American International Group - Q4 2022

Transcript

Operator (participant)

Good day, and welcome to AIG's fourth 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.

Quentin McMillan (VP, Managing Director, and Head of Investor Relations)

Thanks very much, and good morning. Today's remarks may include forward-looking statements which are subject to risk 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, including our annual report on Form 10-K and our quarterly reports on Form 10-Q, provide details on important factors that could cause actual results or events to differ materially. Except as required by 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. The 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 discuss the results of AIG's Life & Retirement segment and other operations on the same basis as prior quarters, which is how we expect to continue to report until the deconsolidation of Corebridge Financial, Inc. 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. Corebridge Financial will host its own earnings call tomorrow on Friday, February Seventeenth, and will provide additional details on its results. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino.

Peter Zaffino (Chairman and CEO)

Good morning, thank you for joining us to review our fourth quarter and full year 2022 results. Following my remarks, Sabra will provide more detail on certain topics, including Life & Retirement's results and our path to a 10% or greater ROCE, and then we will take questions. Kevin Hogan and David McElroy will join us for the Q&A portion of the call. Today, I will cover four topics. First, I will provide an overview of our fourth quarter financial results. Second, I will review highlights from the full year, including some of our major accomplishments, which were remarkable given the very challenging conditions we faced throughout 2022 in the equity markets and the insurance industry.

Third, I will unpack in some detail market conditions leading up to January 1 reinsurance renewals, where we saw significant shifts that we believe will impact the industry throughout 2023 and perhaps longer. Suffice it to say, this 1/1 renewal season was the most challenging that many, including myself, have seen in our careers. Fourth, I will outline our 2023 priorities and outlook regarding capital management. Before turning to our results, I'd like to welcome Sabra to the call. We are fortunate to have her in the interim CFO role while Shane is on a medical leave. Regarding Shane, I am personally deeply appreciative of the tremendous outreach from many of you. The number of people who have sent good wishes for a speedy recovery is incredibly meaningful to me and our management team, and particularly to Shane and his family.

We look forward to welcoming him back to AIG. Let me begin with a brief overview of AIG's fourth quarter results. Adjusted after-tax income in the fourth quarter was $1 billion and $1.36 per diluted common share. We repurchased approximately $780 million of AIG common stock and redeemed $1.8 billion of debt. AIG paid $243 million in dividends in the fourth quarter, and Corebridge paid two dividends totaling approximately $300 million following its IPO in September of 2022. Turning to General Insurance, in the fourth quarter, the accident year combined ratio ex CATs improved 140 basis points year-over-year to 88.4%, representing the 18th consecutive quarter of margin improvement.

Notably, underwriting income in the fourth quarter increased 27% year-over-year to $635 million. Global Commercial drove the year-over-year increase, achieving an accident year combined ratio ex CATs of 84.1%, a 380 basis point improvement, and a 69% increase in underwriting income. Global Personal reported an accident year combined ratio ex CATs of 100.4%, a 610 basis point increase from the prior year quarter as we continued to reposition this portfolio. Moving to Global Commercial, on an FX-adjusted basis, North America Commercial net premiums written increased 3% and international increased 2%. Global Commercial had strong renewal retention in its in-force portfolio and new business continued to be strong.

Turning to rate, momentum continued in North America Commercial with overall rate increases in the quarter of 3%, 7% if you exclude financial lines, and 9% if you also exclude workers' compensation. These rate increases were driven by retail property at 15%, Lexington at 12%, and excess casualty at 9%, and the exposure increase in the North America portfolio was 3%. International commercial rate increases were 4%, driven by Asia Pacific at 9% and EMEA at 7%, and the exposure increase in the International portfolio was around 2%. Pricing, which includes rate plus exposure, was up 6% in both North America and International. While we experienced downward pressure on rate in certain lines early in the fourth quarter, we saw a re-acceleration of price increases towards the end of the quarter.

For example, retail property was up 15% in the fourth quarter, with rate improvement of 24% in December when market impacts from increased catastrophes started to be felt. We saw a similar upward movement at Lexington, and particularly within the property portfolio, with December seeing the strongest rate increases in the fourth quarter. Overall, we continue to earn rate above loss cost trends, which contributed to positive margin expansion. In Global Personal, starting with North America, net premiums written declined 7%, reflecting our ongoing reshaping of this portfolio, particularly in the high and ultra-high net worth businesses that are part of PCG. Later in my remarks, I will discuss our announcement on Monday relating to PCG and our partnership with Stone Point Capital to create a new managing general agency or MGA.

In International Personal, net premiums written slightly increased by 1% on an FX-adjusted basis due to a rebound in travel and growth in A&H. Now turning to the full year. We made tremendous progress throughout 2022 on a number of key priorities. I could not be more pleased with our team's ability to execute on multiple complex strategic objectives across AIG at once. Our most significant and impactful accomplishment was completing the IPO of Corebridge in September of 2022, despite the very challenging equity market conditions we had to navigate. Notably, Corebridge was last year's largest IPO in the US and the largest financial services IPO since 2020. We also continue to grow underwriting income in General Insurance, which increased approximately $1 billion year-over-year, the second year in a row with over $1 billion of growth in underwriting income.

As I noted on last quarter's call, we also reached significant milestones on AIG 200 that have modernized our technology infrastructure and operational capabilities while executing on an exit run rate savings of $1 billion 6 months ahead of schedule. We also changed AIG's investment management strategy and structure through successful partnerships with Blackstone and BlackRock, and we are seeing the benefits of these partnerships across AIG and Corebridge. Turning to full-year consolidated financial results for AIG, adjusted after-tax income in 2022 reached $3.6 billion and was $4.55 per diluted common share. We returned $6.1 billion to shareholders through $5.1 billion of AIG common stock repurchases and $1 billion of dividends. We finished 2022 with 734 million shares outstanding, a 10% decrease since the end of 2021.

