AIG - Earnings call transcript Q2 2018 | American International Group, Inc.

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Operator

Good day and welcome to AIG's Second Quarter 2018 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Liz Werner, Head of Investor Relations. Please go ahead, ma'am.

Elizabeth A. Werner

Kevin. you, Thank

uncertainty Form Factors started most that XXXX update get and are under I'd to guarantees may whether as any AIG of subject like on Results information, forward-looking and in under this circumstances. in Before cause include and a is result are Conditions statements presentation this may XX-K past and of factors you obligation measures. not to described are and Actual today's Risk events current supplement, The presentation future performance disclaims differ which to Discussion not of changes expressly of figures materially on contain Today's new remind our in management's could Any we of or expectations morning, performance and forward-looking and based or otherwise. events. Factors. follow our from that today's possibly to second XX-Q the quarter forward-looking Financial and measures under future format presentation today's GAAP contain for Management's website. statements, for XXXX Operations included The our obligation financial may call such Form our events such and forward-looking statements. Analysis non-GAAP the is any slides available will comparable is calls. which reconciliation financial statements, the

With General Sid morning Peter possible have and CEO many Brian of you Zaffino, have as would question will possible the Brian. members to from Retirement. Hogan, get of We that, CEO; We management you'll of queue. including the Kevin our I'd like a then CFO; turn our call to and as CEO follow-up to and into like we our over our Sankaran, Life questions today our hear Duperreault; Insurance; senior to question analyst each ask this back from and opportunity would that one and answer

Brian Duperreault

morning, second everyone, we strategic Good joining year. half Liz. our On an you, today's you provide for operational financial and for second update our quarter the us. and and Thank of thank of the will results overview objectives call, an on

take We sense and establish invest position opportunities and continue The of strength to of for and to profitable as meaningful culture a for to are we to design with our excellence growth. designed the diversified underwriting creation. leverage of see actions to taking long-term urgency what a the work value sustainable actions we flexibility we AIG businesses

adjusted operating low For the in second in pre-tax high billion included cat income losses which severe quarter, losses and we $X.X reported Insurance. General

year combined calendar ratio combined adjusted Our our and ratio year was was XXX. accident XXX.X

of we highlight to will noteworthy primary will metrics. these items, our Going continue be but forward, relevant two

the as remain As restructuring and announced charge including Insurance we I mentioned we last combined expect will expect on profit General our underwriting exit focus of in approximately decline which to will will And we AAL this ratio. this General which reductions achieve confident XXXX. an the quarter, of deliver contribute we two reflects we goal. in and year and AIG The morning over continue headquarters, the at we Insurance balance points cost

In remaining the from and expect come point our approximately addition, contribute will strategies. reinsurance underwriting and Validus should improvement one actions we

deepens our proposition partners. by is and International. recruiting seasoned organization our build complete such execute adding the by portfolio, the performance strategic beyond, and quartile Validus acquisition and to Looking also for team, end-to-end ahead value units leadership underwriters strengthening continuing the business Insurance priorities relative to General performance other to respected which as industry out I'm industry. to and on XXXX that our executives in core its North improving is deliver its to underwriting America top financial pleased to goal highly clients continue refining of

that are a and will value enhance opportunities. growth We deliver our compelling our for confident overall shareholders Validus

our Retirement of and on we earnings strong equity. and return Turning another Life quarter had business, to

Life the sales complement provide across and announced and strategic U.K. will also Retirement throughout information Life life more we Ellipse, acquisition and business channels. We lines business. momentum the of mix business many distribution a product U.K. saw opportunities see Kevin existing their our broad group will on which

path You These further our while AIG flexibility allowing and to the capital to to free steps efficiently on XX.X% Re. up also put took of and liabilities saw participate we the business. DSA DSA manage of growth and the financial with action Legacy of sale Re maximize the in build-out independence

improved in our remain a I to continue for rewarding strategic and as reinforce deliver position our leading global citizen AIG's against colleagues. financial Looking performance responsible a team's to importantly, and a priorities and place ability confident operating corporate insurer, ahead, committed talented our execute as we and

will I who Sid, the financial Now, will turn information over provide to call on results. our

Siddhartha Sankaran

second our capital you, results, Re. provide update Thank good our Validus everyone. and and morning, position liquidity quarter I'll on and This DSA Brian, and comment an financial on morning,

items growth noteworthy highlighted and $XX.XX. X% up at Turning was quarter. share reported the of AOCI $XX.XX to slide Book adjusted value per X, specific was share had over solid DTA and X.X%. which and ROE we've we excludes On slide an share quarter. book per quarter after Adjusted excluding for the for $X.XX end, tax of AOCI EPS X, core adjusted value per

premiums the in to to items Brian related increase also million Commercial. addition noted, $XXX General North Insurance installment multiyear nonrecurring second In earned included America policies quarter net

reserved by actuarial of an a businesses Life adjustment unfavorable the net Retirement reported offset Insurance, million adjusted adjustments. quarter benefit million Individual domestic and Life for the $XX This Our ROE of with benefited million related which to comprised $XX another strong was XX% of of $XX adjustment Retirement. delivered pre-tax from

