Peter Zaffino
Chairman and Chief Executive Officer at American International Group
Good morning, and thank you for joining us to review our first quarter financial results. Following my remarks, Sabra will provide more financial detail in the quarter, and then we will take questions. Kevin Hogan and David McElroy will be available for the Q&A portion of the call.
As you saw in our press release, we reported an excellent start to the year. We continue to make meaningful progress across AIG and achieve important milestones, even in the face of ongoing complexity in the insurance industry, volatile market conditions and general economic uncertainty. We continue to diligently execute on our strategic and operational priorities, which drove very strong financial results in the first quarter and are positioning AIG for long-term value creation. Here are some highlights from the first quarter.
Adjusted after-tax income was $1.2 billion or $1.63 per diluted common share, representing a 9% increase year-over-year. Net investment income on a consolidated basis was $3.1 billion. In 2022, we began to take proactive steps to improve the credit quality, construction and return characteristics of our investment portfolio as well as to reduce volatility. We saw the benefits of these actions in the first quarter and expect that to continue throughout the year. Sabra will provide additional detail on net investment income in her remarks.
Net premiums written in General Insurance grew 10% on a constant dollar basis and adjusted for the International lag elimination that we discussed on our last call. This growth was driven by our Commercial business. Underwriting income was approximately $500 million, a 13% increase year-over-year, which is AIG's strongest first quarter underwriting result.
The accident year combined ratio, excluding catastrophes, was 88.7%, an 80 basis point improvement from prior year. Life and Retirement reported very good results, with premiums and deposits of $10.4 billion in the first quarter, a 44% increase year-over-year, supported by record sales in fixed annuity and fixed index annuity products.
Net flows into the General Account from Individual Retirement were approximately $1.3 billion. Corebridge and Blackstone have made substantial progress advancing their strategic partnership, which began in late 2021. Since that time, Blackstone has invested approximately $11 billion on behalf of Corebridge, with an average gross yield of 6.5% and an average credit rating of A. This partnership has allowed Corebridge to expand in certain asset classes where we had limited to no access in the past, which has been very beneficial for the business and is helping to support growth, particularly in fixed annuity products.
We returned approximately $840 million to shareholders in the first quarter through $600 million of common stock repurchases and $240 million of dividends. And we ended the first quarter with strong parent liquidity of $3.9 billion. Overall, I'm very pleased with what we accomplished in the first quarter. The strong momentum we had coming into 2023 continues.
As we announced last night, the AIG Board approved the first meaningful increase to AIG's common stock quarterly dividend in many years. Starting in the second quarter, this dividend will be $0.36 per share, an increase of 12.5%. This is another significant milestone for AIG and reflects our commitment to a disciplined, balanced capital management strategy and our confidence in the future earnings power of AIG.
Corebridge is also achieving important milestones. Since its IPO in September of last year, Corebridge has paid three dividends to public shareholders, totaling approximately $450 million. And yesterday, the Corebridge Board authorized a $1 billion share repurchase program. During the first quarter, we were prepared to launch a secondary offering of Corebridge common stock, but chose not to proceed when equity markets became volatile due to issues in the financial sector.
We continue to be prepared and disciplined in terms of executing a secondary offering, which remains our base case for selling down our ownership in Corebridge, subject to market conditions and regulatory approvals. We remain committed to reducing our ownership interest in Corebridge and will explore other options that are aligned with the best interest of shareholders.
During the remainder of my remarks this morning, I'll provide more information on the following five topics: first, I will review the first quarter results for General Insurance; second, I will give a high-level overview of the results for Life and Retirement, and Sabra will provide more detail in her remarks; third, I will provide an update on a few strategic initiatives, including the announcement last week relating to Private Client Services, our MGA partnership with Stone Point Capital, our announcement on Tuesday of the sale of Crop Risk Services and our intent to sell Laya Healthcare, which is a part of Corebridge and Ireland's second largest health insurance provider; fourth, I will provide more information on capital management actions; lastly, I will review progress on our path to a 10%-plus ROCE, including an update on the work we are doing on the future state business model of AIG.
Turning to General Insurance. Let me provide more detail on first quarter results, starting with our strong growth in gross and net premiums written. When we refer to gross and net premiums written, all numbers have been adjusted for both foreign exchange and the impact of the lag elimination.
Gross premiums written were $12 billion, an increase of 9%, with Global Commercial growing 13% and Global Personal decreasing 4%. Net premiums written were $7 billion, an increase of 10%. This growth was primarily driven by Global Commercial, which grew 11%, while Global Personal grew 6%.
