Good day everyone, and welcome to AIG's Third Quarter 2019 Financial Results Conference Call. Today's conference is being recorded.And at this time, I would like to turn the conference over to Ms. Sabra Purtill, Head of Investor Relations. Please go ahead, ma'am.

Good morning, and thank you all for joining us. Today's call will cover AIG's third quarter 2019 financial results announced earlier this morning. The news release financial results presentation and financial supplement were posted on our website at www.aig.com at 7.00 A.M this morning and the 10-Q for the quarter will be filed later today after the call.Our speakers today include Brian Duperreault; President and CEO; Peter Zaffino, CEO of General Insurance and Global Chief Operating Officer; Kevin Hogan, CEO, Life and Retirement; and Mark Lyons, Chief Financial Officer. Following their prepared remarks we will have time for Q&A.Before Brian begins please note that our commentary and discussion may contain forward looking statements relating to company performance, market conditions, business mix and opportunities and strategic priorities. These statements are not guarantees of future performance or events and are based on management's current expectations. Actual performance and events may differ materially. Factors that could cause results to differ include the factors described in our first and second quarter 2019 reports on Form 10-Q or 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 statement, 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 are included in our earnings release, financial supplement and presentation.I’ll now turn the call over to Brian.

Good morning and thank you for joining us this morning.As I've said over the past few quarters, our leadership team has taken significant action on a number of fronts to lay the foundation for long term sustainable and profitable growth at AIG. The execution of our strategy is reflected in our results this quarter, which were in line with our expectations.Our efforts in General Insurance have been focused on fostering a culture of underwriting excellence, outlining a consistent risk framework and reducing risk and volatility in our portfolio. Peter and the team in GI are executing with focused urgency that is impressive and the marketplace has taken notice. You're beginning to see the significant efforts pay off in our results with the third quarter performance in GI yielding remarkable improvement over prior years. I am particularly pleased that the GI reinsurance strategy played out as designed dramatically reducing volatility in CAT season and preserving capital.We've been leading the market with our professional approach to judiciously deploying capacity, appropriately addressing laws cost inflation, and continued underwriting discipline on our pricing models. These actions are playing out against an industry backdrop of prolonged pressures on accident year loss ratios, laws costs inflation, significant catastrophes over multiple years pressuring the property loss, a lower interest rate environment, a complex retro market and a fatigue alternative capital market.This market dynamic is different from the past because we now see the industry as a whole is acting more rationally and this combination of change behavior and external forces reaffirms my belief that this market cycle is sustainable for the foreseeable future.One example where AIG has taken a leadership position in the industry is the way we tackle the increasing industry wide issue in cyber insurance. Companies are more focused on the severity of losses, increased…

Thank you, Brian. Good morning, everyone.Today, I will provide an update on the General Insurance, third quarter financial performance, the turnaround that we are executing in key business units, along with our observations on the current rate environment. I will discuss the recently announced new Lloyd's syndicate serving the U.S. high network market. And finally, I will close with comments on AIG 200.The General Insurance, third quarter results reflects steady progress towards our goal of achieving sustained underwriting profitability. We continue to execute on the bold strategic moves we identified as critical to reposition our global portfolio, which include disciplined underwriting and reinsurance strategies, a clear focus on operational excellence and investing in talent for the future.We continue to significantly reduce volatility through improved risk selection, aggressive limit management, and align our businesses with our redefined underwriting strategy. We're achieving better rate adequacy; and in many cases, are leading the market.As we expected, it will take time for these actions to fully earn through our reported results. But I'm very pleased with our improving financial performance.Turning to our results, the third quarter adjusted accident quarter combined ratio was 95.9%, a 350 basis point improvement year-over-year, including a 210 basis point improvement in the adjusted accident quarter loss ratio, and 140 basis point improvement in the expense ratio.In North America, the adjusted accident quarter loss ratio was 69.5%, a 30-basis point improvement year-over-year. Our financial performance in the third quarter reflected the favorable impact of changes to our business mix, which was achieved through reductions in higher loss ratio businesses, strong results from glad Glatfelter, improved rate adequacy across a number of lines, lower frequency of property attritional losses across retail, wholesale and western world, and the benefit of treaty and facultative reinsurance.These positive drivers were largely offset by our Crop…