million our rate to recorded program, expense charges non-operating the and will As $XXX Brian Insurance we quarter, approximately largely million of run annual we $XXX expect efficiency also mentioned, related during savings. additional restructuring in results General ongoing of which pre-tax generate

the and billion hitting or the are in year non billion in we addition, expense the such vendor that fourth reducing insurance spend to in the insurance required confident quarter. Net which totaled including investment guidance goals full $X.X portfolios profit. in our as an tracking quarter operations billion underwriting we making In progress is deliver $XX remain provided from expense the income $X.X almost Legacy year-to-date compensation

our While fair returns securities quarter, were weaker on alternatives and alternatives a this basis, annual value expected expectation. our than year-to-date X% option on approximate

are maturity to levels. return at securities returned value historical shy to current X% of year-to-date rates expected Our low have X% end remain the and of fair X% our option if fixed assumption just

the reported deferred net view for development come our again continue an positive to not the loss hold see businesses. With favorable reserves that ADC by quarter estimates Valuation Commercial and picks. gain versus claims quarter was shown in rise supplement, or $XX.X in Detailed I development Irma, Maria the million end inception. development during have we respect development on steady stated, North across the page material did claims amortization related were on second Reviews, reserve portfolio with Paid to The on roughly stable or a line to than total wildfires. Southern Reserves as in to adverse billion. our XX% were on As and we reserves well. interest quarter better up original which prior of expected. and claims note loss our of at trends the any trends largely our this XX of and year to in projections the DVRs, ultimate note Harvey, completed would California financial $XX second adverse ultimate XXXX continued changes development of in ADC. of business cumulative mostly actual with this was no loss Insurance, continued in development reviewed XXXX We expected cover overall the rates America payout Favorable to payments incremental quarter subject from of a the on results remain quarterly offset Personal also on

rate of of discrete reform U.S. of operations. as estimate continued XX% full a our and tax our analysis and year of on effective XX% to Our between tax increased impact the result our tax items adjusted

As a effective full expectation. was quarter up to tax to the adjusted result, rate catch the second year XX%

remained Our cash balance strong. flow sheet and free

at not reduced in for the slide end yet for $X.X paid X, on liquidity Validus billion, quarter shown As was July. $X.X billion parent

continue level to at in the $X Cash billion. insurance quarter view company subsidiaries payments and billion of $X target liquidity $X.X the proceeds between We billion and sharing holding of included from to million. the our be $XXX tax dividends of

$X payments our from annual base remains upside subs potential although insurance flows. case from Our we billion, non-recurring see and dividends tax for

ratios our above ratios Our Retirement Re. levels for target GI DSA and are are capital companies as for and capital the Life

us provide sheet strong ongoing financial balance to flexibility. Our should continue

shares leaving common remaining we quarter, quarter $XXX repurchased the August million end an price the at $XX.XX. average we $XXX our at of deployed Since of billion. through of million approximately an purchase common $X.X shares approximately X, towards additional authorization During

will capital prioritize as a and to growth tool. use We share our depicts continue and repurchase investing ratings. deploy capital Slide in our structure X opportunistically,

filings initiated ratio senior note we stock with Validus' and range. closely target AIG periodic indenture SEC and the Validus the within remains requirement leverage have senior financial it more align indenture. the make guaranteed senior our closing Our to Validus' to acquisition, Since amend to process Validus notes preferred ending to thereby

XX.X% Carlyle. of Turning we to to sale X, the slide of recently announced DSA Re

is Re retain standalone of over liabilities tax will composite can a for $XX As our roughly of years, I'd scaled assets be our reinsurer billion last almost an globally. two the to represented XX.X% like that Insurance the billion capital run-off $XX at we and capital. XX% peak transaction, provide its solutions assets P&C and payments. in implications. liabilities DSA Life owner, comment and with sharing billion of on monetized for and benefit plus strategic of the Legacy over deployed valuation rationale to We've Legacy $XX time

to operational rates. alignment given with view long-term to quality advances capital success, at don't an as Re partner transaction our expertise, reduce investment high DSA Carlyle out up and tied further fees. that ensure to meet for objective hurdle risks our competitive help Our build their we long-term assets ideal We Carlyle in originate

Currently, is in on If ensure million standalone rata will is Our to dividend. $XX this would now. make will unrealized will $XXX purchase working paid we're us we expect within the XX Carlyle months. Subject XX to account a non-pro planned $XXX entity adjustments Carlyle paid the five will would pay for months to which following from the be take unable dividend $XXX certain incremental million and to agreement, years be operational which AIG focus specified basis, also distribution, closing Carlyle of an we've at a approximately us on to pay million, million with about closing.

billion. the valuation total effectively at times stake XX.X% the XX, for of result, equity is one Re shareholders' a $X.X March As XXXX DSA

life transaction to ROE. agreed cover there against the annuity and impacts General is billion Carlyle also Insurance on proceeds we've and transaction, Note, of the The cover or we to amount. their to provided provide free a up of any of purposes on part are no be capital reserves. $X As from reserves see billion reserve adverse to development five-year EPS management the deployed approximately not for material do $XX investment

will highlight assets the insurance prepaid ceding intercompany XX-Q set balance DSA transactions GAAP the We up that to subsidiaries in on in the sheets. resulted Re

