting presentation that now recognized changes in the fair market value of equity securities below the line and the non-insurance subsidiary NII…

Thank you. Okay, Jake, well let's go to Q&A portion of this. First question, please.

[Operator Instructions] We will begin with Elyse Greenspan with Wells Fargo.

Hi, thanks. Good morning. My first question on General Insurance, you've again mentioned a lot of the underwriting actions that you've taken within that book combined with obviously now you're getting more of a pricing tailwind, so it does sound like the second half of this year, the margin should be better than the first half. Brian, I know you guys said you have the target for the underwriting profit maintaining that for the full year. Could you just give us a sense of how the second half that accident year combined ratio is adjusted within General Insurance, the type of improvement that we should expect from that 96.1% that we saw in the first half of the year?

Well, Elyse, I have -- I said, we expect an underwriting profit for the year, it's very hard to predict the accident quarter. So, we've been -- we've been improving the volatility of this book, and so I think that the results get to be a little bit more predictable, but we still have a -- we still have a relatively interesting mix of business.So, I just -- I don't really want to predict some to the decimal point change. We want to continue to sequentially improve, but will that happen in a -- in some kind of straight line, I can't tell you, but over time, yes, we continue to target an improvement in the General Insurance and as I said and get to a sustainable 10-point return on adjusted equity over the next couple of years, but don't hold me to what the accident quarter is going to be.

Next question?

Okay, wait, I just -- excuse me, I also had a follow-up. So my second --.

Go ahead, please.

My second question just on AIG 200 that you guys outlined throughout the call, I just want to get a sense on does that ultimately -- does the $200 million [ph] that you guys are looking for 200-basis point of improvement in your expense ratio. Just trying to get a sense of where that 200 comes from? And if you can just give us a sense of the timeframe there and any investments that we should be thinking about that you're making?

That's interesting. It's going to be more than 200 basis points, I'll tell you that. Now it's really a reference to -- we've just in this year celebrating -- let us go book back 100 years, and so this is to look forward to the next 100, and so maybe I should have called it, well I won't give you a number.

But anyway, yes. So look at -- if we're ever going to be a great company, and it's our intention to be a great company, if you assess where we are now, the Life and Retirement, great set of products, great distribution platform, handling issues that come along in terms of the market.Peter is bringing the General Insurance to an underwriting excellence position where it belongs. It is what we do for a living. We've got the best investment management in the business. But the one thing we've never been noted for is operational excellence and this is the one thing that we have not invested in. We've got legacy processes, too many manual interventions on and on and on. And it is a drag on our performance if you look at the GI expense ratio in particular.I pick a number, it is at least 500 basis points, too high in my mind, and how are you ever going to get that down. We have to transform the Company, we have to do it fundamentally, it's going to take us some time, but it's the next great step and to me, it's as important as anything we're doing to date in this Company.And so it's a very, very important effort, it's across the whole company and it will provide that long-term benefit and get us to that position of greatness that we've achieved -- that we aspire to. Next question please?

And that question will come from Mike Phillips with Morgan Stanley.

Thank you. Good morning, Brian. I appreciate your comments at the beginning on kind of the comments on the discipline of the market and being more fact based and how that's driving this cycle. I guess some of your peers have talked about, have described the cycle as reserve driven and income statement driven. And I guess, want to hear your thoughts on that description and the question kind of goes to not for your book, but just kind of overall for the industry profitability of the current year versus kind of the profitability of prior year still?

Well, I think the market is reacting to the fact that they don't think the current year profitability without these rate changes would have would have matched prior years. And I mean that's logical given the kind of trends that we refer to whether it's social inflation or the kind of tort movements, just frequency of loss. And so I think the market is reacting as I said in a natural way, a way that one would expect a well-managed industry to do. So, I am encouraged by that. What else would you like to ask Mike?

Yes, okay. Yeah, thanks. Just a specific one on the torts, the legislative changes that we've had and a lot of headlines obviously on the sexual harassment stuff, is that the next asbestos for the industry?

I think asbestos has been the next asbestos for this industry [indiscernible] I don't want to -- I have got to leave that supreme. But it's certainly a society wide problem but it's certainly a society wide problem, all this stuff that's going on and it will be reflected in societies' reaction to it.As Peter pointed out, the one thing that we have been known for when I talk about being a great Company, this kind of large widespread phenomenon is something we've been handling for a very long time, but it is certainly an issue that everybody has at the top of their mind.