We executed on a number of capital management actions to establish the standalone Corebridge capital structure while reducing AIG debt by roughly $10 billion. Consolidated financial debt outstanding was approximately $21 billion at year-end, with $11.8 billion at AIG and $9.4 billion at Corebridge. Let me cover full-year 2022 results for General Insurance. As you know, an important aspect of our turnaround over the last few years has been instituting a culture of underwriting excellence, and our rigor in this area is now clearly benefiting our financial results. General Insurance achieved underwriting income of $2 billion in 2022, despite the industry again experiencing over $100 billion of insured natural catastrophe losses. We exceeded our combined ratio commitment by achieving a sub-90 accident year combined ratio ex CATs in all 4 quarters.

As I've noted on prior calls, and it's worth repeating, since 2018, we completely overhauled our underwriting standards and overlaid these standards with a comprehensive reinsurance program that can adapt to market conditions and to our portfolio as it continues to change and improve. Overall, gross limits deployed were reduced by over $1.2 trillion during this period. We also meaningfully and deliberately shifted our global portfolio mix in order to reposition AIG for the future. For example, Global Commercial now represents 74% of our net premiums written, up from 57% in 2018. Lexington is now 17% of our North America Commercial business, up from 12% in 2018. If you exclude Validus Re, Lexington is now 23% of North America Commercial.

As a result of this work, our current portfolio is very well-positioned for 2023. I will discuss in more detail later when I review January 1 reinsurance renewals, how market dynamics have shifted and how AIG should benefit as we look to capitalize on attractive opportunities for better risk-adjusted returns. Let me highlight a few of the key businesses in General Insurance that contributed to our performance in 2022. Lexington, our market-leading excess and surplus lines business, had 18% net premiums written growth in 2022, up over 50% since we transitioned this business to focus on the wholesale market. This business also increased underwriting profitability, excluding CATs, by 60%, and it achieved a sub 80% accident year combined ratio ex CATs for 2022.

Glatfelter continued its terrific performance, growing net premiums written by 14%, increasing underwriting income, and achieving an 85% accident year combined ratio ex CATs. The acquisition of Glatfelter allowed us to significantly elevate the quality of our programs business. Global Specialty, which includes our global marine, energy, and aviation businesses, grew net premiums written by over 15% on an FX-adjusted basis. This was driven by strong client retention of 88%, new business growth, and rate increases across the portfolio. Global Specialty generated strong earnings in 2022 with an impressive accident year combined ratio excluding CATs of 80%. These are just some examples of businesses that we prioritized last year based on their market position, our differentiated value proposition to clients, and our ability to generate strong underwriting results.

We see great opportunities for these businesses going forward. They are strong anchors for AIG that we expect will contribute to profitable growth in 2023. Our Global Personal business performed well considering some of the post-pandemic headwinds we saw in the first half of 2022 and our strategic repositioning of the business. Also, as I mentioned on our last call, the impact from deemed hospitalizations in Japan, and to a lesser extent Taiwan, contributed over $160 million in losses in 2022, having a 290 basis point impact on the international personal accident year combined ratio. This accident health product was discontinued in 2022. Turning to full year net premiums written, General Insurance grew 4% on an FX-adjusted basis, driven by 6% growth in Global Commercial. North America grew 7% and International Commercial grew 6%.

We had strong renewal retention in our in-force portfolio, with North America improving by 300 basis points to 86% and International achieving 86% for the full year. As a reminder, we calculate renewal retention prior to the impact of rate and exposure changes. Turning to underwriting profitability for the full year, 2022 was another year with strong progress. The General Insurance accident year combined ratio, ex CATs, was 88.7%, an improvement of 230 basis points year-over-year. The full year saw a 180 basis point improvement in the accident year loss ratio, ex CATs, and a 50 basis point improvement in the expense ratio. Global Commercial achieved an impressive accident year combined ratio, ex CATs, of 84.5%, an improvement of 460 basis points year-over-year.

The loss ratio was the biggest contributor, with a 330 basis point improvement, and the combined ratio, including CATs and PYD of 89.6%, represented a 920 basis point improvement year-over-year. The accident year combined ratio, ex CATs, in Global Personal deteriorated 430 basis points to 99.2% for the reasons I've outlined before. Let me turn to reinsurance renewals at January 1 of this year. As I stated on our last earnings call, we knew this renewal season would be very challenging and lead to fundamental changes in the market that would impact 1/1 renewals. The market was faced with a combination of factors that added further pressure to dynamics that were already creating considerable stress. We had tough global macroeconomic trends. We had geopolitical uncertainty.

We had short-term pressure on the asset side of the balance sheet as a consequence of rising interest rates, inflation, and currency fluctuation. We had additional natural catastrophe losses late in the fourth quarter, and increasing frequency and severity of secondary perils continued. Twenty twenty-two ended with over $130 billion of insured natural catastrophe losses, making 2022 the 5th costliest year on record for insurers, with 5 out of the last 6 years having exceeded $100 billion. Hurricane Ian, in particular, proved to be a catalyst that changed market dynamics even more significantly than expected and ultimately led to shifts in the market that required the industry to rethink reinsurance placements and the commensurate changes that needed to take place in the primary market.