DSA that for In GAAP a the DAC unamortized a the ratios in items interest or two be of we loss flow of recognize of cash after position impacted. in are potential we the of about Despite intercompany position realizing and addition may currently and portion free would remaining today, Re, capital our to prepaid loss were excess this, reinsurance a event last improve related assets These $X DSA not balance we gain recoverable. would controlling the sell our if Re as our in to our total capital not tax. statutory sale billion

of on range the timing, and Our any depend estimates valuation, ultimate sale market impact net for factors including will performance. potential reserve the development, of a wide

great Our consider Re build-out us run-off around options to DSA the our affords market. of flexibility in participating

other all keep noteworthy your changes I to you financial also of to options call continue our to like strategic this quarter. and to some supplement updated. attention always, would As evaluate our we'll

product that line quarterly of XX. for by disclosure presents portfolio supplement XX will added page on Insurance now as on financial we premiums investment see NPW XX General well page our of better Page you the First, report included ceded as hedges how operating reported class by which This basis had results. returns with previously on of to results. align benefits an GAAP schedule the we below are living fair value asset in

sheet volatility To growth, Finally, strong sheet profile. and reducing we progress by the free segment and added continue page profitable long-term we to balance breakdown towards cash on delivering sum a XX. balance maintaining make up, flow

the I'd to over Peter. Now, call like turn to

Peter Zaffino

comments General our conditions the financial will XXXX. our against focus and market has on My priorities overview Validus of progress on key of acquisition an in Sid, including update today for executing second current expectations half the Insurance and made which quarter closed, you, and the Thank our morning. recently good second results

As profitability run Brian underwriting we on achieving shared, continue an focus of by rate the to on basis XXXX. end exit

And core improve and of first our improve during net business to risk Underwriting of to are high mix and Our performance a to better to reduce We of our Insurance reduce performance Officer, managing top underwriting limits of we Chief quality our challenged both gross selection, the with priority and new Tom to altering the year. business. in casualty Bolt, in partnering gross through implement underwriters us the financial started limits to to actions framework net volatility and leaders our market. continuing is position add is the business, half our taking in team. property to General areas

As Casualty better I've of net and Since we net European loss discussed last our to of underwriting business new entire mix reduced risk a excess in-force previously, exposures in program facility commercial reinsurance and and policies. for property improved terrorism cover our the quarter, strategies an profile. business our a will revised expanded into entered that U.S. international result

team engaging we joined place General opportunities Mark second is during Claims Lyons, partners of make In addition, leadership our with the our for and progress. XXXX. with to in we're quarter. having actively reinsurance Anthony Chief The our an the on organizational second Chief Insurance significant Vidovich, Actuary, From perspective, Officer; continue half AIG

of to leaders As time on a amount team, with and meeting we performance business align operational have assess significant invested a principles.

we've in number result, underperforming changes a of businesses. leadership a and in As made structure

business since records strong year. pleased changes, beginning were announce these performance of join that momentum as underwriting to recently will to recruiting have CEO senior globally of talent the making in track hired of While XXX the and continue build we with underwriters the McElroy David We AIG October Lexington excess our in our and optimizing performance a on With we businesses and business to surplus instituting and lines operate, end-to-end meaningful units, will respect cost X. on impact our the our we market. transforming have way positioning David's transparency. leadership are

ongoing eliminate our accountability efforts second redundancies, process restructuring the charges improvement As drive Sid expenses. stated illustrates quarter earlier, instill our for streamline to operations, and

growth, together our pleased bring more of we're of and acquisition. segments Validus bringing to addition the our Validus welcome to collective and several about deep AIG The excited demonstrable Validus expertise skills market. progress bring to Finally, and recent to we closing the forward signifies of the capabilities colleagues strengthening our to solutions new clients. organization adding in pursuing business the in I'm to value compelling our look to greater very profitable

slide our XX overall General to Insurance, for results quarter provides performance. on Turning second details

primarily quarter, the Second year prior Personal by written FX increased premiums excluding X%, quarter driven in to Insurance. compared net growth

flat in year business quarter root of losses of with is changes losses year ratio year from adjusted XXXX, to quarter. earlier year accident causes net believe our points the historical than XX.X% The lower favorable CAT business expected line calendar core as into attritional development. XXX in to mix and while and expect result a severe underwriting compared respect adjusted largely severe combined loss XXXX losses, policies and underwriting severe With ratio making the earn shifts losses was accident to expectations. second and of are average these as results address profitability, which in benign of premiums strategies. than prior relatively our year over they that benefited points the X.X higher our about of includes X.X XXXX attributable reinsurance losses will were combined we The The financial ratio largely we time. prior and be and incepted results the to continue will written We to were our activity

I've end, limits, the reduce that while To and quality to to During is our $X.X our calls, of underwriting guidelines exception billion and performance. one shared property, underwriting balance intent with we've gross undertaken the consistency made initiatives the to past internationally net to stabilize earnings across to U.S. globally billion to million of will changes that lower limits being $X portfolio. with exposures in coincides fronted policies, the from $XXX result which and authorities bringing in

year-over-year underwriters industries it's We use place. are to new exposure to year also certain seasoned the deductibles, team loss and reducing look results exposure, of we process in believe our at quarterly versus of assessing revising When our appropriate comparisons. the severe of full in putting

