AIG(AIG) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted after-tax income for Q4 2022 was $1 billion, or $1.36 per diluted share, with full year adjusted after-tax income reaching $3.6 billion, or $4.55 per diluted share, down from $4.4 billion in 2021 [8][48] - The company repurchased approximately $780 million of common stock and redeemed $1.8 billion of debt in Q4 2022, returning $6.1 billion to shareholders for the full year [8][49] - Adjusted return on common equity (ROCE) was 6.5% for the full year 2022, down from 8.6% in 2021, primarily due to lower alternative investment income [48][50] Business Line Data and Key Metrics Changes - General Insurance achieved underwriting income of $2 billion in 2022, with a combined ratio of 88.7%, an improvement of 230 basis points year-over-year [14][20] - Global Commercial reported a combined ratio of 84.5%, improving by 460 basis points year-over-year, while Global Personal's combined ratio deteriorated to 99.2% [20][48] - Net premiums written in General Insurance grew 4% on an FX-adjusted basis, driven by 6% growth in Global Commercial [19] Market Data and Key Metrics Changes - The company experienced significant rate increases in the commercial insurance market, with U.S. Property CAT rates increasing between 30% and 100% [33] - International commercial rate increases were 4%, driven by Asia Pacific at 9% and EMEA at 7% [10] - The reinsurance market faced challenges due to over $130 billion in insured natural catastrophe losses in 2022, impacting supply and pricing dynamics [22][23] Company Strategy and Development Direction - The company aims to achieve a 10% or greater ROCE by focusing on underwriting results, expense savings, and capital management [50] - AIG plans to invest in growth areas such as Lexington and Global Specialty, with expectations of continued rate momentum [31][32] - The company is also focused on completing the operational separation of Corebridge and exploring secondary offerings to enhance capital management [37][49] Management's Comments on Operating Environment and Future Outlook - Management highlighted the challenging conditions in the equity markets and insurance industry throughout 2022, but expressed optimism about the company's positioning for 2023 [6][39] - The company anticipates continued pressure in the reinsurance market but believes it is well-positioned to capitalize on opportunities due to its improved portfolio quality [25][30] - Management emphasized the importance of maintaining expense discipline and achieving operational efficiencies to support future growth [37][51] Other Important Information - The company completed the IPO of Corebridge in September 2022, marking it as the largest financial services IPO since 2020 [12] - AIG's investment management strategy has been restructured through partnerships with Blackstone and BlackRock, which are expected to yield benefits [13] - The company plans to launch a new Managing General Agency in partnership with Stone Point Capital to enhance its Private Client Group offerings [36] Q&A Session Summary Question: What is the starting point for the double-digit ROE target excluding Life and Retirement contributions? - Management indicated that achieving the 10% ROE target involves improving underwriting results, expense savings, and capital management, estimating a 300 to 350 basis point target for these components [54] Question: What are the expectations for loss trend assumptions and pricing in the first quarter? - Management confirmed that the loss cost assumption remains at 6.5%, with expectations that pricing will improve above loss trends in the first quarter [55][56] Question: How is the company managing its facultative reinsurance and commercial lines? - Management stated that while facultative reinsurance is used in certain segments, the focus is primarily on core treaty structures, which have been effectively managed to respond to market conditions [64][66]