Thank you, Peter and good morning everyone.Life and Retirement recorded adjusted pretax income of 646 million for the quarter and adjusted return on attributed common equity of 10.1%. Excluding the annual actuarial assumption update, the adjusted pretax income was 789 million and adjusted return on attributed common equity was 12.5% within our expectations. Adjusted pretax income decreased by 67 million from the prior year quarter.The primary driver’s of the difference was the annual actuarial assumption update, which accounted for 45 million of the decrease and elevated mortality. These unfavorable impacts were partially offset by the lower interest rate environment driving increased call and tender income and higher returns on fair value options securities, as well as other net investment income adjustments.There was nothing in our assumption review or mortality experience has suggested a change in the inherent profitability of our products, nor a need to change our pricing strategy. Also it's worth noting that from a pretax income perspective, the overall impact from the assumption update was positive 20 million.Year-to-date, our adjusted pretax income was 2.6 billion and adjusted return on attributed common equity was 14%. We are pleased with our results to date, but recognize the challenges and headwinds below interest rate environment presents, along with the potential for increased volatility in equity markets, given global trade and geopolitical concerns. Declining equity markets would among other things, negatively impact fees as well as deferred acquisition costs amortization.Declining interest rates would typically result in higher returns on fair value options securities although the impact on net investment income could be uneven, and would depend on the timing and degree of interest rate movement. At interest rate levels as of the end of the third quarter, our current expectation is for base net spreads to decline by approximately one to three…

Thank you, Kevin and good morning all.AIG's adjusted after tax earnings per share $0.56 for the quarter, compared to a negative $0.34 per share in the corresponding quarter of 2018 representing a $0.90 per share improvement. Adjusted book value per share, which excludes AOCI and the DTA increased 1.2% sequentially from second quarter and increased 4.8% relative to year-end 2018.As Brian mentioned, adjusted return on equity was an annualized 4.1% for the quarter and 8.6% on a nine-month year-to-date annualized basis. Keeping that theme, the individual segments achieved the following annualize nine-months year-to-date returns on attributed equity. General Insurance 9.5%, Life and Retirement 14%, and Legacy of 4.6%.Net investment income or NII in the third quarter was nearly $3.5 billion on the adjusted pretax income basis at $3.4 billion on a GAAP basis. This was nearly identical to the third quarter of 2018 on both an adjusted and GAAP basis, and sequentially was $260 million lower on an adjusted pretax income basis, and $337 million lower on a GAAP basis.This quarter investment income from all fixed income securities was virtually identical to that of the third quarter of 2018, whereas returns from the hedge fund and private equity composites is down materially to an annualized 4.6% versus the previous six months year-to-date return of approximately 17.6%.Turning to General Insurance, Brian and Peter commented on the accident quarter results, so contrastingly the calendar quarter combined ratio of 103.7% reflects 7.5 points of CAT losses as Peter pointed out with Japan representing approximately 60% of the global CAT losses.The combination of gross line re-underwriting together with our improved reinsurance program has resulted in a material reduction in General Insurance net CAT ratios from 45.5% of premium in the third quarter of 2017 to 22% even in the third quarter of 2018 to…

Thank you, Mark. So let's go to the questions-and-answers. Operator, please go ahead.

[Operator Instructions] We'll take our first question from Paul Newsome with Sandler O'Neill. Please go ahead.

I guess I'd like to focus in on the underlying combined ratios improvement. And is there any sense of how we can think about the magnitude as we look respectively into - not necessarily next quarter, but prospectively, obviously there was sort of a big bang this year with - from certainly pretty serious changes in reinsurance. But how does that rule forward look into 2020?

Well, clearly, you have a lot of things going on at the same time, which I understand makes it somewhat difficult to try to penetrate. You have all the gross changes that Peter has itemized, which are fairly massive.You have an increasing accelerated rate change on a written basis that will earn in to 2020. And you have some level of loss trend that the industry's discussing, that could perhaps go a little bit the other way.So without getting into chapter or verse, I think it's fair to say there'll be some level of improvement into 2020. But the magnitude is, let alone the reinsurance purchases, which affect your mix of business, really all need to come to bear. So at this point, I'd say that is good. You should think about improvement, but I'm not prepared to get into magnitude.

Peter?

Brian, there's one thing I would just add to agree with everything Mark just outlined. But the other piece of that, we've been designing reinsurance structures that reflects the portfolio that we have. And so with all the massive changes that we've seen in the property book, I mean, that's what we're assessing over the next, call it, 45-days in terms of putting together some of the reinsurance structures that reflect the risk of the portfolio today. So that that will evolve as we enter into 1-1

Yes, you know, the other thing I'd say, Paul is, I've given you a data point, which is our expectation for return on equity; which by the end of 2021, we want to get over 10%. So, in order for that to happen, clearly the GI, big portion of it has to continue to improve.And I think that gives some indication of what we think is going to happen. A lot of the work that gets done is in rate, underwriting, et cetera. But it also is the expense levels that GI has, and those expense levels are high. We have to get to those as well.So, yes, we'd love to be a little clear on that. But all I would say to you is we're committed to continuous improvement in the combined ratios to get it to what should be world class levels. That's going to take some time, but we're committed to doing it over multiple years.

