Good day, and welcome to AIG's Third Quarter 2022 Financial Results Conference Call. This conference is being recorded. Now at this time, I would like to turn the conference over to Quentin McMillan. Please go ahead.

Thanks very much, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations. AIG's filings with the SEC provide details on important factors that could cause actual results or events to differ materially. Except as required by the applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Additionally, today's remarks may refer to non-GAAP financial measures. A reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at www.aig.com. Finally, today's remarks will include a discussion of the financial results of AIG's Life and Retirement segment and Other Operations on the same basis as prior quarters, which is how we expect to continue to report Life and Retirement and Other Operations until the deconsolidation of Corebridge Financial. AIG's segments and U.S. GAAP financial results, as well as AIG's key financial metrics with respect thereto differ from those reported by Corebridge Financial. As such, we will be intentional when referring to AIG's Life and Retirement segment versus Corebridge Financial when commenting on financial results. Corebridge Financial will host its first earnings call post IPO next week on November 9, and its management team will provide additional details on the Corebridge Financial third quarter results. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino. Peter Zaffino;Chairman and CEO: Thank you, Quentin. Good morning, and thank you for joining us today to review our third quarter financial results, which I'm pleased to report were very strong, along with the excellent…

Thank you, Peter. As Peter noted, I will provide more detail on the third quarter results, specifically EPS, reserve reviews, net investment income, capital management and the path to achieving an above 10% return on common equity. Adjusted after-tax income was $509 million or $0.66 per share compared to $837 million or $0.97 per share in the prior year quarter. This was driven by a $741 million decline in net investment income, offset by improved underwriting results in General Insurance and solid performance in Life and Retirement as well as improved GOE and Other Operations. General Insurance finished the third quarter with adjusted pretax income of $750 million. Underwriting income was up $148 million despite Hurricane Ian, offset by a $209 million decline in net investment income due to alternative investment returns. Life and Retirement contributed adjusted pretax income of $589 million, which is $288 million below prior year quarter driven by lower alternative investment and call and tender income. Other Operations adjusted pretax loss of $614 million compared to $562 million prior year quarter, mostly due to lower alternative investment income, partially offset by lower interest expense. This quarter, Other Operations included $16 million of additional expenses for setting up Corebridge as a stand-alone company. Excluding such expenses, GOE improved by $17 million versus prior year. As Peter noted, results in General Insurance reflects strong underwriting performance with continued combined ratio improvement of 240 basis points to 97.3%, an accident year combined ratio ex CAT of 210 basis points to 88.4%. North America Commercial accident year combined ratio, ex CAT, improved 590 basis points over the prior year quarter to 84.6%. International Commercial accident year combined ratio, ex CAT, at 80.4% showed 640 basis points of improvement. North America Personal reported an accident year combined ratio, ex CAT, of…

[Operator Instructions] Our first question will come from Elyse Greenspan with Wells Fargo. [Operator Instructions] Peter Zaffino;Chairman and CEO: Operator, maybe we'll go to the next one in the queue, and then we'll come back to Elyse.

So our next question comes from John Heagney from Dowling & Partners. [Operator Instructions] Peter Zaffino;Chairman and CEO: Do you want to try the next one in the queue, operator, please?

Let's try J. Paul Newsome from Piper Sandler.

Sorry about the confusion from the folks on the questions, hopefully, you can hear me. I actually wanted to ask you about sort of a little bit different broad M&A question about the turmoil in the market. I think, obviously, we've seen environments where there's quite a bit of change. And I don't know if you think or you're seeing maybe the sellers getting a little bit more willing to sell given the volatility of the environment, and just your general thoughts on M&A would be fantastic. Peter Zaffino;Chairman and CEO: Yes. So let me first take a step back, thank you for the question, and talk a little bit about our capital management strategy. And as we've outlined in the past, that we're focused on putting additional capital in the subsidiaries for organic growth because we see great opportunities. We worked very hard on reducing leverage. So while we've leveraged up Corebridge, we've been redeeming debt at the AIG level, focused on returning capital to shareholders through share repurchases, and we'll look very hard at the dividend for 2023. And our view on M&A is, where there are compelling opportunities, I think you have seen weakness in this quarter in terms of some of the reporting. But our strategy is much more where it's compelling, where it's strategic. And I think if we use Glatfelter as an example, Glatfelter was a best-in-class program underwriter that had great distribution. We were not performing well in our Programs business. So we were able to reduce our position in programs and bring Glatfelter and Tony Campisi and the leadership team to AIG, and they just have thrived here together, where we've improved combined ratios, we've grown, and we've improved our overall performance. So I think we will look for ways. We don't really have portfolios that need to be rehabilitated like we would have the Programs 3 years ago, but we could find those bolt-ons and things that are additive to AIG, where we are both better from being together. So I think that's how we would think about acquisition in the sort of medium term.