The unprecedented levels of natural catastrophes on a global scale massively impacted the reinsurance market in a couple of ways. Increased natural CAT activity has resulted in elevated property CAT ceded loss ratios with average incurred loss ratios from 2017 through 2022 exceeding 85%, compared to 2012 through 2016, when average incurred loss ratios trended below 30%, a dramatic deterioration. Over the last 5 years, secondary perils contributed more than 50% to ultimate loss when compared to primary perils. These market dynamics also impacted the supply of reinsurance and retrocessional capacity, and the cost of capital increased for the industry, which impacted almost all lines of business and territories, regardless of loss experience. On top of all of this, very little new capital entered the market.

Available capital is estimated to have decreased approximately 20% year-over-year. Let me outline what happened in the property CAT and retro markets in particular due to the high level of CAT losses in 2022, which were further exacerbated by events in the fourth quarter. 50% of global property CAT limits, which we estimate to be $425 billion, renew at January 1. Approximately 70% of global retro limits, estimated at $60 billion, incept at January 1. Reinsurers heavily reliant on peak peril retro protection faced greater pressure as a result, whereas larger, more diversified reinsurers were better able to manage retro capacity constraints. A majority of programs placed on January 1 saw insurance companies forced to increase retention. Despite these market challenges, AIG navigated this complex and intense renewal season extremely well.

We knew we were in a strong position heading into January one, given the repositioning and the improved quality of our global portfolio, coupled with our considerable efforts to reduce our gross portfolio peak exposures. As we expected, this allowed us to capitalize on many attractive opportunities, and this proved to be a competitive advantage as we had an exceptionally successful renewal season. It's also worth noting that AIG's reinsurance purchasing is by design, more heavily weighted to January one than the wider market. The benefits of this are twofold. Concentrating the bulk of our purchasing at January one allows AIG to maximize the outcome across all of our reinsurance placements. We have clear line of sight on our reinsurance costs for the full year, which is particularly valuable in a market which we believe will continue to be incredibly challenging.

Some of the highlights of our January placements include the following. With respect to property catastrophe placements, we obtained more limit than we purchased in 2022, and we believe we have the lowest attachment points on a return period measurement for North America windstorm and earthquake amongst our peer group, and our modeled exhaust limits are at higher return periods compared to last year for each of our placements. These placements should further reduce volatility, which is something we remain very focused on, and they provide us with significant balance sheet protection in the event one or a series of significant catastrophe events occur. Specifically, we separately made appropriate changes to our North America property cat treaties to reflect our improving portfolio with the retention of our commercial cat portfolio attaching at $500 million and Lexington and our programs business having an attachment point of $300 million.

The property cat aggregate cover that we placed has 4 retentions before attaching. For North America, Japan, and Rest of World, it now could attach in the second event, which is an improvement from 2022. Our property cat per occurrence structures largely stayed the same for international, and we believe they are market-leading, with Japan's retention staying flat at $200 million and the Rest of World attaching at $125 million. Many factors improved our overall property cat reinsurance program, with highlights being we were able to attain approximately $6 billion of limit, including increasing our per occurrence excess of loss placement. We maintained low attachment points on a model basis. We received support for a $500 million aggregate placement, and our overall spend for AIG increased less than 10% on an absolute and risk-adjusted basis versus 2022.

With respect to PCG, we accelerated portfolio remediation, which is driving further gross exposure reductions in key CAT-exposed states where loss costs, inflation, and necessary modeling changes have not kept pace. This allowed us to reduce the total limit purchase for the PCG specific CAT program, which partially offset increased pricing pressure due to Hurricane Ian. Overall, casualty renewals, both excess of loss and our quota share placements, renewed close to expiring terms on a risk-adjusted basis with no impact on ceding commissions. Our reinsurance partners maintained their support for AIG with consistent capacity deployment and reinsurance terms in clear recognition of the quality of our portfolio.

The outcomes we achieved at January 1 also reflect the value of the investments we have made in our reinsurance strategy and, coupled with our relationships and credibility with reinsurance partners, are a testament to the confidence the reinsurance marketplace has in AIG and its management team. We appreciate the ongoing support we have received from our reinsurance partners. We look ahead to 2023, the world faces many uncertainties. In uncertain times, our role as a market-leading global insurance company is even more important. With the momentum we have built and the strength of our portfolio, AIG is now extremely well-positioned to strategically grow and lead the market by providing thoughtful expert advice on risk solutions for our clients, distribution partners, and other stakeholders. Like 2022, we have set out ambitious strategic and operational priorities for 2023.

We will continue to improve and invest in lines of business and General Insurance where we see significant growth potential, notably Lexington and Global Specialty. I highlight Lexington because it has presented and will continue to present tremendous growth and profitability opportunities for us. Early indications are that the rate momentum we saw in this business at the end of 2022 and into early 2023 will continue. We expect meaningful growth in Lexington this year, led by property, where over the last few years we have prudently tightened limits, improved terms and conditions, and increased profitability while driving top-line growth. We also plan to increase investment in our assumed reinsurance business in 2023, particularly through Validus Re.

As we have discussed on prior calls, over the past few years, we've been highly focused on driving value through a disciplined approach involving strong risk assessments, sound portfolio construction, a steadfast commitment to underwriting excellence, and prudent capital management. Over this period of time, the de-risking within Validus Re was particularly acute in the global property CAT market, where year-over-year, we reduced participations across the portfolio while concurrently purchasing sound retrocessional protections to prudently manage the portfolio and reduce volatility, all in line with our cycle management strategy. As a result, we were in a strong position to capitalize on attractive opportunities at January 1. The property market, in particular, repositioned and became very compelling in terms of risk-adjusted rates, along with enhanced structures as well as beneficial terms and conditions.

