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    American International Group Inc (AIG)

    CFO Change

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    Business Description

    American International Group, Inc. (AIG) is a global insurance company that operates through three main business segments: General Insurance, Life and Retirement, and Other Operations. AIG provides a wide range of insurance products and services, including property, liability, financial lines, specialty insurance, annuities, and life insurance, primarily distributed through a broad network of banks, broker-dealers, and independent agents . The company's profitability is driven by effective risk management and investment strategies, with significant revenues generated from insurance premiums, policy fees, and investment income .

    1. General Insurance - Offers property, liability, financial lines, and specialty insurance products for commercial and personal customers, leveraging a broad distribution network and strong risk management capabilities. This segment is divided into North America and International segments .

      • North America - Provides insurance products tailored to the needs of customers in the United States and Canada.
      • International - Delivers insurance solutions to customers outside of North America, adapting to diverse market requirements.

    2. Life and Retirement - Provides individual retirement, group retirement, life insurance, and institutional markets products, focusing on wealth accumulation and retirement income solutions. Products include fixed annuities, fixed index annuities, variable annuities, and life insurance, distributed through banks, broker-dealers, and independent agents .

    3. Other Operations - Comprises income from assets held by AIG Parent and other corporate subsidiaries, deferred tax assets, corporate expenses, and results from consolidated investment entities. This segment also includes General Insurance portfolios in run-off and legacy insurance lines ceded to Fortitude Re .

    Q3 2024 Summary

    Initial Price$75.05July 1, 2024
    Final Price$72.72October 1, 2024
    Price Change$-2.33
    % Change-3.10%

    What went well

    • AIG's integration of GenAI into its underwriting processes has improved data collection accuracy rates from approximately 75% to upwards of 90%, while significantly reducing processing time, enhancing growth and operating leverage.
    • AIG plans to return $10 billion to shareholders through share repurchases in 2024 and 2025, leveraging strong liquidity and financial flexibility, while also exploring strategic M&A opportunities for inorganic growth.
    • AIG's Lexington E&S business experienced a 24% increase in new business and a 35% increase in submissions, benefiting from a robust E&S market that has grown from $50 billion in 2018 to $115 billion today.

    What went wrong

    • AIG's target core ROE of 10% by 2025 is lower than peers achieving mid- to higher teens ROEs, indicating potential underperformance compared to competitors.
    • Management may increase financial leverage to pursue M&A opportunities, potentially raising financial risks and impacting shareholder value.
    • A shift towards casualty lines with higher loss ratios could affect profitability due to potential increases in the loss ratio.

    Q&A Summary

    1. ROE Aspirations
      Q: Can AIG reach peer-level ROEs, and what will it take?
      A: AIG aims to achieve a 10% core ROE in 2025. They plan to get there through improved combined ratios, disciplined underwriting, growth in net investment income and net premiums written, optimizing reinsurance structures, and disciplined expense management. Capital management actions and initiatives like AIG Next are also contributing to this goal.

    2. M&A and Capital Deployment
      Q: What's your appetite for M&A to reach premium leverage goals?
      A: AIG is exploring inorganic growth opportunities with their financial strength and flexibility. They plan to remain disciplined but may consider acquisitions to expand geographically or enhance product capabilities, including SME markets, to accelerate risk-adjusted returns. They also plan $10 billion in share repurchases in 2024 and 2025.

    3. Leverage and Dry Powder
      Q: Can leverage increase to capitalize on opportunities, including M&A?
      A: AIG is comfortable with leverage in the high teens relative to total capital, including AOCI. They have financial flexibility to increase leverage if attractive opportunities arise, enhancing capacity for growth and potential acquisitions.

    4. Reserve Developments
      Q: What's happening with reserves in older accident years for financial lines?
      A: AIG recognized $300 million of favorable development in short-tail lines this quarter. Adverse development on financial lines was $28 million post-ADC, driven by older UK exposures. Favorable development was recognized in U.S. and international portfolios for older accident years.

    5. Market Conditions and Growth Opportunities
      Q: What's the outlook for casualty and E&S lines growth?
      A: AIG sees strong growth opportunities in casualty and E&S lines heading into 2025. They reported 22% overall new business growth and a 24% increase in new business for Lexington. E&S submissions increased 35%, indicating robust demand.

    6. Property Reinsurance Strategy
      Q: Any changes expected in AIG's property reinsurance program?
      A: AIG doesn't anticipate material changes to their reinsurance structures. They prefer low attachment points for severity and aggregate protection for frequency. They have the balance sheet strength and risk appetite to adjust if needed but plan to continue their current strategic approach.

    7. North America Commercial Loss Ratio
      Q: What drove the improvement in the ex-cat accident year loss ratio?
      A: The improvement to 61.1% was due to favorable movements, excluding one-off adjustments. The mix of business will continue to change, with growth opportunities in casualty and stabilizing financial lines pricing expected to sustain the loss ratio improvement.