In North America Commercial, we saw a very strong growth of 15% in net premiums written due to Validus Re, which had over 40% growth year-over-year due to the exceptional results we achieved with our January 1 treaty placements, which I discussed in detail on our last call. Lexington, which grew over 25%, led by Wholesale Property and Casualty, double-digit growth in Captive Solutions and Glatfelter.
Focusing on Lexington for a moment, I would like to highlight a few achievements from the first quarter. The business continues to drive excellent performance, impressive growth and has consistently improved its portfolio quarter after quarter over the last couple of years. Lexington's tremendous growth has been achieved through its relevance in the marketplace and increasing its market share, not from increasing limits deployed. Strong retention, new business and rate have been the key drivers of Lexington's financial performance. Lexington has now seen double-digit rate increases for 16 consecutive quarters, and cumulative compounded rate increases totaled over 100% since the first quarter of 2018.
Additionally, over the last few years, the average size of a Lexington Property primary policy went from $100 million in limits deployed to $5 million. This has substantially reduced volatility in Lexington's portfolio. Our thoughtful and prudent growth strategy, together with our shift in focus to wholesale distribution, continues to serve us well, particularly in the E&S market.
I also want to provide more color on Validus Re. We've provided significant detail on the one-one renewal season on our last call, and I think it's worth expanding on a few items from the first quarter. Net premiums written were very strong and balanced in Validus Re, and we continue to meaningfully improve the quality of the portfolio. Rate improvements were particularly strong in U.S. Property, International Property, Marine and Energy, Casualty and Specialty Lines.
With respect to April 1 renewals across the portfolio, gross and net premiums written increased. And within International Property, limits deployed were reduced slightly, and Japan property cat risk-adjusted rates were up approximately 20%.
As we consider our deployment strategy at the June 1 renewal cycle, which focuses on U.S. wind exposure, we will continue to maintain a prudent approach on limits deployed. We do not expect to deploy additional limits beyond our current aggregate allocated to Florida, although we do anticipate significant rate increases and improved terms and conditions. Like General Insurance, the Validus Re portfolio has been completely re-underwritten with a focus on risk-adjusted returns. The business had a terrific first quarter and is well positioned for profitable growth through the rest of the year.
Shifting back to our 15% net premiums written growth in the first quarter, this result was impressive despite the headwinds we continue to see in Financial Lines, where overall net premiums written contracted 9% due to increased competition putting pressure on pricing as well as continued slowdown in M&A and other transactional business.
We are one of the very few lead markets in large account public D&O where primary rates have remained relatively flat year-over-year. In contrast, high excess public company D&O saw rate declines greater than 20%. To put this in perspective, this represents a little over 5% of our overall North America Financial Lines business, and we will continue to manage this book very prudently. We have deep domain knowledge and experience, data, best-in-class underwriting capabilities and leading claims expertise that allow us to differentiate ourselves in the D&O marketplace.
During the past year, we continued to see new competitors with limited experience into the high excess public D&O market. This is driving down pricing in what is traditionally the most commoditized portion of a placement. Despite these dynamics, we remain disciplined on price and are taking a long-term view of this line of business. We have significant scale and geographic balance on our portfolio, and we will not follow the market down.
Turning to International Commercial. Net premiums written grew 6%, primarily due to: Property, which was up over 40%; Global Specialty, which was up over 15%; and Casualty, which was up over 15%. Global Commercial had very strong renewal retention of 88% in its in-force portfolio, International was up 200 basis points to 88%, and North America was up 100 basis points to 87%. As a reminder, we calculate renewal retention prior to the impact of rate and exposure changes. And across Global Commercial, we continue to see strong new business, which was over $1 billion in the first quarter.
International Commercial new business was over $590 million, led by Specialty, which increased its new business by over 50%, driven by Energy and Marine. North America Commercial, excluding Validus Re, achieved new business of over $480 million, driven by Lexington, which saw excellent new business growth of over 50%. With respect to rate in North America Commercial, excluding Validus Re, rates increased 7% in the first quarter or 8% if you exclude workers' compensation, and the exposure increase was 2%.
In North America Commercial, rate was driven by Lexington wholesale, which was up 26% with Wholesale Property up 35%. For Lexington Property Wholesale, this was its strongest quarterly rate increase. Rate in Retail Property was also up significantly at 32%. International Commercial rate increases were 8%, driven by Talbot at 16%, International Property at 11% and Specialty at 9%. The exposure increase in the International portfolio was 2%. Rate plus exposure remains above loss cost trend at 9% in North America, 10% if you exclude workers' compensation and 10% in International.