I was just going to ask on the Life side, any thoughts or comments on the SEC investigation that's obviously very topical to investors?

I think you can appreciate that we just were not able to go into any detail about ongoing regulatory inquiries beyond what you would read in our 10-Q disclosure. That document is going to be on file soon. So I just want to point you to that for the additional information.Okay, next question, please?

We'll take our next question from Tom Gallagher with Evercore ISI. Please go ahead.

I'll just ask two quick ones. Given the increase in specialty losses in North American commercial this quarter occurred while you've been growing top line pretty well; are you comfortable, you've been growing that line profitably? That's my first question.And then Peter, your comments on the Hagibis losses for 4Q, I just want to make sure I have the numbers right. I was getting AIG's net retention being a maximum of around $75 million, and Validus max of $155 million. Is that a good way to think about 4Q, based on what you know today?

Yes, let's do it backwards. Let's do the Hagibis first.

Yes, correct. I mean, the maximum – the first part, I just want to clarify the Validus Re. The first part is that because of the per occurrence and the way the international aggregate and our global aggregate works, that the maximum we would have on Hagibis is $75 million, assuming the forecast we've had for Faxai and others, end up having the gross loss that we anticipate.So I think that $75 million is a very good number. What I said in terms of the Validus is that their retro would attach with another $155 million, or thereabouts, of retro loss. So you should think about, as it goes above $155 million, we have significant retro protection in place.

Yes, on the specialty, let me start. But I think Peter needs to give you the most clarity on it. The first thing we said was, North American specialty was higher. The International was lower. Net-net was actually pretty good. But it just happens to be the geographies here. And frankly, we managed that business on a global basis. We think of it as a truly global line. You're writing aviation across the world.I'm not sure it's fair to classify it as something we've been growing dramatically. And maybe Peter, you could give a little bit more color on it.

No, I think you really outlined it well, Brian. I think the only other thing is we've been getting rate in the specialty classes. When we look at global performance in the quarter, we were very pleased. Then when we look at the global performance what we seen here year-to-date, it's been a very strong performer and expected to continue to have, good performance in the future. So like what I said in the prepared remarks is that we're looking at, limit management, our driving rate and how we’re underwriting it. But overall, it's a very good book.

You wanted to add.

Just one thing if I could on Peters, I think good explanation to your question about the maximum. Just keep in mind that the 75 million as he outlined it, in a likelihood sense is more likely than Validus additive number as a collection of seating companies its different attachment points and that’s remains to be seen. I wouldn't take those two as additive necessarily.

Our next question will come from Josh Shanker with Deutsche Bank. Please go ahead.

Yes thank you for taking my questions. I'll be quick, there is sort of similar on life one P&C. On the P&C, the improvement in commercial is outstanding when you take the medium and large loss in the crop numbers out of it. I'm just wondering with the new orientation of the book, is there seasonality in the accident year loss ratio in North American commercial that 3Q would be better than other quarters?

Well look at accident quarters are so little small that the volatility of a single accident quarter, I think would, exceed any kind of seasonality. I suppose you could come up with some in property where with wind activities and things like you could have a seasonal movement. But I just think you can't look at this an accident quarter as something that's very, very predictable. There's a lot of volatility in a particular quarter that's why we report it because we have to I really point to the nine months as a better indication of movement.

And then I'm life, Kevin said that the mortality in the life business should be viewed in the context that you've had very good mortality for the last couple of years. Does that mean that that life has been over earning just that one sub segment and we should consider that in our forward model?

Well, Kevin?

Yeah thanks, Josh. No, I think that the underlying message is, is that the third quarter was an anomaly. We have seen, our mortality well within pricing, in fact that for eight of the last 10 quarters within pricing. And so the message is, is that we don't see this quarter as a suggestion that our ongoing trend for mortality is likely to change.

Going next to Brian Meredith with UBS. Please go ahead.

One quick clarification number and then another one. Peter, I think you said that the events going forward now we're going to have $20 million retention. So either the California fire is going on right now, if they get big or small whatever, it shouldn't be that big of an issue?

What I was referring to was 20 is after Hagibis, that's our maximum retention in our international business.

International got you.