    8. Personal Lines Combined Ratio
      Q: Update on the MGA structure and combined ratio outlook in Personal Lines?
      A: North America Personal Lines is transitioning, with meaningful improvement in attritional loss ratios and reduced GOE. The acquisition expense ratio increased due to the MGU transition but is expected to improve in 2025 as ceding commissions decrease. The E&S strategy is contributing positively, with 50% of new business in E&S and top-line growth expected to be 10% in 2025 from E&S alone.

    9. GOE Improvement
      Q: Is the GOE improvement in General Insurance in line with expectations?
      A: Management is pleased with the GOE improvement. Despite absorbing $50 million more of costs into the business, the run rate is attractive. Initiatives like the voluntary early retirement plan and international restructuring are beginning to contribute and will have a greater impact in Q4 and 2025.

    10. Mix Shift Between Property and Casualty
      Q: How do you expect the mix between property and casualty to shift next year?
      A: Property rate increases are expected to reverse in 2025 due to net retention and increased catastrophe frequency and severity. Casualty remains strong with growth opportunities, and financial lines pricing is stabilizing. Overall, they expect sustained performance with potential rate improvements in property.

    Guidance Changes

    Quarterly guidance for Q4 2024:

    • General Insurance Investment Income: $710 million (no prior guidance)
    • Private Equity Returns: 3.5% (no prior guidance)

    Annual guidance for FY 2025:

    • Core Operating ROE: 10% (no prior guidance)
    • Share Repurchase Authorization: $10 billion (no prior guidance)
    • AIG Next Savings: $500 million (no prior guidance)
    • Parent Expense: $350 million (no prior guidance)

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Peter ZaffinoChairman, President & Chief Executive Officer2022Peter Zaffino has been serving as the Chairman, President & Chief Executive Officer of AIG since 2022. He became the CEO in 2021 and the President in 2020. Previously, he was the EVP & Global COO from 2017 to 2021 .
    Don BaileyExecutive Vice President and Chief Executive Officer, North America Insurance2023Don Bailey serves as the Executive Vice President and Chief Executive Officer, North America Insurance at AIG. He has been an officer since 2023. Previously, he was EVP, Global Head of Distribution and Field Operations in 2023 .
    Thomas BoltExecutive Vice President, Chief Risk Officer2022Thomas Bolt has served as the Executive Vice President and Chief Risk Officer at AIG since 2022. Prior to this role, he was the SVP and Chief Underwriting Officer for General Insurance from 2018 to 2022 .
    Ed DandridgeExecutive Vice President and Chief Marketing & Communications Officer2023Ed Dandridge serves as the Executive Vice President and Chief Marketing & Communications Officer at AIG. He started in this role in 2023. Previously, he was the President of ScaleWith in 2023 and SVP, Chief Communications Officer at Boeing from 2020 to 2022 .
    Ted DevineExecutive Vice President, Chief Administrative Officer2024Ted Devine has been serving as an officer at AIG since 2023. He holds the position of Executive Vice President, Chief Administrative Officer since 2024. Previously, he was the Global Head of AIG 200 from 2021 to 2023 .
    Charlie FryExecutive Vice President, Reinsurance and Risk Capital Optimization2022Charlie Fry serves as the Executive Vice President, Reinsurance and Risk Capital Optimization at AIG. He has been in this role since 2022. Previously, he was the CEO of Acacia Holdings Ltd. from 2020 to 2022 .
    Rose Marie GlazerExecutive Vice President, General Counsel and Interim Chief Human Resources & Diversity Officer2023Rose Marie Glazer has been serving as an Executive Vice President at AIG since 2022. She holds the position of General Counsel and Interim Chief Human Resources & Diversity Officer since 2023 .
    Jon HancockExecutive Vice President, Chief Executive Officer, International InsuranceJanuary 1, 2024Jon Hancock serves as the Executive Vice President and Chief Executive Officer, International Insurance at AIG. He started in this role on January 1, 2024. Previously, he was the CEO of International General Insurance from 2020 to 2023 .
    Kevin HoganPresident & Chief Executive Officer, Corebridge Financial, Inc.2022Kevin Hogan has been serving as the President & Chief Executive Officer of Corebridge Financial, Inc. since 2022. He has been an officer at AIG since 2013, previously holding the position of EVP & CEO of AIG Life & Retirement .
    David McElroyExecutive Vice President, Chairman, General Insurance2024David McElroy has served as an officer at AIG since 2020. He is currently the Executive Vice President, Chairman, General Insurance (since 2024). Previously, he was the EVP and CEO of General Insurance from 2020 to 2024 .
    Roshan NavagamuwaExecutive Vice President, Chief Information OfficerJanuary 1, 2024Roshan Navagamuwa serves as the Executive Vice President and Chief Information Officer at AIG. He began his role at AIG on January 1, 2024. Previously, he was the EVP and CIO at CVS Health from 2012 to 2023 .
    Sabra PurtillExecutive Vice President, Chief Financial Officer2023Sabra Purtill has served as an officer at AIG since 2021. She is currently the EVP and CFO, a position she has held since 2023. Previously, she was the Chief Investment Officer at Corebridge Financial, Inc. from 2022 to 2023 .
    Chris SchaperExecutive Vice President and Global Chief Underwriting Officer2023Chris Schaper is the EVP and Global Chief Underwriting Officer at AIG. He has been serving in this role since 2023. Previously, he was the SVP, General Insurance and CEO at AIG Re from 2019 to 2023 .
    Claude WadeExecutive Vice President, Chief Digital Officer and Global Head of Business Operations2021Claude Wade has been serving as the Executive Vice President, Chief Digital Officer, and Global Head of Business Operations at AIG since 2021. Previously, he was the Head of Client Experience & Atlanta Innovation Hub Leader at BlackRock Inc. from 2017 to 2021 .
    Keith WalshExecutive Vice President, Chief Financial OfficerNovember 8, 2024Keith Walsh joined AIG as EVP and CFO, effective November 8, 2024. Previously, he served as the CFO of Marsh, a subsidiary of Marsh & McLennan Companies, Inc., since 2017 .