Fantastic. Shift to a different question, maybe some thoughts on Validus in the context -- in the reinsurance business, in the context of the broader steps that you folks have done to reduce CAT exposure and maybe a little bit about the trade-off. I mean -- because, obviously, the big achievements that you've done under AIG is reduce the CAT exposure immensely. And how do you think about sort of, as we go forward, the trade-off that there seems to be a lot of opportunities in property CAT, kind of exposed areas but especially in the reinsurance market. But obviously, you've managed that trade-off pretty aggressively in the past. Peter Zaffino;Chairman and CEO: Yes. So I think the market that's in front of us is going to reward those who are disciplined leading up to it. We have been very thoughtful and careful about reducing aggregate where we felt we had too much in peak zones as well as too much exposed to natural catastrophes. So we've talked over time that we've reduced enormous limits over the period that we've been reunderwriting. Now on the AIG reassumed side, that's been just disciplined. We didn't like the risk-adjusted returns as we've cited in my prepared remarks, that we took down the aggregate by 60%. And I think the premiums, if you look on a gross basis in terms of CAT year-over-year, we're going to be down like 40%. And actually, some of that would be greater in North America. We will look at opportunities in terms of -- we have plenty of aggregate for CAT, but it'll all be what's the best risk-adjusted opportunities. I mean the good news is we have multiple entry points. So we have Lexington on an E&S basis. We have retail property capabilities across the world. We have a terrific syndicate in Talbot that can access specialty classes that are more first party. We have a tremendous global specialties business that did phenomenal, I think, in the quarter and showed their sort of global leadership. And then we have the assumed business for AIG Re, where there are opportunities to deploy capital there, we are going to be prepared. So I think that the market will be very good for us to deploy more property. But again, we'll be disciplined, and we'll see what really transpires over the next 60 to 90 days. Next question, please.

And our next question comes from Meyer Shields from KBW.

Great. Am I coming through? Peter Zaffino;Chairman and CEO: Yes, Meyer. Good to talk to you.

Fantastic. Okay. And Peter, just hoping you could talk a little bit about casualty loss trends because you mentioned property as one of the reasons for raising the overall trend 6.5%. And we obviously saw the financial lines issues that, at least superficially, could lead into other casualty lines. Can you sort of close the loop on that? Peter Zaffino;Chairman and CEO: Sure. I'll ask Mark to provide more detail. I think what we do in our prepared remarks is say that we're looking at property, casualty, all of our lines and business in great detail. Really, what's been driving the upper end of the ranges up has been more the first-party business because of all the economic factors that are driving them. But Mark spends enormous time with the staff and the underwriting claims, looking at all the casualty trends as well. Mark, do you want to provide more detail, please? Mark Lyons;Executive Vice President, Global Chief Actuary & Head of Portfolio Management: Sure. Peter, thank you. So yes, on the follow-up on that, Meyer, would be -- let's put it this way. The excess casualty loss cost trends are double digits. And the primary trends aren't too much lower than that, but they're single digits but on the upper end. So we think we've captured it in a pretty good fashion. But the incremental move from quarter-to-quarter, as Peter denoted, is marginally -- increases on the liability side, but it's mostly due to the much more apparent trends on the property loss cost side, which on a weighted average basis, drives it up.

Okay. That's very helpful. The second question, I guess, in recent quarters, we've been hearing about increasing competition in, I guess, in excess public D&O, which seems a little bizarre. Are you seeing any other individual product lines where there's incremental softness? Peter Zaffino;Chairman and CEO: Thanks, Meyer. Dave, why don't you talk a little bit about what we're seeing in D&O. We really are not seeing it in other lines to the extent that what's going on in D&O, but we've been very disciplined, and Dave could provide a little bit more context.

Thank you, Peter and Meyer. Yes. The rates have rolled back after 4 years of cumulative increases north of 100% in public D&O. It's -- I'm not sure the logic path of that, okay? At the same time, we also have to discern different markets sitting inside what would be the public D&O. So primary versus first excess versus high excess versus Side A and classes and market cap differentiation, all those things have to be factored in. I think certainly, in our book, which has a weighting to primary, there's less pricing pressure in the primary. There's respect for the company that leads the tower, claims reputation, multinational and underwrite a reputation with distribution and clients. So that's a different piece, Meyer, that I'd say. Excess has been and will be a commodity product in many lines of business. D&O is showing up now. It often shows up in excess casualty and may show up in excess property. But right now, it's showing up in D&O. And once again, the risk matters, the account matters, the commoditization, it might be there, okay? It's -- I look at that as something maybe antithetical to the verticality in loss that's existing in the business and one that needs to be managed and managed by each individual company. And you will have that sort of a different portfolio that others may chase that down. And I would say that responsible markets will probably have a renewal retention that's lower in the excess capacity. And that will be showing up in future quarters. It does not make sense. I'll be very frank. The verticality of loss is real right now, whether in securities class actions or derivative cases. So it's just supply-demand competition. I think for our portfolio, we're confident because of the control that we have and the weighting that we have between primary and Side A that's tied to primary and the financial strength of AIG that we will be there for the long duration claim. So with that, I'll turn it back.

