AMERICAN INTERNATIONAL GROUP (AIG) Earnings Summary for Q3 FY2024

Key Metrics

• Pre-tax Income:
  • General Insurance: $1,210 million
  • North America - Underwriting Income: $37 million
  • International - Underwriting Income: $400 million
  • Other Operations: Adjusted Pre-tax Loss: $(143) million
  • Total Pre-tax Income: $1,067 million (2% yoy)
• Book Value:
  • Reported Book Value per Share: $71.46
  • Adjusted Book Value per Share: $73.90

Forward guidance

1. 2025 Core ROE: AIG expects to achieve a 10% core operating ROE for the full year 2025.
2. AIG Next Savings: AIG anticipates realizing $500 million in savings from the AIG Next initiative by 2025.
3. Parent Expense: Future parent expenses are expected to be around $350 million, reflecting a new definition that excludes costs unrelated to being a global regulated public company.
4. Share Repurchase Plan: AIG plans to execute a $10 billion share repurchase authorization over 2024 and 2025, subject to market conditions.
5. Investment Income Projection: For Q4 2024, AIG projects General Insurance investment income on fixed maturities, loans, and short-term investments to be approximately $710 million.
6. Catastrophe Loss Expectations: AIG forecasts to be within its catastrophe loss expectations for the full year 2024, with a market share of less than 1% of the total industry loss projected to exceed $125 billion.
7. New Business Growth: AIG expects to grow its E&S (Excess and Surplus) business by 10% in 2025, driven by strong demand and new partnerships.

Key takeaways

• Positives:
  • Peter Zaffino highlighted AIG's "outstanding third quarter performance," with a 31% increase in adjusted after-tax income year-over-year, driven by strong core earnings and disciplined capital management.
  • The company reported a combined ratio of 92.6%, indicating effective underwriting despite $417 million in catastrophe-related charges, showcasing resilience in a challenging environment.
  • AIG's strategic initiatives, such as AIG Next, are expected to yield $500 million in savings by 2025, enhancing operational efficiency and reducing costs.
  • The company is experiencing strong growth in net premiums written, particularly in North America Commercial, which grew by 11% year-over-year, driven by robust new business submissions and retention rates.
  • Zaffino noted that AIG's underwriting strategy has significantly improved financial performance, with a forecasted market share of less than 1% of total industry catastrophe losses for 2024, down from 4% in 2012.
• Negatives:
  • The company faces challenges from increased frequency and severity of natural catastrophes, with industry estimates of insured losses exceeding $125 billion in 2024, complicating loss modeling and reserve adequacy.
  • The accident year loss ratio increased by 250 basis points year-over-year, attributed to a closeout transaction and unfavorable comparisons to prior year performance, indicating potential volatility in future results.
  • Zaffino acknowledged that while the company is positioned for growth, the competitive landscape remains challenging, with peers achieving higher ROEs, suggesting AIG may need to enhance margins or pursue acquisitions to catch up.
  • The transition in North America Personal lines is ongoing, with expectations for combined ratios to improve but no immediate timeline provided, indicating potential delays in achieving profitability targets.

Peer Summary

• General Insurance Trends: Competitors like MetLife and Prudential highlight strong demand in Group Benefits and Pension Risk Transfer markets, with MetLife noting a 5.3% increase in adjusted premiums and Prudential emphasizing robust demand with over $3 trillion in U.S. corporate pension liabilities.
• Market Challenges: Autoliv reported a decline in global light vehicle production by 3%, indicating potential headwinds for related insurance sectors. Similarly, Lincoln National cautioned about the competitive landscape in the annuity market, suggesting pricing pressures.
• Operational Efficiency: Unum Group's focus on a 10% to 15% EPS growth reflects a broader trend of companies enhancing operational performance amid competitive pressures, as seen in AIG's own strategic initiatives.
• Investment Income Volatility: MetLife and Prudential both noted pressures on variable investment income, with MetLife experiencing a dip due to private equity returns, indicating potential volatility in investment performance across the sector.
• Competitive Landscape: Multiple competitors, including Unum and Lincoln National, acknowledged ongoing competitive pressures, with Unum stating, "It is competitive out there," suggesting a challenging environment for maintaining margins.