Peter Zaffino
Chairman and Chief Executive Officer at American International Group
Good morning and thank you for joining us today to review our third quarter 2024 financial results. Following my remarks, Sabra will provide more detail on the quarter. Then our North America and international leaders, Don Bailey and Jon Hancock will join us for the Q&A portion of the call.
Before we begin, I want to acknowledge the devastating impact the recent weather events had on our communities, which underscores the difficult reality of changing weather patterns and the frequency and severity of these events. At AIG, our claims teams have been working hard to ensure that we respond quickly. I'm grateful to our colleagues for their commitment to our clients and distribution partners. This is our purpose and it's when our company is needed most.
Now let me move to the highlights of our outstanding third quarter performance. We continue to deliver exceptional underwriting results, maintain rigorous expense discipline, execute on our capital management plan and make excellent progress on our strategic priorities. Adjusted after-tax income was $798 million or $1.23 per diluted share, representing a 31% increase in earnings per share year-over-year, driven by strong core earnings growth and disciplined execution of our capital management strategy. Underwriting income for the quarter was $437 million, which included total catastrophe-related charges of $417 million. The calendar year combined ratio was 92.6%.
Consolidated net investment income on an adjusted pre-tax income basis was $897 million, a 19% increase year-over-year. Other operations, adjusted pretax loss was $143 million, an improvement of $135 million or nearly 50% year-over-year. Core operating ROE was 9.2% with core operating equity of $34.5 billion as of September 30, 2024. In the third quarter, we returned approximately $1.8 billion to shareholders through $1.5 billion of stock repurchases and $254 million of dividends. In addition, we repurchased $520 million of common stock in October. We ended the third quarter with a debt to total capital ratio of 17.9%, including AOCI and parent liquidity of $4.2 billion.
During my remarks this morning, I will provide information on the following five topics. First, I will review the financial results for our General Insurance business. Second, I will provide observations on the catastrophe market and specifically AIG year-to-date. Third, I will update you on our progress with AIG Next and its impact on other operations. Fourth, I will provide an update on our significant progress in AI and related objectives moving forward. And finally, I'll give more detail on our capital management plan and the path to achieving 10% core ROE.
Turning to General Insurance, we had another excellent quarter with strong profitability and growth across our businesses. Gross premiums written for the quarter were $8.6 billion, an increase of 3% from the prior year. Net premiums written for the quarter were $6.4 billion, a 6% increase. Net premiums earned for the quarter were $5.9 billion, a 7% increase with $4.2 billion coming from global commercial. The accident year combined ratio as-adjusted was 88.3%. We had favorable prior year reserve development of $153 million, a benefit of 2.6 points to the loss ratio. Sabra will provide more detail in her prepared remarks.
In Global Commercial, we had 7% net premiums written growth over the prior year quarter, driven by over $1.1 billion of new business, which grew 9% year-over-year. Retention remained at 88%, which is an outstanding outcome. The accident year combined ratio as-adjusted was 84.2% and the calendar year combined ratio was 89.9%. The GOE ratio was flat year-over-year, while absorbing over $50 million of expenses that shifted from other operations. In Global Personal, we had 3% net premiums written growth over the prior year quarter, led by 9% new business growth across our global portfolio. The accident year combined ratio as-adjusted was 97.8% and the calendar year combined ratio was 98.8%, both were improvements year-over-year and we expect this segment to continue to improve its financial performance in 2025.
North America Commercial grew net premiums written by 11% year-over-year. We had a closeout transaction in the quarter in our casualty portfolio that benefited overall growth, but negatively impacted the accident year loss ratio. Absent this transaction, our net premiums written growth would have been in the high-single-digits. The businesses that drove growth were casualty at 9%, excluding the closeout transaction, 8% in Glatfelter and 7% in Lexington. Retention in North America was 90% in admitted lines and 78% in Lexington, which is an exceptional outcome for an excess and surplus lines business.