For aggregate severe to result, against approximately With with million $XXX a thereby attachment in XXXX, million in we year approximately that we've year in line of the second of accident $XXX exposures with mind, our year in reflecting the half improvements quarter limiting XXXX year in was point the losses, X% incurred our with line severe in us full which the year-to-date bring full adjusted loss loss have the a mix. cover second ratio ratio loss expectation to X.X%. in

The by XXX in second This Personal ratio year and last and we higher that adjustment multi-year quarter shift from Insurance, expect acquisition quarter continue commission the XXXX. $XXX expense increased was compared quarter points also Insurance a full a we as toward business policy that discussed. increase loss non-recurring will driven business. expenses to Personal discussed lower we trend Sid ratio million benefit included largely The higher basis approximately

North reduction of the exposure. Commercial non-severe its and current Personal North from ratio the XX accident year in priority a rate business America result of loss America's attritional In was has international quarter As changes expectations another shortly it strong were CAT North result remains second significant year. Commercial. severe provide in XX.X%. with and has AIU profitability be and That was improvement half and were in year merger. of we non-severe largely driver Fire Slides Fuji by Insurance's leading acquisition partially delivering months retention quarter with offset losses of Brian year the ratio. described, attritional in anticipated ratio XX reducing improvement after seven expenses showed that With a a approximately an had our points XXX International, and pleased respect run merger driver America's adjusted results. we in main new will Insurance basis Personal line the and our adjusted increased sequential since accident an second business of losses and Japan, and of following full are some our fluctuations been completion XXXX completed in Marine. financial Current the to mix levels the line shown improvements combined

current approximately property. during in range E&S on approximately remained rate highest admitted and casualty XX% the segments over with overall the significant X% North our variation in the America, were increases conditions, to broadly most with X% on rate North the rates X% Moving the increased wide the North market have loss and aggregate point on line, space to show quarters. improvement, changes from few property attachment average to continue America with individual across history. rates America consistent approximately risk among quarter. In experience past increases

several XXX and improvement; of inclusion outlook will and these adjusted increasing to earlier, observed execution initiatives by second lines Validus Insurance's up line to the our run These workers' underwriting driven and basis profitable points for remainder cost of discussed reinsurance trends ratio combined of make which results entered the in remediate year, during of financial realization of have lines our provide we could we exception partial actions underperforming business; rate our factors. business. grow our in agreements underwriting General comp half in include We Transitioning pricing year. carefully the decisions accident to to review expense with the the and of be the of the year by trends loss improving path certain as of

over provide strategic year of half we changes portfolio, made strategic has volatility our three priorities focused on into we the businesses the the been addressing progress closing, expect third the performance underperforming quarter the General has first as In impact Insurance last during additional to our enter financial core within call. against XXXX. clarity of our improve meaningful that quarters, and will on While

Kevin. taking, and We have actions are we stakeholders. business of long-term and our the call I'll the With decisions position value future will confident that, made turn for to the that are for create the the all we over

Kevin T. Hogan

Thank you, everyone. Peter, good morning, and

Life ROE the million slide of can and adjusted you and XX%. strong income pre-tax $XXX adjusted for As see an in results quarter Retirement delivered with on XX,

from the As prior of some enhancement higher operating in compared benefited in and Sid mentioned, lines. offset and was Last as to of adjustments expenses quarter. lower Retirement. results as well by investment gross business net release positive Group year, positive the benefit our benefited This items actuarial with a alternative year the negative reserve operating gross from income expenses yield legal

XX drove Asset increases growth investment last total in fee income over months the income. and

portfolio and deploy continue in We broad in across leveraging growth capital Annuities, opportunities, to Retirement and We opportunistic executing increased premiums Group and transactions Annuities, businesses deposits Insurance Fixed Institutional product emphasizing strategy. and Index Life Markets. to our channel our attractive

business. bolt-on small to small excellent our financial individual technology-driven acquisition and group to We strengthened the complement represents our from which life employer and contribution XX% strategic an represents medium of well the international has life worldwide already our Ellipse and focused life business, performed platform on our sized new and of a with growing U.K. continue U.K. Ellipse, market. businesses see around business

results Now, businesses. for I discuss of each our will briefly

remained driven both from growth of income assets and net Retirement to increased, outflows year delivered by strong management. higher Turning as at the Fee improved slide the low flows sales hurdle the Individual quarter Annuity rates. for net product and to under Index these due Overall Annuity in negative on prior Variable remained Mutual Fixed we and growth Individual below deploy down Annuities to of quarter quarter Retirement chose returns flows in Retail our for were not lines. Funds. We capital XX,

practice for yields. our income. saw and active assets product the but Annuities we We Annuity lines. and benefited items, Fixed higher After for spread other compression spread of and management, investment yielding these as of runoff for our net spread from continued Index for portfolio due Base Variable adjusting expected, to higher these investment increased accretion continued lower reinvestment slightly

XX, Retirement and Turning and premiums periodic to growth increased on deposits with strong we acquisition. slide Group in deposits group new

