Good day and welcome to AIG's Fourth Quarter 2019 Financial Results Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Sabra Purtill Head of Investor Relations. Please go ahead.

Thank you. Good morning and thank you all for joining us. Today's call will cover AIG's fourth quarter and year-end 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 and the 10-K for the year will be filed next week.

Good morning and thank you for joining us to review our fourth quarter and full year 2019 results. For the fourth quarter adjusted after-tax income was $919 million or $1.03 per common share. For full year 2019 adjusted after-tax income was $4.1 billion or $4.59 per common share and return on common equity and adjusted return on common equity were 5.3% and 8.3% respectively. These results reflect the significant progress we made over the course of 2019 on the execution of our strategy to position AIG for long-term sustainable and profitable growth. Our focus on fundamentals and the foundational work that we've done since late 2017 is becoming evident on our financial performance with our 2019 results reflecting broad-based improvement across all segments. I will highlight some of the important milestones we achieved this past year most notable being in those in General Insurance business. GI produced a full year 2019 combined ratio of 99. six and an accident year combined ratio as adjusted of 96%. It's hard to say given all the issues at AIG over the last decade-plus but I honestly can't remember the last time AIG had a full year underwriting profit.

Thank you, Brian and good morning, everyone. Today I will review 2019 financial performance for General Insurance update you on major reinsurance basements completed as part of the January renewal season share observations regarding current market conditions and outline notable business unit accomplishments and General Insurance. I will also provide an overview of AIG 200. As Brian mentioned we are very pleased that in 2019 general insurance achieved and underwriting costs. This was an important milestone for our team and reflects the significant work that was done in 2018 and 2019 to build a world-class leadership team establish a new comprehensive underwriting strategy for general insurance clearly outlined a defined risk appetite for our distribution partners and clients and complete critical foundational work to improve our portfolio while meaningfully reducing volatility through underwriting actions and a comprehensive reinsurance strategy.

Thank you Peter and good morning everyone. Today I will discuss our full year results and outlook for 2020 and then briefly comment on our results for the fourth quarter. Life and Retirement recorded adjusted pretax income of $3.46 billion for the full year and delivered adjusted return on attributed common equity at 13.7%. Adjusted pretax income increased by $268 million from the prior year. Solid underlying results were further supported by capital markets conditions and their effect on both assets and liabilities. Impacts from accretive equity market returns increased by $244 million including higher fee income lower deferred acquisition cost amortization and higher returns on alternative investments. Short-term positive impacts from lower interest rates and credit spreads increased by $154 million including higher returns on fair value option securities and gains on calls. Our earnings also benefited from higher assets due to new business growth. These positive impacts were partially offset by a further impact from spread compression of approximately $112 million or seven basis points annually and investments to enhance our operating platforms. As to our top line 2019 was a good example of our strategy to accelerate or moderate new business depending on relative returns. With very favorable pricing conditions during the first quarter we deployed significant capital in individual retirement and produced robust new business volume at attractive margins. As rates and spreads declined over the remaining three quarters we adjusted our pricing and reduced individual annuity sales levels as our view of margins became less attractive. At the same time we achieved record year for new group acquisitions and group retirement and continued to grow international sales for our life insurance business and focused on consistent profitable growth in institutional markets. Looking ahead to full year 2020 we expect adjusted pretax income to be more…

Thank you, Kevin and good morning all. AIG's adjusted after-tax earnings per share was $1.03 in the fourth quarter compared to a negative $0. 63 per share in the prior quarter. AIG had adjusted pretax income of $1. two billion and adjusted after-tax income of $919 million for the fourth quarter. And for the full year adjusted after-tax earnings were approximately $4.1 billion or $4.59 per diluted share representing a $3.42 per share improvement over 2018. Adjusted book value per share which excludes AOCI and DTA was $58.89 an increase of 2.2% from third quarter and 7.2% relative to year-end 2018. Return on adjusted common equity or ROCE was an annualized 7.3% for the quarter and 8.3% for the full year driven by General Insurance at 9% for the full year and Life and Retirement at 13.7% for the full year. An important driver of earnings and ROCE improvements in the fourth quarter was our net investment income or NII which was $3. five billion on an adjusted pretax income basis almost the same as the third quarter of 2019 reflecting higher alternative investment income and prepayments and bond calls. NII on an adjusted pretax income basis was up $649 million for the fourth quarter 2018 which was negatively impacted by higher rates lower equity markets and negative returns on alternatives last year. On a full year basis 2019 NII was nearly $14.4 billion on an adjusted pretax income basis well above our original expectations and up $1.7 billion from 2018 due to strong alternative returns impacted of lower rates and credit spreads on fair value option bonds and equity markets offset in part by the impact lower reinvestment rates. Legacy contributed $2.5 billion of NII in 2019. I want to call your attention to additional investment income information on…

Thanks Mark. We had a lot of content. So we'll go to questions, but we'll stay on past 9:00 to take as many questions as we can. Can we start then operator?