Thank you, Mike. Next question please.

We'll hear from Yaron Kinar with Goldman Sachs.

Hi, good morning everybody. I wanted to start with a question on NII. So you had two strong quarters openings of the year, how should we think of the kind of $13.2 billion to $13.3 billion run rate that you talked about last quarter with the rate environment being what it is today?

Yes, okay. Well, I think I'll have Mark do this one.

Thank you. I mean it's a reasonable question. I mean, what I would just kind of comment on. Last quarter, we kind of gave you a framework. We said it is roughly 91% of the carrying value of investable assets is in pretty stable, predictable stuff. I mean, that's still got some variability to it of course, but on a relative basis, and then there was another 9% that has a lot more volatility to it, some because of the inherent asset class itself and some because of the accounting election that was put through.And that mix is still pretty much in force this quarter. So there a couple of things, one, if you look back even through our fence up, you're going to see in PE and hedge fund composites pretty, pretty broad volatility. It's -- we have a minus 11% in the fourth quarter that rebounded to 18%, and 16% this quarter, it was 5% in the latter part -- third quarter of '18.So you can kind of go backwards and pick your own standard there on those kinds of things. The other thing that, and Brian alluded to it and Kevin alluded to it, if you go into the assumption that where the interest rates are now, stays at this level with natural maturities and natural turnover in fixed income, you're going to be reinvesting in lower yielding fixed income securities.That could put some downward pressure on it, latter half and then into 2016. So all those things taken into account, we still think that the original guidance we had given coming into the year was $13 billion. And through that stuff that I mentioned, you could really get to about $13.5 billion, in that range and that's, for the reasons we just mentioned, that's pretty much where we still are.

Okay.

The other question Yaron?

Yes. My next question is going back to the AIG 200 initiatives. Is that something that you would expect to complete by the 2021 -- the end of 2021 when you're targeting the double-digit ROE? And also with the costs associated with this program will those be included in adjusted operating income or not?

Yes, well, I would say, yes. I put it as a probably a three plus year program, but once that period ends, this constant improvement should never end and I -- so I think there will be continuous improvement after that, but let's say the -- a project name will probably end in that period of time. And yes, we would include the cost and benefits net-net in the -- in our belief that we'll get to that double-digit position at that point.Did you want to add anything, Mark?

Yes, just one thing, that the second part of your question was, of course, you will see that in net income, but that kind of restructuring charges is generally is excluded from operating income.

Got it. Thank you.

Okay. You're welcome. Next question please.

And now we'll take a question from Tom Gallagher with Evercore.

Good morning.

Hey, Tom.

Hey, guys. So, Mark, just a follow-up on the NII question, so if I followed your $13.5 billion expectation for the year, that implies per quarter, NII will be running around $3 billion or so for the next couple of quarters if we stay in the current rate environment is that approximately right?

Yes, if you're linear on it.

Got it. And then my follow-up is just from Slide 5, there is a footnote that says about 20% of your fixed maturities are in variable rate securities, are those -- I think that's -- I would sulfur [ph] like $50 billion of variable rate securities, are those traditional floaters? And is that -- is that the main source of pressure on NII from a base spread standpoint?

First off, your mix is right. It's about 80:20 and -- notional sounds approximately right as well. So, I mean, yes with floating that's going to be a natural impact on it, which, yes, what have you got, it's not like you just let it go, I mean, there is risk management and hedge aspects associated with it. But, Doug, do you want to?

Hi, good morning. When you look at that, that's the holdings of the floating-rate assets, but there are a couple of factors you have to think about with respect to the impact to net investment income. First of all, the reason we hold those floating-rate assets, it provides diversification.But the other reason we hold them as we have a lot of liabilities that reprice frequency frequently during the course of the year. So there is some asset liability management that's associated with holding floaters. So we hold floating-rate assets against liabilities that have a floating rate repricing characteristic.To the extent there is any excess floaters that we invest in because we thought there was value to the extent there is an asset liability mismatch, we typically swap those floating-rate assets into fixed. So while we're telling you what percentage of the portfolio actually has floating rate as a component of the available for sale, that's not necessarily the exact amount of exposure we have to the repricing of the floating rate.

Understood, thanks.

Okay, next question.

One moment please. We will now take a question from Jay Gelb from Barclays.

Thanks and good morning, I appreciate it.

Good morning, Jay.