Our few negative for remained down the year surrenders Group the large impacted a quarter loss net flows and Retirement plans. of from were by prior with

have natural on previous M&A larger As I the market. attrition mentioned earnings calls, to among their sponsors, healthcare plans reducing we planned expect of due the and activity see number some providers to and groups in

with us We Individual Similar as that and spreads. to grew the benefited and year in Base high income. our these assets spread administration continue prior line Group in model not-for-profit the Adjusting items, investment which contribution to Retirement, tech positions was combines market. net quarter. actively we touch continue growing and for spread manage other leader believe to Retirement service under for high from accretion investment defined a differentiated well

While increased, to new to have historically rates continue tight at levels. be portfolio and yields they continued be spreads below money

absent Looking expectation per is forward environment, approximately by net points that in points decline our overall to basis our will X base across spreads significant Individual and quarter. X basis changes current Group Retirement, rate the

$XX for million slide note on quarter. move was Life XX. the income adjustments important of to impacted is pre-tax that operating now adjusted Insurance by positive It to actuarial Let's

to our Total sales focus us the strong and from U.K. to business with the growth business separation allow on progress further will we particularly increased new deposits Life business planned DSA Re in continue to U.S. make platform. and We our and our U.K. premiums the in in grow continue and new

within Lastly, mortality pricing our was experience expectations. overall

Markets in to a continue GIC our executed large the we opportunistic execute Turning XX, to quarter. We slide strategy. Institutional during transaction

well-positioned remaining to the notable capital be we while available Although months our these in most to risk during on To strength we Overall, believe to be our transactions on the broad deals continues to expertise the economic any quarter to do quarter, capitalize well. growth, targeted not XX distribution months close, to our the the which over Markets robust. achieving market results to next Institutional to pipeline focused transfer our continues business pension continues opportunities, strategy to deploy participate and returns. for ongoing leverage product attractive position us reflect XX

would like to it turn to I Now, back Brian.

Brian Duperreault

Thank you, Kevin.

progress we closed AIG, it we've up how positioned first of is to made XX are well to-date, and open want When to in the the I acquisition going acquiring we years rejoined inorganic. would This profitable forward. we organic I and size we Q&A, growth July, company's said all I on Before that highlight past Validus. pursue by

heard the the team also records. You experts us of track industry with leadership speak we created of year a of underwriter and proven

we and and cash Re, As we Yesterday, structure AIG. AIG announced quarter meaningful to business stakeholders value these Legacy step deploy strong provides approach move prudent described All sustainable capital. the returns and us finally, our of said, actions capital flow to another sale managing at higher to balance exit returns. partial profitable bring growth. to our showed DSA to significant our allowing And towards composite Retirement's our this the Life and consistent earnings double-digit

it quartile AIG, pursue the of soon with their leadership We to and And a that performance turn Q&A. I team with sense urgency. over be and results we'll more strong continue with our pleased will top financial that, reflect not to I'm colleagues efforts. could across confident

Operator

Thank you.

Tunis first will We now Ryan of take from question Autonomous. our

ahead. Your line Please is open. go

Ryan J. Tunis

was I even improvement, just just the attritional average sorry, at it Hey. around XX.X% ratio, guess like Thanks. in and load. severe General XX%, cap morning. was last the loss question assuming, any looking Insurance my Good I'm loss guess, sequential – quarter. I There wasn't

there on I wouldn't more improvement see Just (XX:XX) curious why non-property the side?

Brian Duperreault

want do you Peter, do this? to

Peter Zaffino

Sure.

I think we have.

in take has Insurance some year-end for actually around on exit Personal of XXXX benefit terms you taking seen what adjust the what our to basis severes, the we've we of increased If done you and frequency a and saw were of XXX points.

a Commercial I on more think that a than and worth little in United bit keeping net in our we we again, our had some loss bit more happening up little some masked the States, a saw International of business other is the things high of frequency where attritional and frequency of with have cost trends. shift bit on book just, are mix little with that and

So variables I bit that necessarily identify that improvement. we little seen doesn't second there's the think it. all-in-all, quarter just in slight It's a more a had

Ryan J. Tunis

Yeah. And Thanks. then...

Brian Duperreault

Ryan? Okay,

Ryan J. Tunis

loss looked Yeah, you quarter? was still quarter stuff And on curious That just that guess Casualty and And some are update in some the there's the could still shouldn't but signs guess pretty fourth necessarily at of one that of I concerned guys and pickup I elevated reserves translate part then be what more to you have, about in through is trend to gotten good look was those Thanks. expected second loss an we on or in sorry, comments some be on it your actual third square trend guess, trying year-to-date? just to lines that seeing why I in guys charges. mentioning the question. the reserves.