We'll go first to Meyer Shields at KBW.

Two really quick questions. First in the accident year loss ratio excluding profit are there any other adjustments to the full year numbers to full year 2019 numbers?

From a full year aggregate it's nothing material.

Okay perfect. And when we look forward I'm wondering how the planned reduction in earnings volatility aligns with what we see as much better pricing in the markets in particular as far as do we expect more exposure on a year-over-year basis capacity losses or recovery?

So it's really a question around retro's increasing costs. I guess Peter can answer that question. I think we've gone to our market with our reinsurance program you heard Peter describe it. So for 2020 I think we've established what the cost will be for us. But Peter do you want to answer that.

Yes. So thanks Meyer. Yes the retro costs have increased and I think it will be a little bit different than last year because believe as we enter into the April one and June one renewal dates for Japan and respectively we're going to see meaningful rate increases on same structures. And so while the reinsurance market has seen increased retro cost. I believe that the reinsurance cost will be able to bear that cost in terms of how we are going to reinsure different portfolios. And we are not taking a lot more volatility in the portfolio. In other words because of the retro costs we're not looking to take a lot more net but consistent with our overall strategy on volatility and risk retention. You might talk about that. Just a second. So in terms of Validus yes that's what I referring more on April one and June one they ought to be able to position themselves in the marketplace. But we're not looking to grow and take on more CAT exposure on a net basis throughout 2020.

Move next to Jimmy Bhullar at JPMorgan.

Had one question on guidance and then also on Life and Retirement. On guidance you gave a lot of details on expectations for the year on margins and stuff. I don't know if you mentioned anything on the tax rate and also on sort of what type of capital you expect for the year if there is such a thing as a normal CAT load?

Mark?

Yes thanks for the question. No we gave guidance on an adjusted pretax basis at this point. And...

My point is what do you expect the tax rate to be if you are because it was very low in the fourth quarter and relatively low in 2019 as a whole?

Yes. Actually the guidance around that is pretty similar to what we said last year so 22 23. And the gap question...

CAT load?

Oh well CAT load. I'm really glad you asked this question because you may recall that I think in the middle of the year we said we're going to start looking at this like every other company which is looking at return periods and looking at it on OEP and an AEP basis 10-K that will be coming out we'll provide that information for you. But AALs that we're getting away from we don't manage the company that way. We manage it on the return-period basis. And I'll leave with that.

Okay. And then on the Life and Retirement business your spread declined more than I think the guidance you had given earlier this year around two to three basis points a quarter in both individual and group retirement so is it just rates that that's driving this or is it competition or flexibility to comment on what's really driving that deterioration spread?

Yes sure Jimmy thanks. There is a little bit of noise in the spread movement third quarter to fourth quarter and year-over-year. And frankly it's relative to just some of the specifics of the market conditions through the quarters. And plus the year-over-year trend is really I think much more relevant. And so based on the environment that we're expecting we're sort of looking on an annualized basis at an eight to 16 basis points compression which is a little bit of an increase based on what we had before. But on the entire year basis our compression in 2019 was seven basis points collectively. So I think that we're seeing a little bit of compression. It's largely within what we expected certainly market conditions are very challenging right now. There was a little bit of noise third quarter to fourth quarter but no impact on trend as far as we're concerned. And maybe most importantly we are still seeing very attractive spreads available.

We'll go next to Tom Gallagher at Evercore.

Just first question on the expense side. The restructuring charge that's coming in 1Q Mark that you referenced is that likely to be most of the or a sizable portion of the $1.3 billion investment? Are you going to take that all upfront? Or is that going to be far more modest? And how should we think about charge will charges be below the line or included in operating as you record some of these?

Well yes good questions. Some of that will be giving you chapter when we go on our first quarter call as we alluded to. But you're going to have a mixture so what's above and below the line. You've then we'll give you all that detail. And as far as whether it's the major part of the restructuring are of the total cost of investment it's not going to be the major but we'll give you the details on that again in 1Q.

Okay. And then just a follow-up sorry just a follow-up on Kevin for investment spreads. I just want to be clear I know what the message is here. I heard the year-over-year comment on spreads. Do you expect spreads to be down versus the 4Q level because it was kind of a sharp drop in 4Q would you expect them to be more stable versus 4Q or still compressed from 4Q levels?

Well I think that obviously it does depend on what the specifics of each quarter-to-quarter movements are. But we would expect spreads comparable to largely comparable to where we were at the 4Q depending upon ultimately the market conditions. There was a little bit of movement sort of the 3Q or the 4Q as a result of certain characteristics of the investments Tom.

We'll go next to Yaron Kinar at Goldman Sachs.