Our next question comes from Elyse Greenspan from Wells Fargo.

Can you guys hear me? Peter Zaffino;Chairman and CEO: Yes, Elyse. Yes. Sorry about the glitch.

No worries. So my first question, I know the timing of the deconsolidation depends upon secondary offerings of Corebridge. But when you do ultimately deconsolidate, do you envision at that point that General Insurance as a stand-alone entity will be running at a 10% ROE? Peter Zaffino;Chairman and CEO: Yes, we do. I mean, again, like we've said, the timing of deconsolidation is subject to market conditions and the volatility in the market. But if you take that away and look at a normal course as to we get through 2023, when we deconsolidate, we expect we'll be, with all the variables that Shane outlined in the 10% ROE, we will be at that 10% ROE.

And then my second question is on the financial line adverse development. I know you guys mentioned part of it, right, is the multiyear covers that AIG used to write, but was there an impact on your current accident year picks as a pull forward of the charge? And if there wasn't, is it just because of the changes that you made in the business over the years? Peter Zaffino;Chairman and CEO: Mark, would you take that one, please? Mark Lyons;Executive Vice President, Global Chief Actuary & Head of Portfolio Management: Sure, Peter. Elyse, good to hear from you. So yes, that's a good question, Elyse, and it's actually the right question. So I guess think of it like this. Shane mentioned that we did $40 billion of reserves this quarter, that makes it 90% year-to-date, only 10% remaining. And the review was -- all our reviews have been comprehensive. But I would say particularly so this quarter, with improved actuarial methodologies but really augmented with a rigorous review of individual cases with the claims department, specifically focusing on downside risk that was more qualitatively, also incorporating, so I guess a couple of things. First, it would be that because of that concentration of real detail, the financial reserve position is strong, firstly. Secondly, as you mentioned the multiyear policies, yes, that's an impact and probably a larger impact than you might think, which kind of preceded Dave and the team. And that excess D&O and private not-for-profit are the major drivers as Peter and Shane highlighted. But I really do not see that as a follow forward into more recent accident years. And -- but let me just give you a few fact points on that. So Dave talked about it a bit indirectly, but I think more directly,…

Our next question will come from Brian Meredith from UBS.

Can you hear me? Peter Zaffino;Chairman and CEO: Yes, Brian. Thank you. Nice to talk to you.

Great. Awesome. Yes. Peter, I'm just curious, there's been a lot of debate about how the kind of rehardening here of the property market kind of affected the casualty markets. Just curious, your thoughts there in specifically casualty re and then on the primary side as well. Peter Zaffino;Chairman and CEO: Thanks, Brian. Again, we will see as we get to 1/1 in terms of what the pricing environment will be. It will be led by property. I mean I talked about it in my prepared remarks, some of the capacity issues and how reinsurers decide to deploy their capital is going to be very disciplined. I do think on the primary side of casualty, there will be some impacts. We look at just the normal economic potential headwinds, but also just deploying capital. So it's not going to be a single -- just we're going to get rate on property and not pay attention to casualty. You're going to look at it in a holistic way. I think Dave and I have spent a lot of time on this, and we strongly believe that excess and surplus lines in casualty will grow more than admitted. On a same-store sale basis, meaning that the opportunities that exist today will find, I think, more growth in E&S and the specialty classes. And I think that the rate will reflect what the exposures are, and we would see the casualty lines being affected as well. But again, we'll see when we get into 2023.

Great. And then my second question, I'm just curious, looking at your North American Commercial written premium growth. Given the rate and exposure that you guys are experiencing right now, I would have thought that you'd see close to double-digit growth in that line of -- in that area, not just 7%. Is there anything unusual happening there? Peter Zaffino;Chairman and CEO: No. Dave, why don't you add on in terms of what really happened in financial lines with M&A and IPO? But no, Brian, we saw very good growth. We outlined it in my prepared remarks, Lexington property, Glatfelter, Primary Casualty. So we saw real growth across North America and felt it was strong. Had a little bit of a headwind from financial lines just based on M&A and IPO. But Dave, maybe you can just cover that a little bit.