Rate changes within property CAT ranged 30%-100% in the U.S. as well as in peak zones outside the U.S. Risk-adjusted rate increases were approximately 50% in the U.S. property and 35% in international property, and similarly, average margin improvement was approximately 50% year-over-year across the entire portfolio. Property CAT ROEs for both the U.S. and international business increased by greater than 100% year-over-year. We obtained improved terms and conditions, including favorable movement and attachment points in all property lines. For casualty lines, quota shares remained sound with ceding commissions moving favorably for reinsurers by 1-2 points, along with terms and conditions remaining in line or improved. The result of these actions included net premiums written at January 1 increased over $500 million or 50% year-over-year.

This increase was driven roughly 30% from U.S. property, 15% from international property, 45% from casualty placements, and the remaining 10% was from specialty, including marine and energy. The majority of new property limit was deployed to existing clients with a significant level of private terms being achieved on our U.S. property writings. Looking ahead, we will continue our measured approach for other renewals. For example, if meaningful market changes continue, we will carefully consider our positions at the April first Japan renewals, and we will continue to be very cautious with capital deployed at June one in Florida. Turning to Private Client Group, or PCG, this business remains a strategic priority for us in 2023.

As you know, over the last two years, we have undertaken a significant re-underwriting effort in this portfolio, reduced aggregate exposure, transitioned certain states to the non-admitted market, and developed strong partnerships with Lloyd's and reinsurers to reduce volatility. On Monday, we announced our intention to launch in partnership with Stone Point Capital, a newly formed MGA that will underwrite on behalf of AIG and eventually other capital providers in the high and ultra-high net worth markets. AIG will transfer core PCG solutions to the MGA, which will offer a single end-to-end broker and client portal, a comprehensive set of product offerings, a simplified data warehouse, and the underwriting capabilities of AIG. The MGA will be rebranded as Private Client Select or PCS and will be led by Kathleen Zortman and our current team at PCG.

We see this new structure as a logical next step in the evolution of PCG and believe it will create significant value for clients, brokers, and other stakeholders. Additionally, expense discipline will continue to be a priority for AIG. In addition to savings from AIG 200 that we expect to earn in during 2023, we plan to move $300 million of expenses currently sitting in AIG corporate GOE to Corebridge upon deconsolidation. Separately, we will continue to align our target operating model and further reduce absolute expenses across AIG Parent and General Insurance to reflect the fact that AIG is becoming one company. This year, we will also remain focused on completing the operational separation of Corebridge from AIG, and we are working towards a secondary offering of Corebridge common stock by the end of the first quarter, subject to market conditions and regulatory approvals.

Our current expectation is that the majority of net proceeds of the secondary offering will be used for AIG common stock repurchases. As I stated on our last call, we are revisiting AIG's dividend, which has not changed in many years. We expect to say more about this on our first quarter call in May. With respect to capital management priorities, in 2022, we did a significant amount of work to materially improve the capital structures of both AIG and Corebridge. With the reduction in AIG debt we achieved, our post-deconsolidation leverage will be in line with best-in-class peers. With respect to share buybacks, we have $3.8 billion remaining on our existing share repurchase authorization. Our balanced capital management philosophy will continue to allow for investment in growth opportunities while returning appropriate levels of capital to shareholders through share buybacks and dividends.

We also remain open to compelling inorganic growth opportunities should they arise. Before turning the call over to Sabra, I would like to pause and say that 2022 was another incredibly important year for AIG. Our colleagues did an exceptional job, particularly on the Corebridge IPO and the continued underwriting and operational improvements that are clearly showing through in our financial results. Our journey to be a top-performing company continues, and I fully expect 2023 to be another year with significant momentum and progress across the organization. With that, I'll turn the call over to Sabra.

Sabra Purtill (Executive VP and Interim CFO)

Thank you, Peter. Today, I will review net investment income, additional color on our fourth quarter and full year 2022 results in capital management, and also update you on the progress we are making on our path to a 10%+ adjusted return on common equity or ROCE. Turning to net investment income, on an APTI basis, fourth quarter net investment income was $3.0 billion, down $331 million or 10% compared to 4Q 2021. Similar to trends throughout 2022, the decrease was due to lower alternative investment income, principally on private equity investments and lower bond call and tender premiums and mortgage prepayment fees. For the full year, net investment income on an APTI basis was $11.0 billion, down $1.9 billion due to the same trends.

For the quarter and the full year, we achieved higher new money reinvestment rates and rate resets on floating rate securities. In 4Q 2022, net investment income on fixed maturities and mortgage and other loans rose $224 million sequentially, with 29 basis points of yield improvement, which was ahead of our 10-15 basis point forecast. Since 2Q 2022, when we began to bend the curve on investment yields, the increase has been 55 basis points. In 4Q 2022, the average new money yield was just over 6% at about 173 basis points above sales and maturities. New money rates were roughly 157 basis points higher in General Insurance and 190 basis points higher in Life & Retirement.

In addition, during the fourth quarter, we repositioned some of the General Insurance portfolio to lock in higher yields while maintaining similar credit quality and duration. This resulted in a modest capital loss of $57 million. We expect the portfolio to generate higher net investment income in 2023 as a result. Given current market levels, we expect additional yield uplift of 10 to 15 basis points on the consolidated portfolio in 1Q 2023. Before I head into results for the quarter, I want to note that in the fourth quarter, we eliminated the one-month reporting lag in General Insurance International, which had a $100 million positive impact on our GAAP net income for the quarter. This change did not impact 4Q APTI, which remained on the same reporting basis as the prior year.