My first question goes to the 10% adjusted ROCE target by the end of 2021. Does that incorporate sale of the majority stake in Fortitude Re and maybe the impact on from CECL? And if it does maybe you could help us think about the from the sale of Fortitude Re?

So let me take it and then Mark and it in. So when I gave you that target some time ago we had not contemplated the sale. Of Fortitude. And so we believe that then now we have a fortitude sale impending expected it would close midyear. That helps that number but that number we believe was achievable in the case. But I'll let Mark talk about the rest of the stuff CECL. So yes thank you. First off yes it contemplates both. So it contemplates the CECL which will have a shareholders heavily coming into the year for regulations. We had guided you last quarter that that was about $645 million. You'll see in our K that comes out the actual number but it's not materially different from that. So yes to that and as far as Fortitude it's all in. So the difficulty is that it's two things. One we estimate closing. We don't know exactly when closing is. And we've been around long enough to those down. And secondly the interest rate environment will be fairly material to the ultimate impact of what it will do to book equity. So it's fairly hard to predict. But yes we're anticipating that's all in.

And then my second question is around the GOE cost-saving targets of the are those gross or not?

Mark?

What's your definition of that gross or net?

Well I guess do you expect the I'm sorry.

Okay. So just for clarifying. So the if I go back to the comments from 2020 to 2021 it was $300 million $600 million $1 billion pure GOE. But that if you mean tax that's goes to tax.

It sounds like you would expect a certain portion of that to be reinvested back in the business?

Well, so that's part of our conversation back in the first quarter when we laid things out. But Peter talked about the $1.3 billion of investment and that's going to be reflected. There's cash assets there's putting capitalized assets into service and the timing of those when they're ready and they depreciate that type. There's a lot of moving parts. So I don't mean to be vague but there's a lot of moving parts and we'll get back to you in the first quarter.

We'll go next to Elyse Greenspan at Wells Fargo.

My first question you guys still seeing your premiums drop in the fourth quarter and it sounds like you expect them to be flat in 2020 yet you're getting a real good amount of rate and it sounds like there wasn't that much material changes to your reinsurance purchases for 2020. So I'm just trying to understand can you give us a sense of what businesses you're still shedding? And how business mix is offsetting some of the impact of rate as we still look at kind of a flat premiums written in 2020?

Okay. We'll start Peter

Yes. Thanks Elyse. I mean I think it's going to be consistent but just a little bit more tailing off in 2020 when you compare it to 2019 which is going to be gross underwriting actions that continue. I talked a little bit about long-term agreements rolling off. It's a big part of our reunderwriting in the first quarter property. We're still working through the Lexington. And even those statistics are daunting for us in terms of the improvement of the portfolio and the repositioning that still is going to be work that's going to be done. And then also the reinsurance think about the casualty quota share which was something that we felt really mitigated volatility. We entered into that in 2019 but that continues in 2020. So some of the discrete reinsurance purchases will have an impact on net premiums written not to the same extent it did in 2019 but certainly we'll carry over into '20 okay. And then my second question Mark...

Let me just add something here. When we started this turnaround so what do we basically we had businesses that were had limits that way. We weren't getting we had concentrations of risk where you just couldn't keep that concentration and we're taking it all net and we were getting price paid anything. So you start we've cut volatility out of this company by taking the limits down that takes premium out of the pit. We raised retentions that takes premium out of the pipe. Yes we've that takes premium out of the pipe. Yes we've raised rates. We've also bought reinsurance premiums out of pod. So we have not been concentrating on the top line because we had to concentrate on the bottom line. That's so once you get a base that you believe is sustainable then you grow it. And so we want to grow the business but we're going to concentrate on making sure this portfolio is rock solid. That's the number one priority. Okay Elyse you got another question?

Yes. And then my second question Mark in your guidance commentary you pointed to an accident year combined ratio of 93.8% to 94.8% in General Insurance. I recognize some of the expense figures you gave or exit run rates of $300 million for 2020 but if I kind of do some rough math it seems like of that improvement that you'll see over the next 12 months about half should come from the underlying loss ratio and half on the expense ratio does that feel about right given the expense program and the guidance you laid out?

Well I'd say probably skewed more and more to the loss ratio. And as we go from '20 to '21 you see probably see that flip a degree of improvement.

We'll go next to Erik Bass of Autonomous Research.

And I appreciate the additional guidance details. Just wanted to ask a bigger picture question if you could help us kind of bridge the gap to the 10% ROE by year-end '21 or it seems relative to 2019 life and retirement facing a little bit of pressure. So can you help us just think about the contribution from GI margin expansion in AIG 200 to get there? And are there any other major moving pieces to consider?

Go ahead Mark.

