Q3 2024 Earnings Summary
- 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.
- 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.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -47% (from $12.77B to $6.75B) | Driven primarily by the lapse of large realized gains recognized in the prior period and lower premiums due to business divestitures. Competitive pressures and portfolio rebalancing also contributed, creating a significant revenue gap compared to last year. |
General Insurance | -6% (from $7.18B to $6.72B) | Reflects lower net premiums and more selective underwriting, especially in property lines, partially offset by smaller catastrophe losses relative to some prior quarters. Ongoing rate discipline and portfolio reshaping are expected to help preserve profitability despite slower top-line growth. |
North America | -14% (from $3.08B to $2.64B) | Impacted by reduced premiums in key lines, competition in casualty, and portfolio refinements following prior-year divestitures. Elevated weather-related losses also contributed to the overall decline as AIG continues to optimize its risk appetite. |
International | -1% (from $3.34B to $3.31B) | Largely stable performance thanks to growth in property and specialty lines, offset by economic pressures in certain regions. Strong retention and selective reinsurance strategies are expected to maintain moderate growth amid regional volatility. |
Net Investment Income | +2% (from $756M to $773M) | Increase fueled by higher reinvestment yields and stable credit performance, partially offset by lower equity and alternative investment returns. AIG’s shift toward shorter-duration investments has also helped manage interest rate risk, supporting modest income growth. |
Other Operations | +50% (from $82M to $123M) | Reflects improvements in parent liquidity and interest expense savings, along with cost optimization from prior restructuring. Further expense discipline is expected to maintain profitability in this segment. |
Net Income | -95% (from $9.12B to $457M) | The result of substantially lower realized gains, business divestitures, and discontinued operations reclassification. Higher catastrophe losses also weighed on net results; however, partial offsets came from increased net investment income. |
Basic EPS | -94% (from $10.14 to $0.63) | Mirrors the sharp drop in net income, compounded by fewer share repurchases relative to prior periods. While operating fundamentals remain a focus, deconsolidation effects and one-time charges inherently limit EPS upside in the near term. |
SG&A | -39% (from $2.20B to $1.35B) | Reflects cost-cutting measures and restructuring efforts that reduced overhead, amplified by disposals of non-core segments. AIG’s focus on expense discipline is expected to continue as part of its transformation strategy. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Accident Year Loss Ratio | Q4 2024 | no prior guidance | 56.4% | no prior guidance |
Retained Parent Costs (Expense Management) | FY 2025 | $325 million–$350 million | $350 million | no change |
Share Repurchases | FY 2025 | no prior guidance | $10B | no prior guidance |
Core Operating ROE | FY 2025 | no prior guidance | 10% | no prior guidance |
North America Personal Lines Combined Ratio | FY 2025 | no prior guidance | Below 100% | no prior guidance |
E&S Growth in Personal Lines | FY 2025 | no prior guidance | 10% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Growth in new business and strong retention | Consistently highlighted in Q2, Q1, and Q4 2023 with record new business, high retention, and strong submissions. | Continued strong growth across segments; N.A. Commercial new business up 22%, retention near 90% in admitted lines and 78% at Lexington; International retention 89%. | Recurring topic with sustained momentum and high impact on future commercial expansion |
Underwriting profitability and combined ratio improvements | Previously emphasized strong combined ratio improvements and disciplined underwriting in Q2, Q1, and Q4 2023. | Achieved $437M underwriting income; calendar year combined ratio 92.6%, accident year combined ratio 88.3%; strategic efforts reduced volatility. | Stable trend reflecting consistent improvement and key driver of profitability |
Shifting sentiment on loss ratio sustainability | Q2 2024: Emphasized no caveats on loss ratio guidance. Q1 and Q4 2023: Reinforced disciplined portfolio and no material changes expected. | Executives remain confident in sustaining the improved loss ratio, with Q3 results impacted by mix and reinsurance but still 88.1% YTD accident year combined ratio. | Positive sentiment continued, indicating stability in core underwriting assumptions |
Casualty trends and reserve adequacy concerns | Q2/Q1/Q4 2024 documentation showed regular reserve reviews and proactive adjustments; management highlighted consistent severity assumptions at or above 10%. | Strong rate increases (e.g., Lexington at 16%); minor adverse development in older U.K./EU lines but overall 90% YTD DVR coverage giving confidence in reserves. | Ongoing close monitoring with rate above loss trends and confidence in reserve adequacy |
Financial Lines volatility | Q2 2024 did not specifically address Financial Lines volatility. Prior quarters noted cumulative rate gains and cautious underwriting. | Discussed $28 million of adverse development in older exposures; double-digit new business growth and slowing rate reductions with stabilization expected. | Remains volatile but recent commentary shows moderate improvement in outlook |
Potential increase in financial leverage for M&A | Not mentioned in Q2 2024. Q1 2024 noted they are open but it is not a near-term priority. No mention in Q4 2023. | Open to increasing leverage for attractive M&A deals; comfortable with current capital structure but would act opportunistically. | Reemerged as a potential strategic move, could shape future expansion |
Sale of global personal travel insurance business | Announced in Q2 2024: sale of global personal travel insurance (Travel Guard), excluding Japan and India JV. Not mentioned in Q1 or Q4 2023. | No mention in Q3 2024. | No new references―topic appears closed following the Q2 announcement |
Potential increase in net catastrophe exposure | Q2 2024: Confident in reinsurance, no major shift. Q1 2024: Possibly raising attachment point, but strategy-driven. Q4 2023: No increase mentioned. | No material change anticipated; comfortable with reinsurance structure and low attachment points. | Steady approach to catastrophe risk, no significant exposure increase |
Exposure to geopolitical events (Russia-Ukraine) | Q4 2023 adjusted $75M of reserves for Russia-Ukraine claims. No mention in Q2/Q1 2024. | No discussion of Russia-Ukraine in Q3 2024. | No updates; prior mention primarily in Q4 2023 |
Changes in property rate environment (2025) | Q2 2024: N.A. property rates flattened after years of large increases. Q1/Q4 2023: No explicit 2025 forecast. | Expect reversal of property rate slowdown in 2025, driven by insufficient risk-adjusted returns and discipline in reinsurance markets. | New projection for 2025 property rate recovery, high relevance to pricing and profitability |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.