Brian Duperreault

look we Obviously, in at look the XX%. at go. XX% Casualty, of look to all the to the about go, quarter. I think that keep mind and that to we Well, Okay. XX% we there's of some But at XX% not reserves it. don't had just I some mean in the was did second of Casualty you

pulled see So that. if had would didn't untoward, seen have something we We we forward. it

but maybe we well. see our some so Yeah, numbers, you prior. the things I are year there, and loss activity all-in-all raise with activity. in holding necessarily would not bit little XXXX quite are XXXX which increases with pleased affect adjust reserves a I'm loss would those we accident that for might reserves So, And where could think,

at as XXX%. So looking back going say, we're I to not,

to fairly seems stable. be All of that

So Ryan. hope the question, answers I that

next Next Josh? question questioner? –

Operator

We [Deutsche from next Josh Securities]. will question now Bank our take

Josh D. Shanker

Hello. you. Thank

very questions rate initiatives what to report are run two see you my much is how the the ratio? expected Validus' into expense do your So XQ improvement ratio combined you in the And similar. of from restructuring on One in two, improvement quarter? numbers inclusion from during is expect a the basis the

Brian Duperreault

for Yeah. In I point remarks, one said my prepared Validus.

Josh D. Shanker

okay. point, one Only

Brian Duperreault

combine. good the Well, know and XX% you about it's produces of it portfolio a

we it a because good second it we're a underwriting that significant is adds XX%. a combined charge business very So got said I pretty But point I the to think portfolio. our we've also in restructuring one going improve quarter, continue that's other expense good that half we're year. number the the General points. in All-in-all expense, and work remaining in second addressing expect to would for the do things ratio Insurance of two to the restructuring to with by

Josh D. Shanker

over In the longer-term? six or the months next

Brian Duperreault

when would I you no, that put improvement. some get so Well, showing understanding of a ratio XXXX entering business about expense that X% I could be talk out

won't the up -- show the could Now, necessarily end spend have know still of could be quarter fourth discontinued would year. some all ratio the because you spend have in it improvements but quarter partial you by you expense in that

So it's into rate XXXX. entry an

Operator

now Sachs. Goldman will We Kinar of next Yaron take our question from

go Please is Your line open. ahead.

Yaron Kinar

starting that very improvement cost, deferred exit, adjustments, X% it the is you when you've XXXX? sorry? clarifications XQ improvement My around Thank from you or that a say acquisition that PGAAP target really talked question is about much. first exit with then, -- is with amortization When around you're for is without where the some lower or XXXX. -- deferred is -- assets namely for Validus, And target potential

Peter Zaffino

let's the first. Well, exit take

that on over quarter produced earned the -- written the premiums So be previous will previous fourth XX months. over based the premiums were

be we It's this line not but line, to year. would to through that not the start show we be. what fourth is line. to improvement tell XXXX expect all that improvement premiums XXX. the there an the Validus so So what and a which the going I'm combined as XXX, include to straight book. be is the trying underwriting not first is to we underwriting we'll to under that get going results in in start across be, earned producing under And the to made. the to saying not exit – is I'm a enter I'm but everyone And but profitability it's is we my it numbers XXXX where adjustments going into ratio show Validus, And saying anywhere expect the might XXXX. will near published further improvement enter it's produced But quarter quarter we I'm be to should profitability, would you

Yaron Kinar

deferred amortization? will include other part So the Validus in acquisition not the words

Siddhartha Sankaran

the that. quarter size Well, we on asking numbers We'll haven't of our that's third on in you work. you for guys concluded are the if update PGAAP our what

Yaron Kinar

Okay.

Operator

next Kai Stanley. We will take of now our from Mr. Pan question Morgan

go open. Your is Please line ahead.

Kai Pan

Thank you and good morning.

follow ratio. two essentially above Validus, points the one expense from And severe XXX%. from AAL improvement question I First out breakeven if point and in combined at quarter losses and then up points combined average two ratio ratio then take to in start back four percentages adding XXX from with the you points you're second

you probably there. question So won't stop is my that

So for further improvements opportunities XXXX? where do see you beyond

Brian Duperreault

that. address it you for that do we there? to arithmetic why thank the quartile continue on the how we've to get be You and underwriting doing. Well, been said I the top got wouldn't

to for manifest have believe it and the results saying improvements where Casualty to a see the while results We themselves. the takes

reserves which picks some see what -- will emerge be and have as conservative happens. let which those will them we we should nature So have loss all to will and we'll we'll

improvements and even to show but it. expectations time, need see doing over we our So will to see need we're up it. you And great

a it's is market the movement are all prices time. that and -- So dynamic

buy address could to daily prices could a mean, volumes more have that you So continually are And that mean it down, on basis. and reinsurance, doing volumes the could you're mean up. hardening you your it go go what

big is to actively So of improve the actively and managed portfolio. portfolio managed issues one it's continue expense an That levels. our will

be. nowhere Our expense even is it needs where near that with X% improvement levels to

are down It's -- -- the is us the management Expense life. see just pricing expenses. those to not the a address got and way the company. in you'll ratio, position. life address way I continue to us see of to us So you'll side that will to address two get a loss think quartile things be this top And get us of but

Kai Pan

Re, or Legacy your My to the eventual think for the other make great. remaining the it the XX%? divest easier three plans And are sale on follow-up do harder even partial you what DSA That's books?

Brian Duperreault

Well, okay.