Yes, I mean Brian, in terms of North America, we still have significant cover. I mean, we have, you know, some buy downs at are California specific that attach at 50 million. We have a lot of occurrence cover, and we have a lot of aggregate. So I mean, it's really hard to predict in terms of North America with the wildfires, but we have ample protection. And, we'll see how it all evolves.

And then my next question is there's been a lot of discussion this quarter about the total inflation environment, particularly with respect to general liability lines. I'm just curious - give your perspective on it as well as what are the severity assumptions that you're assuming in your loss picks and your kind of preserving actions today?

I think Mark that probably more yours.

Yes, happy to thanks hello Brian thanks for the questions.

Hi.

I think as we mentioned last quarter, we have I think, some pretty steep loss trend to our premium assumptions - a lot the lines of business subject to what you’re concerned about. Some of them in the mid to upper single-digit trends already. So that's already been kind of baked in and how we look at things translates into pricing models, so forth and so on. I think on even a broader basis, I mean, our view of those last trends is based upon a lot of our own information.And how that's moved over time between actually years, and when you kind of think about the overlay of the macroeconomic environment with everything Peter described, about moving up, and attachment points, chopping the limits dramatically. I tend to look upon a portfolio basis of all that reshaping becoming a natural inflation hedge irrespective of whether it’s economic or social. So I think the book characteristics are very protective in that respect.

Yes, I can emphasize enough thanks Mark, about the - whether it's a deductible or it's an attachment point or it's layering done in some of the excess whether it's D&O or other excesses, all of those things are more powerful than the rate in terms of adjusting for inflation. Next question.

Our next question will come from Jimmy Bhullar with JPMorgan. Please go ahead.

I had a question first just on the lack of buybacks so far this year. So given that you've got the AIG 200 initiative coming up, and I'm assuming you're still interested in acquisition. Should we assume that buybacks are probably going to be fairly light until maybe the leverage ratios improved further. And then I had a question also on just your flows on the Life and Retirement aside, specifically at VALIC they seem pretty weak. And if you could just comment on what's going on there and your outlook?

Okay, Kevin can take the flows. Let me address the buyback so yes we didn't buyback this quarter in my prepared remarks, I emphasized that I want to invest. Well, first of all, we want to do leverage so that's an important thing to keep in mind. And I want to reinvest in the business. Some of that is the AIG 200 still being quantified.And, the other thing to keep in mind is, when you're in a catastrophe quarter you wouldn't normally buyback anyway. And whether it's the third quarter, the fourth quarter we see in the fourth quarter also produce some catastrophes. I just think it would be prudent not to buyback in any case, but the emphasis is on the other aspects of capital management that I refer to. Kevin wants to talk about the flows.

Yes, sure so thanks, Jimmy. So, the situation at VALIC we have been in a negative flow environment over the last couple of years. I think it's a reflection of the fact that, the new case acquisition for a period of time had tailed off. We've seen an improvement in that recently, but this is a natural effect of the ageing of the portfolio.The VALIC has been a leading participant in this business for a long time and as either in plan participants rollout of the plan or as people start to utilize the underlying benefits that they have, that certainly is part of what leads to the outflows.In addition to that, particularly in the healthcare industry, over the last couple of years, there has been a lot of M&A activity. And in cases where plan consolidations occur, in some cases, we're on the winning end of those, in some cases, we're on the losing end of those, and we've reported those sort of large outflows as and when they occur. So, we're continuing to be successful in new plan acquisition.We continue to see strong periodic deposits and non periodic deposits. And we're likely to continue to see some negative flows in this business because of that natural ageing effect in the portfolio. But I think it's also important to recognize that the dollar value of the flows is uneven if they're higher guaranteed minimum interest rate flows that is less of an impact on future earnings then more recent products.And the finally that the assets under management of this portfolio, which is the source of earnings in the business have continued to grow along with the equity market. So we're outpacing the negative flows with growth and assets under management.

We'll go next to Elyse Greenspan with Wells Fargo. Please go ahead.

My first question, you guys provided a lot of good information on the pricing environment, high single to low double-digit increases, getting a lot of rate in your commercial book. I guess I'm trying to think through the rate versus trend if you could help us think where kind of loss trend is on a composite basis. And then how we could think about I think you guys said half a point of rate versus trend this quarter. How we could think about that building up as when it comes into earn over the course of the next year?

Mark?