In 2023, GI International results will be on a calendar quarter basis and 1 month difference than 2022, which will create some slight timing mismatch in quarterly net premiums written comparisons, but with minimal impact for the full year. Please see page 25 of the financial supplement for more details. As Peter noted, AIG reported adjusted after-tax income of $1.0 billion or $1.36 per diluted share. General Insurance delivered APTI of $1.2 billion compared to $1.5 billion in the prior year quarter due to lower investment income, partially offset by a $136 million increase in underwriting income. Prior year development was $151 million favorable in the fourth quarter, up from $44 million of favorable development in 4Q 2021.

Net favorable amortization for the ADC was $41 million, while North America favorable development was $148 million, and International was $38 million adverse, mostly driven by casualty. Fourth quarter other operations adjusted pre-tax loss of $451 million improved $197 million from last year, despite $23 million of additional expenses related to the Corebridge separation. Annualized adjusted ROCE was 7.5% in 4Q 2022, down from 9.9% in 4Q 2021, principally due to lower alternative investment income. Turning to Life & Retirement, strong sales momentum continued in the fourth quarter.

Life & Retirement APTI was $781 million, down from $969 million in 4Q 2021 due to lower investment income on alternatives and other yield enhancements, partially offset by higher base investment income and more favorable mortality. Individual Retirement sales were $3.8 billion, a 16% increase over the prior year quarter, with fixed annuity sales up 78% and fixed index sales up 34%. New record sales for both products. Group Retirement deposits grew 20%, driven by higher out-of-plan fixed annuity sales and large plan acquisitions. The life insurance business had solid sales with an improving mix of business in the U.S. and continued growth in the U.K. In Institutional Markets, premiums and deposits were $1.6 billion, driven by $1.3 billion in pension risk transfer activity.

New product margins in L&R were attractive and in excess of long-term targets, supported by higher new money yields, including from Blackstone. After years of spread compression, L&R spreads are expected to improve in 2023. I wanted to make you aware of an update to our LDTI estimate. In the first quarter of 2023, we will adopt a change in accounting principle for LDTI with a transition date of January 1, 2021. Our current estimate is that as of September 30, 2022, the adoption would increase shareholders' equity between $800 million and $1.3 billion, and AIG's adjusted shareholders' equity would increase between $1.2 billion and $1.7 billion. This increase in the estimate has been predominantly driven by capital market movements during 2021 and 2022.

Turning to full year 2022, AIG reported adjusted after-tax income of $3.6 billion or $4.55 per diluted share compared to $4.4 billion, or $5.12 per diluted share in 2021. These results include much stronger underwriting profitability in GI, offset by lower alternative investment income as previously described. General Insurance APTI for the full year 2022 was $4.4 billion, up 2% from 2021 due to the $1 billion increase in underwriting profitability offset by lower investment income. L&R APTI was $2.7 billion, down from $3.9 billion in 2021, principally because of lower investment income. Other operations adjusted pre-tax loss improved about $400 million in 2022 due to lower general operating expenses and higher income on short-term investments.

Full year 2022 included additional expenses from the Corebridge separation of $51 million. In 2023, we expect an incremental cost of $75 million-$100 million in other operations GOE related to the separation. Adjusted book value per share was $73.87 at December 31st, 2022, up 7% from year-end 2021. Full year adjusted ROCE was 6.5%, down from 8.6% in 2021, primarily due to lower alternative investment income, which was down $1.8 billion from 2021, or about 340 basis points of ROCE compared to 2021. At year-end, our primary insurance subsidiaries remain above target ranges for statutory capital, with GI's U.S. pool estimated in the range of 485-495, and L&R estimated in the range of 410-420.

In addition to the strong financial results, we also executed on multiple capital management priorities in 2022. As Peter described, we established a separate debt capitalization structure for Corebridge and subsequently reduced AIG holding company debt by $9.8 billion. This reduction in AIG debt will lower AIG holding company interest expense from about $1 billion in 2021 to roughly $500 million in 2023, excluding interest expense on Corebridge-issued debt. In 2022, we also returned over $6.1 billion to shareholders with $1 billion of dividends and $5.1 billion of share repurchases, yielding a 10% reduction in shares outstanding. We ended the year with parent liquidity of $3.7 billion. Looking ahead, we remain highly committed and laser-focused on delivering a 10%+ ROCE after the deconsolidation of Corebridge.

As Peter and Shane have shared previously, achieving this goal is based on sustained and improved underwriting profitability, executing a leaner operating model across AIG, separation and deconsolidation of Corebridge, and continued balanced capital management, including reducing AIG common shares to between 600 and 650 million shares through repurchases while targeting debt to total capital leverage at the lower end of the 20%-25% range post deconsolidation. Progress on each of these will increase ROCE, along with additional tailwinds from higher reinvestment yields and alternative returns more consistent with long-term averages. As Peter mentioned, expense reduction remains an important goal.

In the following years, we expect to achieve $300 million of additional savings from AIG 200, with the majority earning in through 2023, $300 million of AIG corporate general operating expense moving to Corebridge upon deconsolidation, and additional savings as we transition to a leaner operating model. As a reminder, every $500 million of expense savings equates to 1 point of ROCE improvement. I will now turn the call back over to Peter.