So we have make us operational a easier to do gives would it's and the that. together a partial with create it And that a truly or sale, make it optionality easier harder. not working not partner an we do to companies that believe I or capability Well, standalone it are -- the company harder.

that So Sid have. we I pointed think for been of rest Legacy, the it's a The out, good Legacy a as the we've managing trend very long time.

look being But I continue where to a think If noteworthy. it's it do the will. to think the Legacy, something speak remaining point for to We'll results we Sid? at getting opportunities I as stops there's else it. with themselves.

Siddhartha Sankaran

and Yeah, But bulk think transaction Legacy normal mean that vast call in our side with which deal remaining of course, pieces with course we'll I some I this the are would what portfolio, the those, liability addresses of side. investment on are there I both here.

we're think the transaction very pleased that this I progress with represents.

Brian Duperreault

question. Next

Operator

Elyse now Fargo. will next We take our of Wells Greenspan question from

is open. go line Your Please ahead.

Elyse B. Greenspan

good Hi, morning.

the So last discussion, my we from back General level losses access like first are exit going back question, severe so out the Insurance year. the you to with guys line in margin said the -- rate if you run about

year several that flow Should of the improvement in the expect of calls time would improvement XXXX? half just a initiatives, on about you part some reinsurance is through last initiatives Validus? how on to spoken to the more Or in the big away the we these into combined and quarter seems business lot the from expect. bringing or we that to ratio of mix earned you've see on quarter a more get which third once of start purchasing fourth that the a in, So expense part be and drive comes some improvement back of the re-underwriting, all improving the given

Brian Duperreault

Peter?

Peter Zaffino

Yeah.

expense, we year said about time an and the property. positive attritionals see and in but to improvement one really So opening so on of quarter, what talked We're accident on loss in was comments, components over getting rate property. that. Validus, saw we Brian expect trend. his was ratios mean we the example I We a the talked about It

we're volatility, talked large entire the see what with how until benefits that of we're in had property. XXXX. portfolio, making at the was Elyse, back We've on benefit reinsurance expect the of some put ability presence limit saw from of the still going Casualty in AIG. out positioning now to And the have lot of all be we half partners much in in how going to watch And limit. so but heavily would of of to lines year, attritional very benefit the particular, and very a look as reinsurance, to and risk in terms severe from terms and addressing focused we has the of into we our PML. we a we're reducing the the normalize limit, strategy we We then been on as to we large leading a out we if we're seen market in concentrated, go excess think that sure a I a how going deductibles, of reinsurance and one the But see up you more market at look in big financial AAL our And on also to some we and our look businesses strategic any goes watch particular in Casualty account. in take some to are across

Elyse B. Greenspan

guys the to you've question Okay, thank M&A Brian, you recently on transaction. about company. a you. the lot spoken just grow my your And then and aspirations continue Validus second closed to

deal are And from side? the sitting Now you is additional through the on opportunities we're that both as year, halfway are how Insurance Casualty Life thinking about things you that well considering done the as M&A what Property here?

Brian Duperreault

capabilities we great mean it a standards always of Yeah, these portfolio this that our filled for and acquisitions. we would to look what didn't a Validus in in company. few have thanks, said calls the about But yes, times quite I've have. and of And our Elyse. we it example priorities people standards. think great was added I have, Well, I I parts

So bring mix. businesses that better that us that, make to and do that we add to portfolio the look great continue people for

place a if Life Insurance So could. I be look would would I

consistent, that'd are people great pretty we So our this need capabilities where find world we around sets demographics we of getting of confined could if somewhat our be -- retirement, could and spread older somewhat every got have more we're have If that, the capabilities minute. we in geographically great. skill out,

of love the where We better I'd have have the large our past General maximize dominated I'd to and and have Commercial we're in like Insurance there's to U.S. international small. we footprint. business then that in balance large some an with elements than where

But are do Now, one do very difficult you're in I I looking. and great I that, of right know. lot not you anytime go find we'll acquisitions look things one the if can't to having just a near said tell don't future. predict, to can't have you a and

So we look.

next Okay, question.

Operator

you. Thank

from comes Gallagher Evercore. next Tom of question Our Mr.

Please go line open. ahead. is Your

Thomas Gallagher

Good morning.

say, Legacy write-down reinsurance. the $X what, Re, billion it you equity or you do value $X would Would is book would for you out reduce strip on segment my And be if billion to that or there? DSA adjustment and divest $X if equity billion that going of imply the still you'd First, an billion the allocated referenced not from that DSA Re, that the that GAAP have, related in to is question because $X potential Legacy. you it, if just – that allocated assumes take

there just run-off So lines? is curious, or equity still there in is and that in the capital left much what I'm

Siddhartha Sankaran

Legacy think of No, to this spot in Kai's of response any Tom, the segment Legacy small. And DSA remaining outside remaining relatively that Re the referenced is question, we the pieces would book and reside – intercompany equity. The in I Legacy, impact on. you're in to so and would be

insurance So we of think Dachille last have team small there's and manage over we the of great and a largely in job which a done couple then years. I which a on liabilities, the CIO, assets, small of subset invested Doug course our feel can subset normal

Thomas Gallagher

correctly, now Validus, that much ratio. you're XXX, an ratio your run expense rating get Brian, about you're that should is follow-up And we X improvement you if points levers you it. loss X improvement much in two that XXX, here How Does that? in target. underlying right or on you're to And expecting pretty imply those following then the if is, Got point from the numbers combined the incremental? I'm the think my get not expecting

Brian Duperreault

that highlighted been two already know has let significant just the you I that is to there clear done. Well, work quite

the activity to loss we of that rest around expect and the improve. So is the ratio, it

additional We And that's the the how further make you to also of line. part between to you improve. going – that And cross is an reinsurance the I said improvement to sure improve. expect that want

indicated So, so little than you need far to maybe make sure a enough. farther go you go you

So and us all cross XXX as we expect under would we of that into that puts XXXX. to takes get

Next question?