Well to get I guess a couple of things you guys to think about is I think as I tried to lay out the 8.3% return in calendar 2019 had some extraordinary gains in it. So if you normalize for that and things of that nature. It's not quite the same. I also think in the prior quarter I've mentioned that get to 10% is not linear that we would expect more in the back half than the first half of that. We have great expansion in GI on expected underwriting gain and although it a stronger marketplace environment. It's also a radically modified portfolio. So by the time 2021 we'll have a little more back of the window view of what 2020 looks like. And if we were lucky enough that the environment continues that's a great tailwind to help us out. AIG 200 is going to also help along the lines we just mentioned. So there should be incrementally better contributions from AIG 200 each year through 2021.

Stable in this environment. Maybe the ROEs have come down a little bit as we discussed. But we'd expect L&R to be stable and it wheels around the GI improvements it's loss ratio now. AIG 200 kicks in it will be expense ratios coming later.

Got it. And then just one follow-up on Life and Retirement guidance. I think you talked about $200 million or so drag from spread compression but based on the sensitivity Kevin that you gave on the equity markets I would think you would see some of that or much of it offset given the gains we saw last year. So are there other pieces to factor in that would kind of get you to the lower earnings next year?

Well Erik as I pointed out I mean our assumptions are for from the starting point of the year 6.5% on the equity markets. And that the 10-year will be around 1.7 and the sensitivities that we gave were relative to those assumptions.

We'll move next to Brian Meredith at UBS.

Yes just two for me here quickly. On the GOE is some of that on the AIG 200 is some of that going to come from loss adjustment expenses? And then maybe you can frame it a little bit how much kind of corporate versus general insurance?

Peter do you want to take that?

Yes. So now we do not contemplate an AIG 200 the loss adjustment expense Brian. And then in terms of the way we framed out the program. I think if I understand your question correctly Mark put it into his prepared remarks which is basically three quarters of it will come through General Insurance over the of it will come through General Insurance over the program and then the other quarter will come into Life Retirement and Corporate. And again in terms of the sequencing of that I think it will be fairly consistent throughout the three years.

And then my second one just a little clarification and sorry to kind of go on this one, but if I look at your ROE in 2022 when we come out here. We know that legacy is going to cause call it over $3 billion hit to your equity. When we take a look at that return on equity will if I add back that $3.5 billion of equity while we still have a double-digit return on equity in 2022?

I'll take that one. I have two things that are kind of countervailing actually three things come to mind. First off when we originally said the 10% we had a completely different investment environment investment outlook. So from that point of view having the Fortitude sale the impact on that is very helpful to offset some of the investment income outlook differences. And the other thing is the $3 billion number that's approximately that you talked about that's the impact on the impact from consolidation as opposed to the impact from sales an impact from sale is subfunction of whatever the market conditions are going to be on the day of closing. So it's pretty hard to come stay too hard to predict. I know it's complicated. Hopefully that helps.

We'll take question from Suneet Kamath from Citi.

Just a follow-up on Brian's question on the equity. As we think about kind of the half to the 10%. Is there a capital return or share buyback expectation that's built into that guidance? I know you talked about delevering but just want to get a sense of what we should think about in terms of getting that?

Well we're both looking at each other. Mark and I and I'd say look we'd expect that as we manage our capital we told you what our priorities are for this year. We're going to look at once we do close the fortitude we will relook at share buybacks which is probably about the second half of the year. It's still a management tool. We have an authorization so it's certainly possible.

And then my follow-up is just on the first quarter call you mentioned a couple of times we're going to get some more detail. Can you just maybe give us a sense of what you're planning on disclosing in terms of AIG 200 in the first quarter call just the pieces?

Okay. Mark you want to go back over that back and forth?

Yes I think what we're going to try to do in the first quarter is just give you a little bit more clarity on the sequencing. And so while we have 10 initiatives and they'll largely be launched in the first quarter there will be sequencing in terms of where we start. And giving you a little bit more insight as to how that program progresses. And then I think that will tie to where Mark said before which is what type of expense needs to be deployed with that sequencing to match expenditures and getting after this launch. And so I think we'll be able to give you a little more clarity as to what you should expect on each of the programs and what it looks like for the rest of 2020. And I'll just -- Peter's comments. Do probably what you're inferring is someone else had add a lot more clarity on maybe perhaps the timing of capital being put in service you canalizing being put in service but clearly above and below the line aspect. So that will all be laid out.

Okay. Thank you very much. Let me appreciate your staying a little longer and all the intention. I just want to make one last comment and that is that as I said at the beginning of the call I'm really pleased that we delivered a on our 2019 commitments and we ended the year strong with great for the support we received from the industry partners and their clients. And we're really optimistic about what the future holds for AIG but last and certainly not least I want to thank our colleagues across the globe the resiliency they've shown over the last couple of years is tremendous and I'm proud to lead a group of such talent professionals who continue to go above and beyond to make AIG a better stronger company. So thank you all and have a good day.

And that does conclude today's And that does conclude today's conference. Again thank you for your participation.