Peter Zaffino (Chairman and CEO)

Thank you, Operator We'll take our first question, please.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Elyse Greenspan (Managing Director and Senior Equity Analyst)

Hi. Thanks. Good morning. My first question is on the path to the double-digit ROE target. The starting point is the 6.5% from 2022, but I know that that does include some contribution from L&R and will in the near term. Can you help us with what the starting point would be if you stripped out the earnings contribution and equity of Life & Retirement? Just trying to get a sense of the ROE of the ongoing business and how the walk and that starting point changes, you know, if you weren't including the Life & Retirement business.

Peter Zaffino (Chairman and CEO)

Thanks, Elyse. I would think in terms of how you should think about this and for us to get to the 10% ROE, Sabra outlined in detail, there's really, you know, three, you know, major ways in which we'll get there. One is through the underwriting results. The other is expense savings. The other is, you know, sort of the capital rebalance with share repurchases and other capital management. You should think about that as a, you know, 3 to 350 basis point, you know, target in terms of us getting to the double-digit ROCE. Of course, you know, net investment income can benefit, and that's more of a timing issue.

you know, we've never said, even in the prior calls, that, you know, contribution from increased NII will be the one that needs to contribute to get us to the 10%. I would think of it in that range for the different components.

Elyse Greenspan (Managing Director and Senior Equity Analyst)

Okay. My second question. You guys had taken up your loss trend assumption to 6.5% last quarter. I'm assuming that didn't change, but correct me if I'm wrong. Peter, you spoke to, you know, pricing of 6%, which would put written pricing below loss trend, but you also did say, right, that rates got better as we ended the year in December. Would you expect, you know, the 6% to go above loss trend in the first quarter?

Peter Zaffino (Chairman and CEO)

Yeah, thank you. The first part, Elyse, we did not change our loss cost assumptions from what we had outlined in the third quarter, so 6.5% remains our view. When you look at the fourth quarter, like you said, you know, overall there was around 6%, you have to take a couple things into consideration. One is, you know, fourth quarter is our seasonally sort of lowest size quarter. If you look at financial lines, like financial lines is even throughout the entire year, first quarter through fourth, so had a little bit more of a contribution to the overall rate index in the fourth quarter. Our international was very well-balanced. We had strong rate in areas where, you know, we felt we needed it, which is like property, excess casualty.

We're driving rate as we have been for the last several years in Lexington, the excess and surplus lines. I look at the full year in terms of North America, the excess casualty, retail property, Lexington all getting double digit rate increases. We have been very focused on the rate above loss cost to continue to develop margin. I think that's been evidenced through the culture that we've developed in terms of underwriting excellence. We are very focused on making sure that we continue that, and it's terms and conditions and adjustments to how we structure businesses going forward. December was much stronger than the first part of the quarter, and as we look to January, that momentum is continuing.

Dave, you know, maybe just spend a minute on what happened in financial lines and D&O specifically.

David McElroy (Executive VP and CEO, General Insurance)

Yeah. Thank you, Peter, and thank you, Elyse. To Peter's point, we have to be careful around generalizations 'cause we are actually hitting rate over trend in most of our big businesses. The outlier is financial lines. financial lines, you also have to unpack a little bit and understand that excess D&O and excess D&O in large public companies is probably driving some of the macro numbers, but it's not driving the behavior underneath. In our financial lines business, we have professional liability, we have cyber, we have private company business, we have financial institutions, and all those businesses are actually getting rate over trend. Sometimes when you aggregate up the excess public company business, it suppresses it. In that case, Elyse, it's hard to rationalize, I'll be very frank.

You know, that's a place where if you're primary, you're still getting rate, you're still getting, you know, flat, maybe down a little bit, but you have risk-adjusted rate that's helping. In the excess business, it's been very competitive. It's a different sort of market and it's actually a market that I would say that cycle management and companies that are being thoughtful need to actually wrestle with whether that's a place they're gonna trade, okay? The rates are going down 20%-30%. It's probably influencing some of the numbers that you look at on an aggregate basis. Inside that portfolio, your decisions are gonna have to be made as to how you trade there, okay?

In our case, it represents a small amount of the portfolio, but I'm conjecturing that that's actually where the commoditization of the business is gonna cause a little bit of pain in the 2023/2024 year, okay? I do. Peter hit it. We look at rate over trend on a very granular basis, and I think we're comfortable with what that means to our big businesses, and even in financial lines, what it means to our sub-products there, and I think that's an important part of our story.

Peter Zaffino (Chairman and CEO)

Thanks, Dave. Don't forget, the cumulative rate increases we've achieved in D&O over the last three years have been north of 80%. Again, it's a line, as Dave says, we're laser focused on, we're not gonna chase the market down, but the cumulative, you know, rate increases and margin developed hasn't been fully recognized and, you know, we're gonna look to 2023 with a lot of discipline. Next question, please.

Elyse Greenspan (Managing Director and Senior Equity Analyst)

Thank you. Our next question comes from Paul Newsome with Piper Sandler. Your line is open.

Paul Newsome (Managing Director and Senior Research Analyst)

Good morning. There's been an enormous amount of conversation, and you obviously did a lot to add to it about excess casualty or excess of loss reinsurance. As a large account commercial writer, I assume you're using a lot of facultative as well. I was curious if the comments that you're making extend into not just sort of excess of loss, but also facultative and even quota share as being as impacted as some of the other pieces of the business, and how that would affect AIG.

Peter Zaffino (Chairman and CEO)

Thanks, Paul. We do purchase facultative Certain segments of our business, but we were really referencing the core treaties. When we look at risk appetite, when we are thinking through our ability to, you know, protect the balance sheet and where we want to structure treaties, you know, we don't require facultative reinsurance for, you know, other segments in order to supplement the core structure. When I was referencing in my prepared remarks, you know, the treaty structures, we did an exceptional job. The team really focused on, you know, modeling changes, inflationary changes, and where we thought capital was going to be less expensive versus more expensive. An example of that would be, you know, taking big excess of loss CAT across the world.