Turning to Personal Insurance. First quarter results reflect our continued repositioning of this business, especially PCG, given our announcement of the creation of a managing general agency in partnership with Stone Point Capital. I will provide more information on the MGA later in my remarks.
North America Personal net premiums written increased 57%, driven by lower quota share cessions in PCG at January 1, as we transition to writing the business as an MGA, along with the recognition of an improved portfolio. The combination of improved pricing in our admitted business and more business migrating to the non-admitting market has a very positive impact on PCG's accident and policy or loss ratios. This will earn in through the second half of 2023 and into 2024.
Entering 2023, we required less excess of loss reinsurance on the upper end of our reinsurance program due to realized reduction in PCG's PMLs at all return periods as a result of ongoing improvements in risk selection and reductions in aggregate in peak zones. More specifically, all peril and all return periods from 1 in 20 to 1 in 1,000 reduced on average by 40%, while those same return periods with respect to wildfire reduced on average by 60%. These dynamics further impacted net premiums written in the first quarter.
Syndicate 2019 continues to act as a mechanism to enable third-party capital providers to support PCG's high and ultra-high net worth business for the 2023 accident year.
In terms of expectations for PCG for the full year, we expect net premiums written growth to be at or higher than we saw in the first quarter, the loss ratio to meaningfully improve and the acquisition ratio and general operating expense to also improve.
Turning to International Personal. Net premiums written were largely flat in the first quarter, Travel and Warranty grew while Personal Property declined, all driven by a further refinement of our cat reinsurance cost allocation methodology, making year-over-year comparisons difficult. Accident & Health had some timing issues that impacted net premiums written in the first quarter. We expect to see growth in International Personal for the remainder of 2023 and believe results will continue to strengthen as we move through the year.
Shifting to combined ratios. As I noted earlier, the first quarter accident year combined ratio, excluding catastrophes, was 88.7%, an 80 basis point improvement year-over-year. In Global Commercial, the first quarter accident year combined ratio, excluding catastrophes, was 84.9%, a 110 basis point improvement year-over-year and we reported a 24% increase in underwriting income.
The North America Commercial accident year combined ratio, excluding catastrophes, was 85.7%, a 240 basis point improvement year-over-year. The International Commercial accident year combined ratio, excluding catastrophes, was essentially flat at 83.7%, which is an outstanding result. Global Personal reported a first quarter accident year combined ratio, excluding catastrophes, of 98.6%, a 120 basis point increase from the prior year quarter, largely due to a decrease in earned premium from our deliberate reduction in gross exposure in PCG in North America.
Now let me comment on catastrophes. The cat loss ratio in the quarter was 4.2% or $264 million of catastrophe losses. Our largest loss in the period was from two storms in New Zealand, which accounted for $126 million of catastrophe losses.
Looking at North America, total losses from catastrophe-related activities in the first quarter were $116 million, which includes Validus Re. In International, excluding Japan, we have eroded approximately $75 million of our aggregate retention and have approximately $75 million net remaining, plus the annual aggregate deductible for each cat loss for the rest of the year. As we described in our last call, the reinsurance program we structured at this year's January 1 renewal provides us with the ability to manage volatility and severity. Looking ahead to the rest of 2023, we expect to see very strong top line growth in General Insurance.
Turning to Life and Retirement. The business delivered strong performance in the first quarter. Adjusted pretax income was $886 million for the first quarter, and adjusted return on segment equity was 10.7%. First quarter results benefited from continued growth in spread-based products and related spread income. As I mentioned earlier, premiums and deposits grew significantly in the first quarter, driven by strong new individual retirement business, which, despite increasing surrenders related to interest rates, contributed to growth in the General Account. The balance sheet and capital position of Corebridge remains strong with $1.8 billion of parent liquidity.
Turning to our strategic initiatives. Last week, we executed a definitive documentation with Stone Point Capital for the launch of Private Client Services, an MGA that will serve the high and ultra-high net worth market. We are excited about the prospects for PCS and are confident of the value this new operating structure will deliver for clients, brokers and other stakeholders. We look forward to continuing this journey with the PCS management team and the ongoing support of Stone Point Capital.
Subject to regulatory approvals, the MGA is expected to formally launch in the third quarter of this year, and we expect to bring on additional capital providers through the second half of 2023. As part of our ongoing review process, we regularly assess the composition of our portfolio of businesses to ensure it is aligned with our long-term strategy and best positioned to create value for our shareholders and other stakeholders.