Yes, Brian, I think when you unpack it and you really look at each of the key businesses, whether it's property or casualty or even our programs group and Glatfelter, there was strong growth. The vagaries of financial lines show up here, okay? It's always -- it's tied to the stock market. It's historically tied to the stock market. A lot of new business growth is tied to the stock market and particularly last year where you might have had a number of SPACs and IPOs, and they are nonrecurring in 2022. So -- and then there's a runoff business that's also tied to the stock market. So what we saw, it's really financial lines, and I would call it a financial lines disciplined underwriting. We weren't chasing anything into this quarter and therefore, the growth was down. We're confident around the book. But it's -- that's actually where you would say the underlying growth of a significant part of our portfolio wasn't showing up in 3Q for the right reasons, okay? The stock market is a dictate of what happens in the opportunities in financial lines. Peter Zaffino;Chairman and CEO: Thank you, Brian. I think we have time for one more question.

And our final question will come from Alex Scott from Goldman Sachs.

First one I had for you is on the capital deployment commentary. Getting down to 600 million to 650 million share count, I just wanted to see if you could unpack sort of underlying assumptions that may be included in that. And maybe help us think through when we think about the excess capital you have today, potential Corebridge secondary proceeds. How would you think about debt reduction versus share repurchases and how that sort of triangulates to the 600 million to 650 million, if you could? Peter Zaffino;Chairman and CEO: Yes. So thanks, Alex. We've talked about our capital management strategy over the past several quarters and focused on capital for growth, debt reduction, share repurchases. And as I said, going into 2023, we're going to focus on the dividend. The primary use of capital will be used for share repurchases and, again, like Corebridge, I think has done very well in a very challenging IPO market. We expect the value to continue to move in a very positive direction based on how strong the business is. And so I'm not going to get into like the P/E today versus the P/E of AIG, but think that the best use of capital over the foreseeable future is going to be to reduce share count to get us to the 600 million to 650 million range. Now if I could spend 2 seconds on outlining what we've done since we've announced Blackstone in July of 2021, so you go back into early third quarter of last year and we set up Corebridge's financial structure. Not only did we do the IPO of 12.4% but set up their structure of $9.4 billion of debt, $1.7 billion of parent liquidity. During that period, we've reduced ongoing debt at AIG by approximately $12 billion, including the $1.8 billion make-whole in October. We paid common and preferred dividends of $1.3 billion during that period of time. We've also repurchased over 100 million of common shares, which is over $6 billion, and we put around $2 billion of capital in our subsidiaries for growth. So that's a lot of capital deployment. All of it is set up to strengthen the balance sheet, strengthen AIG's strategic positioning as well as making sure that we can continue to put the capital in the subsidiaries to drive organic growth. So we're really pleased where we are, and we think that the path forward with the secondary offerings will put us even in a stronger position.

Got it. That's helpful. And maybe as a follow-up question, just on reinsurance costs, is there anything you can tell us about your spend on your natural CAT reinsurance program as it stands today? And I appreciate that you probably don't want to provide too much and tip your hand one way or the other in terms of the way you'll work through negotiations on that next year. But any way to help us think through the current cost? And anything we should consider when thinking about the materiality of that headed into a harder reinsurance market? Peter Zaffino;Chairman and CEO: Yes. I mean the first thing I would say is AIG is not an index of the market rhetoric. We are very different in terms of how we purchase reinsurance just based on the size and scale, geographic diversity, different products. And so like when reinsurers deploy capital -- and that's why I say we have very strategic relationships because there's enormous continuity on our programs year-over-year even when we change structures. So I think that we've gotten commitments from all of our major reinsurers to be able to deploy the same amount of capital to the extent we need it for our property CAT. That's number one. Number two is that the portfolio has changed. I mean when you are continuing to reduce gross exposures, you don't always need the same structures. And so I think we changed the structure in '22, which was to buy sort of global occurrence that sits above our per occurrence layers across the world and reduce the aggregate limit. And so we're looking at structures right now. I mean I think you're going to get -- no matter who you speak to, the truth will be it's going to be a very late renewal season. Retro needs to be put together. Nobody is quoting now. There's not going to be any firm order terms for quite some time. And I think that we're just going to have to work through the market. But I just don't think that AIG is going to be in a detrimental position just based on our portfolio structure, partnership and actually our performance. And I think the reinsurers would say, you have to ask them, but what they tell me is that we've exceeded expectations on all the variables in terms of the commitments we've made in terms of the underwriting, and that's on property and casualty. So I think we'll be very well positioned and we'll provide updates as we get further along into the renewal season. Okay. Yes. I want to thank everybody today for your time, and I hope everybody has a great day. Thank you.

And once again, ladies and gentlemen, this does conclude your conference for today. Thank you for your participation. You may now disconnect.