With regard to capital management, you had some discussion in prepared remarks about why the Company did not repurchase shares in the first half in terms of taking down the leverage ratio and at the same time free cash flow seems quite strong and the stock is currently trading at 80% of book value. Can you talk about what your expectations might be for the second half in terms of buybacks?

I think Mark mentioned in his prepared remarks, we're going to, and I said the same thing. We're going to -- we're going to continue to look at our leverage, so let's not forget that, but my bias has always been to invest in the business and in this situation where we've got a market that's improving daily, and also an effort in the Company to self-improve through the AIG 200, I think that there will be plenty of opportunities for us to invest in the Company itself, and I think that's the long-term best use of the funds and that's where we're going, Jay.

That sounds good. I do have a follow-up. This one is for Peter. I was wondering if you can give us any indications of what you're seeing in terms of the pricing environment so far through the third quarter, if the positive trends are accelerating?

It's too early, Jay, really to comment, but I would expect just based on sort of qualitative commentary that the third quarter early reactions are similar to what we've seen in the second quarter.

Thank you.

Good. Terrific. Let's take another question.

We'll now hear from Joshua Shanker with Deutsche Bank.

Well, thank you for fitting me in, I appreciate it. Good morning.

Good morning, Josh. it's good to hear from you.

Thank you. So, you talked about rate, everyone's talking about rate and whatnot, but in some ways, AIG is writing its own ticket. There is an overhaul of the portfolio going on. It's ongoing. When you talk about rate, is that pricing only or is that joined with an overhaul how AIG underwrites its P&C business?

Well, I'm going to start and Mike and Peter can finish. So, these rates that we refer to are really like same store sales rate, kind of thing, right. So we're matching apples with apples. But as you point out there is another thing going on, which is the sharing of business that was either poorly selected or under price limits under price limits that we didn't think we were getting paid for. So there is another underlying improvement taking place in addition to this rate comparison. Mark, do you want to add?

Yes, thank you. First off, Josh, I appreciate that one opening comment you made that in terms of writing your own ticket, I think clear point of differentiation is in a lot of sectors, AIG is pushing the market, it's not like we're benefiting from the results of others, we are pushing it and that's contributory to our view on a lot of different things.In terms of the rate changes as Peter quoted for, they are effective rate changes, taken into account as much as you can, to the examples that Brian mentioned, limits in contraction and the cash flow point movements and so forth. But there is a broader lift that does not reflect. I mean that's the explicit rate change, the implicit rate change is that portfolio quality differential.So when you non-renew or get rid of business of rate adequacy of X and you're bringing in new business that's much stronger than that X, it has beneficial lift as well. That will find its way into the ultimate loss ratio, but that's in addition to the individual rate changes that we are covering up.

Peter, have you got anything you want to add?

I just want to build on what both of you had commented on, which is the most important thing we're making sure that the underwriters are doing is risk selection, how to recalibrate the portfolio, making disciplined decisions around limit deployment, understanding their aggregations, understanding what's actually happening with loss cost and underlying trends.We're very pleased with the rate that we've been driving. But that's become an outcome of the discipline that we've been driving over the last five or six quarters.

Josh, we got maybe time for follow-up and no other question.

It is absolutely a follow-up, right on it. And so next year, as I think about the shape of the portfolio and your purchase of reinsurance over the past 12 months, can we imagine that the shaping of the same, that you have the same reliance on reinsurance for the next 12 months or is that going to change over time?

Well, I think we've been addressing our reinsurance to the portfolio that we had, as that portfolio changes, right, so we get rid of the large limit strategy, you don't have to buy as much in terms of protecting the Company from those very large limits, portfolio mix, but I'd say the basis of our philosophy of around the reinsurance that it is -- it's geared to addressing exposures that we feel we should share because of accumulations or because of volatility, that's going to continue. But yes, as the portfolio evolves, we'll adjust our total program accordingly.

Thank you.

Thanks Josh. And I'm going to call this to an end, and thank you. And I just want to just thank everybody for joining us today and for your questions. And before we end the call, of course, I do want to acknowledge our colleagues around the world for their tireless efforts and dedication to the journey that we're on here at AIG, and I am proud of what we're accomplishing and appreciate everybody's hard work.I also want to thank our business partners, shareholders and stakeholders for their support. It's meant a lot to me and my leadership team and we remain committed to making AIG the leading insurance Company in the world. Have a great day.

And with that, ladies and gentlemen, that does conclude your conference for today. We do thank you for your participation and you many now disconnect.