Well, it's a great question. See if I can give you a great answer you bet. So - first is very generic comment when you get a 12%, that's a North American number a 12% weighted average written rate increase. What is your loss trends assumption is four, six or eight? Yeah you're getting expansion, and I'm picking those out just illustratively. So, we don't really get into what our weighted average is across the board it really does vary by quarter with the massive changes Peter described.But we're viewing that as a beneficial 2020 benefit. And because the way things go in, it's going to be more second half, associated with the rate of increases of the rate changes. So, it's expansion, on a gross basis, but you're looking at our results on a net basis, and that interaction between it, is very difficult to measure and probably from new law and the outside looking in even more so. But I'll just keep it at least that you should expect expansion.

Okay.

And then my second question on kind of ties back to the comment you made about gross versus net. You guys have been buying a lot of, you know, changing your re-insurance strategies in addition to re-underwriting the whole book. As we think about 2020 - there is still big reinsurance projects or something that you have in mind or should we think about kind of a stable-ish retention year-over-year meaning, we could start seeing on some expansion on the net premiums line?

Peter?

Thanks, Elyse. So a couple things, one is we will be consistent with making sure that we're looking across the portfolio for reduction of volatility and outsize line size. So there could be segments such as financial lines that we'll look at of doing something perhaps as we enter 2020. And then the most important part is looking at the CAT because we've made so much dramatic change in terms of the gross limit and CAT exposed and the strategic projects that we're doing with Lloyd’s.So again, there's a lot of moving pieces and the reinsurance, and what we decide to put together for 2020 will reflect the portfolio that we have in force. And so there will be some changes. I can't describe those today because we're in the middle of it and, but we'll be very transparent as we hit the sort of fourth quarter call.

Okay, good. So we've just crossed the hour, but I think we should take only one more question and we will close. So operator, take one more - one last question.

Our final question will come from Erik Bass with Autonomous. Please go ahead.

Hi, thank you for fitting me in. Can you provide more details on the drivers of your annual assumption review updates and particularly any changes you made to your long-term interest rate assumption. And if there's any impact on go forward earnings from that?

Well, Mark. No, I mean, Kevin is better at this. Go ahead.

Sure, thanks Erik. First let's talk about what we didn't change. We did not change our long-term interest rate, assumption, our assumption - each product has its own parameters - to derive - the final assumptions. But generally we assume a reversion so they mean over 10 years to 3.5% for the 10 year treasury. Now to the rest of the review as we have a strong diversified portfolio between fixed index and variable annuity as well as a life insurance.And each of those lines response to economic changes differently and experience emerges separately. So the overriding situation rates are lower this year, which inevitably results in reduced lapse expectations for the fixed annuities where we write up the DAC and that increases sort of APTI. And then in index one of our newer products, we're just seeing some experience emerged and where we updated, lapse rates.And then in the guaranteed living benefits, as we account for those as an embedded derivative below the line. There were two different effects on that this year. The first was updating, our lapsed model and the second was updating our mortality. And both the fee income as well as the benefit usage goes below the line, which is why you see that economic movement below the line. And then finally, in the life insurance business, there is the effect of interest rates on policyholder behavior, not to similar to fixed annuities.And we've updated some of our premium projection capability and reinsurance calculations. So, net-net I think that these are largely changes associated with what we've seen happen in the market. No dramatic changes relative to the sizes of our reserves. And as I stated in my prepared remarks, we do not see anything that changes our understanding of the inherent profitability of the business nor we need to change our pricing strategy.

Okay Erik.

Thanks, so this is Ryan Tunis. I just had one follow-up on the P&C side for Peter. In your opening statements you touched a little bit about the opioids and how it's still too early. Just hoping you could maybe expand a little bit on what you guys are looking for there and what we should be thinking about in terms of timing of any potential reserve action or anything along those lines.

Well first of all, I think look at reserve action I'd like Mark to talk about them first.

Sure well, interestingly AIG over time has been building up mass tort reserves. Not that we really talk about it, but it's a meaningful number, associated with in our aggregate reserve levels across all accident years. When you get into some of these complex coverage issues that you're talking about, it's really difficult to even talk about it because we don't know the theory of liability that’s going to come down.You don't know how it's going to be triggered. Therefore you don't know exactly how it may also be play out, but we have a good amount of net mass tort reserves and we still have roughly $6.5 billion in the ADC. So that is still available for this. So we feel - from a reserve standpoint and given what we know today in pretty good shape.

Yes look, I think that's probably is a good conclusion to the opioid question. So let me just thanks Erik let me close by just - and telling everyone how pleased I am with our progress to achieve long-term, sustainable and profitable growth rate AIG. And I want to thank our clients, colleagues, shareholders, industry partners, and other stakeholders for their continued support. Thank you and have a great day.

This does conclude today's call. Thank you for your participation.