It gets too expensive for, you know, allocation of capital, and that is something we moved away from. We built more vertical towers in North America and in international, and Japan specifically. I think the overall market has responded most to property. Casualty has started to tighten up. I still think that there's ample capacity in quota shares. They may be, you know, with some tighter terms and conditions and ceding commissions, but by and large, it was placeable. Yes, facultative, I think, has become harder to place on property just based on the capital available. For us, we don't heavily rely on facultative to deliver results. It's really our core treaty structures.

Paul Newsome (Managing Director and Senior Research Analyst)

Makes sense. Could you also talk about the change in conditions in commercial lines? Obviously, AIG led the market in changing terms and conditions in commercial lines. Is the impact pretty much fully there now today at AIG? Are you seeing any change in the market as well for terms and conditions that's meaningful outside of pricing changes?

Peter Zaffino (Chairman and CEO)

I think we've done an exceptional job on the underwriting side with terms and conditions. I think the entire team has focused over the last several years as, you know, not only, you know, certainly pricings and output, but how we structure, you know, our insurance deals, how we focus on client needs, but also how we, you know, customize terms and conditions to make sure that we have the appropriate, you know, policies and endorsements in the marketplace. I don't think it's over. It's, it's something that's a nuance, but as we look to, you know, the property market in 2023, you know, it's one of the areas where when you report out rate, you really have to understand the risk-adjusted implications of rate increases.

For instance, in excess and surplus lines property, I expect to see higher deductibles, more wind deductibles, tighter terms and conditions. We've seen what used to be all risk, which covered all perils now to named perils. You can strip out a lot of coverage in terms of when you're placing it, whether you're trying to solve for wind or quake or flood. You don't provide all of the perils. You know, if you said to me, what's one of the big areas that you'll see an improvement in 2023, it will be on the terms and conditions and how we price those perils.

I think we will, you know, offer, particularly in excess and surplus lines, the appropriate coverage, but we will be restrictive on terms and conditions, if we don't feel we're getting paid for them. I don't think it's over.

Paul Newsome (Managing Director and Senior Research Analyst)

Thank you.

Peter Zaffino (Chairman and CEO)

Thanks, Paul. Next question.

Sabra Purtill (Executive VP and Interim CFO)

Our next question comes from Erik Bass with Autonomous. Please proceed with your question.

Erik Bass (Analyst)

Hi. Thank you. Just hoping you could help us think about the base NII trajectory for 2023. We've seen a nice step up the past couple of quarters, and you gave some guidance for the 1st quarter, but how much of the increase is coming from resets on floating rate assets, and how much is the tailwind from higher reinvestment yields and the portfolio changes that you're making that should continue to build throughout the year?

Peter Zaffino (Chairman and CEO)

Thanks, Erik. As you know, this has been an active strategy for us, particularly over the back half of 2022. I think the team's done an exceptional job. Sabra, maybe you can just provide a little bit of insight in terms of some of the NII and the reinvestment rates.

Sabra Purtill (Executive VP and Interim CFO)

Yes, happy to do that. I would just note, we added a new footnote on page 47 of the financial supplement that gives you the walk of the yield on fixed maturity securities and loans. You can see the quarter-to-quarter improvement in the portfolio yield on that portfolio, which basically began to bend the curve in the second quarter for a step-up in yields. We also there give you the impact of the other yield enhancements, which year-over-year was about a $400 million headwind for AIG consolidated NII. To go back to your question about the path forward, and I'll put alternatives to the side. I mean, those are obviously, volatile quarter-to-quarter, but like I said, that was 340 basis points of headwind year-over-year.

2021 was an exceptional year for alternative returns, whereas full year 2022 was about a 5.6% yield, more in line with our average assumption. To go back, in the quarter, as I said, the new portfolio yield or the new money rates were just above 6% and about 173 basis points over the assets going forward. If you look at in the quarter, fourth quarter 2022 grew about $160 million just due to the rate resets and about 14 basis points from the pickup in yield on the portfolio. In 2023, the impact is going to really depend on the path and timing of market rates, Fed rate hikes, changes in credit spreads, as well as the movement in the yield curve.

You know, the GI's got a shorter duration than L&R, and right now we've got an inverted curve. Depending on where you're investing, you're going to have different impacts on your yield. What I would just kind of point you to is for the full year, you know, we are projecting about $8 billion of reinvestment on the GI portfolio, $20 billion in Corebridge. For the first quarter, we're projecting about 10 to 15 basis points of yield uplift, just based on where we are for rates. Since the market is expecting additional rate increases, from the Fed, I would expect to see more pickup from the floating rate note resets during the course of the year.

Like I said, really what we pick up in the second or third quarter is gonna be a function of how the shape of the yield curve changes. The point I would just make in total is that we are definitely having a tailwind from higher rates and higher spreads in the market. In addition, during the last several months, because of the basically the changes in the spreads and where some of the opportunities were, we were able to move up in quality on the bond portfolio investments while still getting a pickup in the yield because of the market environment.

You know, at this point in time, I think it's premature to give any sort of actual projection on a dollar basis, but from a yield pickup trend, we're very confident that we'll continue to see that during 2023.

Peter Zaffino (Chairman and CEO)

Thanks, Sabra.