    Questions to Ask Management

    1. Given that you have excess capital for the size of your business today, beyond share buybacks and dividends, what specific growth opportunities do you plan to pursue to deploy this capital effectively?

    2. Considering the favorable prior-year reserve development in short-tail lines but adverse development in older accident years for financial lines and casualty, how confident are you in the adequacy of your reserves, and what steps are you taking to mitigate potential reserve deficiencies?

    3. With your peers achieving returns on equity in the mid to high teens while you target a 10% core operating ROE by 2025, what specific strategies do you have to close this gap and reach peer-level profitability, and over what time frame do you expect to achieve this?

    4. Given that the improved ex-cat accident year loss ratio in North America Commercial was partially driven by one-off items and anomalies, how sustainable is this improvement, and what strategies do you have in place to maintain or enhance underwriting profitability in this segment amidst changing market dynamics?

    5. You mentioned the integration of Gen AI into your underwriting processes; how are you addressing potential risks associated with data security and privacy, and what measures are in place to ensure that AI implementation does not compromise underwriting quality and decision-making?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateApril 30, 2024
    End Date/DurationN/A
    Total additional amount$10.0 billion
    Remaining authorization amount$7.0 billion as of October 30, 2024
    DetailsPart of capital management strategy to return capital to shareholders

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Core Operating ROE: Expectation of a 10% core operating ROE for the full year 2025 .
      2. Share Repurchase Authorization: Plan to execute a $10 billion share repurchase authorization over 2024 and 2025 .
      3. AIG Next Savings: Full realization of $500 million in savings from AIG Next in 2025 .
      4. Parent Expense: Expected costs around $350 million going forward .
      5. General Insurance Investment Income: Projected to be approximately $710 million for Q4 2024 .
      6. Private Equity Returns: Expected similar to the year-to-date annualized return of 3.5% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Combined Ratio for 2025: Expected to be the same or lower than 91.6% .
      2. Expense Ratio: Focus on improvements in the expense ratio .
      3. Accident Year Loss Ratio Excluding Catastrophes: Expected to remain strong in the second half of 2024 .
      4. Adjusted Tax Rate: Expected to be about 24% for 2024 .
      5. Share Count: Target range of 550 million to 600 million shares by end of 2025 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Premiums Written Growth: Expectation of high single-digit growth .
      2. Debt-to-Capital Ratio: Targeting 15% to 20% .
      3. Share Repurchases: About $1.5 billion per quarter for 2024 .
      4. Share Count Target: 550 million to 600 million shares by year-end 2025 .
      5. Return on Common Equity (ROCE): Committed to 10%-plus ROCE post deconsolidation .
      6. AIG Next Savings: $500 million in annual run rate savings by end of 2025 .
      7. Dividend: Increased to $0.40 per share .
      8. Corebridge Deconsolidation: Expected by end of Q2 2024 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Return on Common Equity (ROCE): Aim for 10%-plus ROCE .
      2. Capital Management: Focus on share repurchases and dividends, targeting 600 million to 650 million shares .
      3. Expense Savings: Targeting $500 million in sustained annual run-rate savings .
      4. Growth Expectations: High single-digit growth in core businesses .
      5. Reinsurance Strategy: Maintain and optimize reinsurance placements .
      6. Corebridge Deconsolidation: Progressing towards deconsolidation .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Banks - Compete in the insurance and financial services industry.
    • Other life insurance companies - Compete in the insurance and financial services industry.
    • Mutual fund companies - Compete in the insurance and financial services industry.
    • Large multinational insurance organizations - Compete in highly competitive environments both domestically and overseas.
    • Investment banks - Compete in highly competitive environments both domestically and overseas.
    • Other nonbank financial institutions - Compete in highly competitive environments both domestically and overseas.

    Latest news

    Recent developments and announcements about AIG.

    Corporate Leadership

      CFO Change

      ·
      Sep 18, 2024, 12:00 AM

      On September 18, 2024, AIG announced that Keith Walsh will succeed Sabra Purtill as Executive Vice President and Chief Financial Officer, effective October 21, 2024. Ms. Purtill will transition to working on strategic projects and act as an advisor to Mr. Walsh to ensure a smooth transition .