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    American International Group Inc (AIG)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$69.17Last close (Feb 14, 2024)
    Post-Earnings Price$69.02Open (Feb 15, 2024)
    Price Change
    $-0.15(-0.22%)

    What went well

    • Strong expected premium growth in 2024, with management optimistic about achieving high single-digit growth driven by strong new business and high retention rates in core portfolios like Lexington and excess and surplus lines.
    • Stable accident year loss ratios expected in 2024, as remediation is largely behind them, positioning the company for growth and improved profitability.
    • Renewed optimism in the Financial Lines business, with management noting that market conditions may have reached a floor, leading to potential growth opportunities in areas like primary business, private company business, professional indemnity, and fidelity businesses in 2024.

    What went wrong

    • AIG increased reserves by $75 million for Russia- and Ukraine-related claims, indicating higher-than-expected exposure to geopolitical events.
    • Adverse prior year development in accident years 2018 and 2019 due to mergers and acquisitions-related exposures, suggesting potential underestimation of past liabilities.
    • The Financial Lines business is experiencing increased severity in securities class action claims in 2023, which may pose a significant headwind to premium growth in 2024.

    Q&A Summary

    1. Capital Management and Share Repurchases
      Q: Will you go below 600 million shares? Other uses of capital?
      A: Peter Zaffino stated that their capital management strategy aims to reduce the share count to the lower end of the 600 million to 650 million range using proceeds from the Corebridge sell-down. Once they reach that target, they will provide further guidance on capital use.

    2. Expense Ratio Uptick
      Q: Why was the expense ratio higher than expected?
      A: Peter Zaffino explained that the uptick was due to additional costs like cyber and cloud usage being absorbed by the business, which were previously held centrally. There were also one-time true-up adjustments and profit sharing in Personal Insurance. He is not concerned as the increase was nominal.

    3. Underlying Loss Ratio Outlook
      Q: Will underlying loss ratios change as the year progresses?
      A: Peter Zaffino does not expect changes in the accident year loss ratio for 2024. Despite mix changes like the Validus exit and property nonrenewals, unless there's a significant shift in business composition, the loss ratio should remain stable.

    4. Casualty Loss Trends and Reserves
      Q: Do casualty loss trends match reserve assumptions?
      A: Sabra Purtill explained they assume a 10% casualty loss trend in reserves, varying between primary and excess. They've proactively increased reserves in the past and completed recent reviews without meaningful changes.

    5. Financial Lines Outlook
      Q: Is the Financial Lines business near a bottom?
      A: David McElroy expressed cautious optimism, noting they've been prudent in letting underpriced business go while holding onto primary business. Other products like private company business and professional indemnity remain strong. Market conditions in 2023 may have put a floor on the market going into 2024.

    6. Top-Line Growth Expectations
      Q: Will adjusted top-line growth remain within range in 2024?
      A: Peter Zaffino is optimistic about achieving high single-digit growth after adjustments. Strong new business, high retention, and opportunities in excess and surplus lines and Personal Insurance support this outlook. They will provide updates quarterly.

    7. Adverse Prior Year Development
      Q: Details on adverse PYD in Russia and Ukraine?
      A: Sabra Purtill reported an additional $75 million in reserves for Russia- and Ukraine-related claims based on ongoing evaluations. There was also adverse development from winter storm Elliott and some M&A-related exposures in older accident years.

    8. International Rate Environment
      Q: Commentary on International rates below loss cost?
      A: Peter Zaffino acknowledged that the overall rate index was at or slightly below loss cost trend, influenced by the weighting of Specialty and Financial Lines. However, they achieved strong rate increases in property and marine and see opportunities to improve in 2024.

    9. Equity and Parent Liquidity
      Q: Preferred parent liquidity after deconsolidation?
      A: Sabra Purtill outlined a framework considering annual common dividends of roughly $1 billion, interest expense of $500 million, and reducing parent expenses to 1% to 1.5% of net premiums earned. They ended the year with higher liquidity due to timing of transactions.

    10. North American Casualty Cessions
      Q: Why maintain proportional cessions despite better profitability?
      A: Peter Zaffino explained they've reduced quota share cessions from over 50% to 20%, improving ceding commissions by over 800 basis points. They balance excess of loss and quota share placements and are comfortable with the current level of ceding.

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