Erik Bass (Analyst)

Thank you. That's helpful. Secondly, I just was hoping you could help us think about the trajectory for the other operations loss, both before and after the Corebridge separation. It sounds like GOE there should go up in 2023 because of some of the Corebridge expenses, and maybe that's offset a little bit by interest savings. You'll get a big step down when you deconsolidate Corebridge and the $300 million comes out. Is that the right way to think about it?

Peter Zaffino (Chairman and CEO)

Yes, Erik, it is. In other operations, think about it in a couple components. I think you've outlined most of them, is that upon deconsolidation, you know, we would have $300 million or there or thereabouts go with Corebridge. I mean, there could be some stair-step up. I mean, it's hard in 2023 to look at each quarter because we're building, you know, Corebridge as we've talked about before, as a standalone public company. You know, those amounts will be, you know, in each quarter depending on the progress that we're making. I would think about the $300. I think we'll have savings in other operations throughout the year, separate from that, in the $100 million-$200 million range.

As we get to the future target operating model, you know, we've given guidance in the past of, you know, that we anticipate that we'll get around $500 million. Not out of all, that will not all come out of other operations. It'll come out of the combination of what is General Insurance and the parent company today. That deconsolidation will take us to get to the target operating model. I think in the short run, you should think about Corebridge as $300 million, and that between $100 million-$200 million of other reductions in other ops is how I would think about it in 2023.

Erik Bass (Analyst)

Thank you.

Sabra Purtill (Executive VP and Interim CFO)

Thank you.

Peter Zaffino (Chairman and CEO)

Thanks, Eric. Next question.

Operator (participant)

Our next question comes from Alex Scott with Goldman Sachs. Your line is open.

Alex Scott (Analyst)

Hi, good morning. First one I had is just on net premium written growth in General Insurance. I mean, we saw it slow in 2022, particularly towards the back end of the year. You know, it sounds pretty interesting some of the opportunities you have, you know, both in Validus Re and Lexington. I just wanted to get sort of higher level perspective from you on, you know, what the strategy has been to sort of slow some of that premium growth in the back half of this year, and how you see that potentially inflecting as we go into 2023.

Peter Zaffino (Chairman and CEO)

Thank you for the question. You have to really look at the full year, I believe, in terms of showing the progress of, you know, what we've done as a company. You know, first and foremost, again, I'll mention it again, which is, you know, a culture of underwriting excellence. When we look at, you know, commercial with a 340 basis point improvement in the fourth quarter, in terms of its accident year combined ratio ex CAT, you know, 440 for the year, I mean, that's substantial progress. I mean, we made enormous improvements in profitability, and so we've shaped the portfolio the way we like it.

Where again, the fourth quarter, not all roads lead to financial lines, but again, it was just a disproportionate amount of, you know, premium relative to the overall size. Fourth quarter, small. You know, we saw real good growth in the businesses that we wanted to grow in, which is in the excess and surplus lines, Global Specialty. As we've been talking about, I hope it's evidenced through what we did at 1/1, which is why we wanted to put it in the prepared remarks, which is, you know, we kept talking about taking, you know, aggregate down where we didn't think we were getting the appropriate risk-adjusted returns. When we thought we felt that the risk-adjusted returns were there, like in the reinsurance business, we expanded significantly and expect to see that, you know, through 2023.

Can't really predict the market, but I don't believe this is all played through. We had a very complicated 1/1, but you have Japan coming up, and thus then the primary market on peak zone is gonna be Florida at 6/1. We think there's great opportunities in excess and surplus lines continue to grow. Again, Global Specialty, retail property across the world. You know, we'll watch international, but I don't believe that, you know, the treaty increase pricing that happened, which was substantial at 1/1, will play its way through the international business until 2024 because a lot of the deals, 60% of it comes up at 1/1, was priced off of prior treaties. I think this has momentum. We are incredibly well-positioned. We have no aggregate restrictions.

Where we see risk-adjusted returns that are attractive, which we already have, we're gonna deploy capital. That was the whole idea of putting more capital in the subsidiaries. Then it goes to other lines of business. I mean, you know, you cross-sell, you know, what we do in casualty, how we play in these different markets. We have such tremendous following as lead experts in underwriting that we believe across the world our platform will be very helpful to our clients and we expect to find really strong areas for growth.

Alex Scott (Analyst)

That's really helpful. Second one I had is more specifically on casualty and excess casualty pricing. You know, we've heard some peers kind of talk about pricing and express the need for it to reaccelerate. I think, you know, I some investors seem to be getting a little more cautious about the potential for continued deceleration there. I felt like your prepared remarks were a little more optimistic. I'd just be interested in your perspective on the portfolio at AIG, what you're seeing in the market and where you'd expect things to go there.

Peter Zaffino (Chairman and CEO)

We watch it carefully. I mean, excess casualty, we're still getting very strong rate, we have for the last, you know, couple of years. That didn't stop in the fourth quarter. You know, my prepared remarks were really just focused on, I don't think the market that we entered in the fourth quarter is the market that we're in. There's been a lot of changes over the last 60 days. And like every other line of business, it needs to stand on its own. It needs to develop margin. We want to be conservative in our position, and making certain that the underwriting terms and conditions are appropriate. We're watching it carefully. I haven't seen a substantial downturn in terms of pricing.

It's been right in the sort of same range for, as I said, the last six quarters. It's something that we're going to watch very carefully in 2023. Okay.

Alex Scott (Analyst)

Thank you.

Peter Zaffino (Chairman and CEO)

We greatly appreciate the engagement and all the questions and appreciate the interest. I just wish everybody a great day, and thank you for being here.

Operator (participant)

Ladies and gentlemen, this concludes your conference for today. Thank you for your participation. You may now disconnect.