As part of this review, as you saw in our announcement on Tuesday, we executed a definitive documentation to sell Crop Risk Services, or CRS, to American Financial Group for $240 million. We acquired CRS as part of our broader acquisition of Validus Holdings in 2018. AIG will continue to write business for the 2023 spring crop season, which ends June 30. We expect approximately $700 million to $800 million of net premiums written for 2023, 75% of which booked in the first quarter. Starting in the third quarter, AIG will act as a fronting partner for American Financial Group during a transitional period.
For full year 2023, we expect to retain about $800 million to $900 million of earned premiums, $750 million of which we'll earn in over the remainder of the year. CRS is a well-run and attractive business, led by a high-quality management team. In American Financial Group, we have found a high-quality partner for CRS and its employees and believe the business will benefit from being part of a larger combined platform. We also continually review the product portfolio and geographic footprint of Corebridge as we position this business for the future as a fully stand-alone company.
After a comprehensive review of the health product offering, we decided to evaluate strategic alternatives and a potential sale of Laya Healthcare, the private medical insurance business in Ireland. We believe this will help to streamline the Corebridge portfolio and allow it to focus on Life and Retirement products and solutions.
Turning to capital management. The first quarter marked another quarter of continued progress and execution of our balanced strategy. In addition to the first quarter share repurchases and dividends that I mentioned earlier, against the backdrop of an unstable macroeconomic environment, we thought it was prudent to raise $750 million of debt at the end of March. This provided us with financial flexibility to pay down a near-term debt maturity and complete additional share repurchases at what we viewed as attractive share prices.
Turning to return on common equity. We remain highly committed and laser-focused on delivering a 10%-plus ROCE. Through the first quarter, we continued to make meaningful progress on the four components of our path to deliver on this commitment. As a reminder, these components include sustained and improved underwriting profitability, executing on a simpler, leaner business model across AIG, operational separation and deconsolidation of Corebridge, and continued balanced capital management. Given the number of strategic initiatives we are executing at once, we are taking a long-term view while measuring progress in 90-day increments. We advanced each component during the first quarter and expect this to continue throughout 2023.
As I discussed earlier, our first quarter financial results were excellent, with continued top line growth and improvement in underwriting profitability in General Insurance. Over the last few months, we accelerated our work to establish AIG's future state business model. Sequencing has been very important on our journey and the work that's been accomplished over the last few years on the General Insurance turnaround, AIG 200, the separation and IPO of Corebridge and restructuring of our investment management group. This has positioned us to move forward as a more focused and simplified AIG.
Evolving our future state business model will result in us moving away from the conglomerate structure AIG operated in for decades. We will eliminate overlap and significantly reduce decentralized infrastructure across the company, which will lead to a leaner business model, particularly in our operations. In future state, we expect a redefined AIG parent expense structure to be approximately 1% to 1.5% of premiums, which today is roughly $250 million to $350 million.
AIG parent will have five primary roles and objectives: public company matters, including finance, legal, compliance and regulatory oversight as well as corporate governance; communications with key stakeholders, including the investment community, rating agencies, regulators, policymakers and AIG colleagues; risk management, culture, performance and human capital management; and strategy, including business development, M&A and design and execution of key initiatives. As we progress our future state business model, we anticipate achieving approximately $500 million in cost reductions at AIG parent and a cost to achieve of around $400 million with substantially quicker earn-in of savings that we achieved with AIG 200.
As expense savings begin to earn through, the reductions will largely be seen in other operations, which is where general operating expenses are currently accounted for.
With respect to Corebridge, I took you through our current thinking on separation and timing of the secondary offerings. Lastly, on capital management. We continue to maintain appropriate levels of capital in our subsidiaries to support profitable growth. We remain on track to reduce AIG common stock outstanding to be between 600 million and 650 million shares and achieve a debt-to-capital leverage at the lower end of our 20% to 25% range post deconsolidation of Corebridge.
As I noted earlier, we increased our common stock dividend by 12.5%, starting in the second quarter of this year. And in addition to our stock repurchases in the first quarter, to date, we have repurchased $240 million of AIG common stock in the second quarter. Apart from the progress we're making on these components of our path to a 10%-plus ROCE, we also expect tailwinds from higher reinvestment yields. We are confident that our continued progress on strategic initiatives and our capital management strategy will allow us to achieve our ROCE targets and deliver long-term profitable growth that benefits all of our stakeholders.
I will now turn the call over to Sabra.