Operator

you. Thank

Cohen Jay of Mr. Bank from comes question America next Our of Lynch. Merrill

Your line is open. ahead. Please go

Jay A. Cohen

Is with Thank which your reserves, one a you. experience. examine you with great Actuary and change there any new On you plan assess really Chief have to methodology reserves? the

Brian Duperreault

Yeah, – so constantly. he's to thorough continue professional will, that do earlier. we We a improvement that talked what and we on Well, about a him we great hope, look, continuous improve addition. he's he remain I do

So that quo. status we imagine would I stay can't

everything earlier said I've with in that, previous discussions, said I'm methodology having improved. can Now but process, and be our comfortable

expect improve continue to it. ahead, Go fully absolutely. I he that Jay. will Yes, So

Jay A. Cohen

Got of of it. with question, the transaction with or suggest down that accelerate change? not will run-off the does slow or And second pace Carlyle, the the then DSA transaction

Brian Duperreault

Sid?

Siddhartha Sankaran

we've are reminded of Sid, long it's so you, DSA as think I the liabilities think, course nature, Well, obviously years. of north XX well Jay, for I very in duration

value this maximizes I and simply us. is do think by accelerated we've pace. we transaction around maximizes transaction, executing the what the just for felt So And everything evaluating value we

Brian Duperreault

run run Yeah. think it goes it off off. don't the off. faster. of faster, I goes way If any in I I going changes sale mean, going it how to way to runs it's it it's mean, the

Jay A. Cohen

Okay.

Brian Duperreault

question? Next

Operator

Greenberg Janney next Montgomery question from Larry Our comes Scott. of

open. go ahead. Your is line Please

Larry Greenberg

And thank morning. you. Good

it give believe, So with an Validus supplement you forward? then idea just the could, of this shouldn't I aggregate line your for I'm rationale CAT said AAL I about curious looks you think how from quarter. you But to if loads like know removed us increase. that? the And going that your you, can

Brian Duperreault

Sure.

aggregate the talk Peter let I'll everything. – and me about the and Validus Let

recognize AAL. take else want of the on. they're to long-term and we've our will the But when we to through earlier. nature – without there to to to we we look, we it be to know do whatever will just you I that AAL. with so of numbers, recognition consistent the comparable the the we the include of thinking need you versus mentioned got I catastrophe AAL, to So information We are our of way not arithmetic you all that exposures update cognizant with going rest of that But everybody have is report a on that talk about do But the I'm easily so the go need industry. and

our do about the want aggregates? talk Peter, Now, and you Validus

Peter Zaffino

Yeah.

X% we as The again, an but and the need Validus I will couple them we past So X.X% were they five the about AIG through in about basically for XX% in – we dropped the AAL's reinsurance. from re-underwriting to think, we diligence down as AALs or When Validus, alone combination kept of just it and flat load refresh well where AIG talked, about reductions. range. quarters four on actions for had of doing plus about made that to the minus has PML

where slightly be So and we this an were we lower combination quarter. the expected where quarter will as even we're update than the at as year look time below exited give that third and addition, we XXXX last last We'll and to the fourth year. with you

Larry Greenberg

during kind for the wondering. getting if feels mean There start think probably this it really of a not to just is I from Brian. question to AIG. prior was world Thank comment the And answer, to you'd go wondering ground scratch have zero restructuring was world willing I is would Okay. to be and guys time? my is on a look had that I one wondering second you. that. to if And you program to and just you But anything accomplished back you think and really just like

Brian Duperreault

look were was results, Larry. mean, fairness done. a stuff. That's please, and that's the expense you lifting. In $X taken But of was I billion lot out. remain at lot -- done ratios lot a that know, of high. once that's don't the I take all Well, of expenses heavy a a

beginning life way That was all here. to of a be And end. said said it's I more needed expense was an a so, be done. but And around to it not management, got

so continue to at it. And we'll look

manual like continue like have of things addressing We it don't We work was address, lot weren't There to fair. maybe no, a to being that. expenses. arrival want have to I it's now prior -- just to done We're in processes But some my all. and addressed. no, things it. good our not That's

Brian Duperreault

time. we Well, are running out of

investor So line is as thank for community want all themselves. company the point, I on once begin work this. great to, it staying thank line, think will straight end we us and an but It's a and improving the my just at doing I should a again, this to not this we want I this make with that colleagues company. great show results to you're the

thank So you, everybody.

Operator

gentlemen, thank participation. call. for your today's This concludes Ladies and you

disconnect. now may You

American International (AIG) 3 Aug 182018 Q2 Earnings call transcript