New business growth in the quarter was simply outstanding. On a year-over-year basis, we had 22% growth in new business led by Lexington with 24% growth. And the story for Lexington just keeps ongoing. We had over 95,000 new business submissions in the quarter, up 35% year-over-year. Casualty submissions were up over 70%, Western World was up over 30% and property was up over 20%. Also, our financial lines new business was up double-digits. This was due almost exclusively to a rebound in M&A following a slow new business quarter for financial lines in the same period last year.
North America Commercial accident year combined ratio as-adjusted was 85.1% and the calendar year combined ratio was 95.5%, an exceptional outcome given the significant CAT activity in the quarter. The accident year loss ratio was 61.8% for the quarter, which was an increase of 250 basis-points year-over-year and reflected two main variables. First, the closeout transaction in Agram [Phonetic] that I mentioned earlier, while profitable and incrementally beneficial to the overall combined ratio, it carried a higher loss ratio, which resulted in a 70 basis point headwind.
And second, the actual versus expected in the prior year quarter comparison was very favorable as a result of our admitted and wholesale property portfolios experiencing close to 30% rate increases last year that earned in over 2023 and the early part of 2024, creating a 180 basis point headwind. The combined ratio also benefited from a lower expense ratio, reflecting improvement in the GOE ratio.
In International Commercial, net premiums written grew 3% year-over-year. Commercial property grew 6% as did Global Specialty, where International Specialty grew 10% driven by energy. Our Talbot business at Lloyd's also grew 6%, driven by 18% growth in the specialty lines, specifically political risk, energy and marine. International retention remained strong at 89%, which was very balanced across the portfolio, led by energy and property, both at 92% and casualty at 91%. International also had very good new business of over $500 million, led by Global Specialty with 25% new business growth in Marine and 40% new business growth in Talbot year-over-year. The International Commercial accident year combined ratio as-adjusted was 83.4%, another excellent result. The calendar year combined ratio was 84.3%.
Given that the third quarter is usually the most active quarter for natural catastrophes, I want to provide some thoughts on the activity year-to-date and how the evolution of our underwriting and reinsurance strategy has significantly enhanced AIG's performance over time, even in light of this historical increased activity. For the first nine months of the year, preliminary industry estimates of insured losses from natural catastrophes are in excess of $100 billion, which appears to be the new normal. When considering the impact of Hurricane Milton on the industry and the remainder of the fourth-quarter, AEON [Phonetic] recently published a report that estimated that the 2024 total insured losses for the industry from natural catastrophes will likely exceed $125 billion. When analyzing large single catastrophes, the complexity of determining the initial and ultimate loss is complicated. Modeling firms produce industry loss estimates post-event and there are many factors that go into estimating the ultimate losses. It is important to note that no two catastrophes are the same.
Property Claim Services or PCS is a widely used source for independent property loss estimates in the United States. The loss figures that they provide are derived from claims activity and other factors at the time of loss rather than a judgment of the ultimate size of the loss. As a result, the actual scale of total loss is often subject to misinterpretation. Historically, if you look-back at major events including Katrina, Superstorm Sandy and Ian, the final report of PCS figures were substantially higher than their original estimates, illustrating the uncertainty around determining ultimates or best estimates for catastrophe losses. At AIG, we've mitigated the impact that weather events have had on our business as reflected in our improved financial performance even as the world has seen more CAT activity. Over the last five years, our losses have dropped dramatically, both in nominal terms and also in terms of the overall market-share of the losses. This is a testament to the work we've undertaken to change and evolve our underwriting strategy, reduce volatility and increase the quality of our earnings.
If we use 2012 as a reference point, which was a year with meaningful activity, the total insured catastrophe losses on a nominal basis were $65 billion for the industry. That is roughly equivalent to the 20-year average and serves as a useful benchmark. Since 2012, expectations for annual industry catastrophe losses have grown substantially. The average annual industry loss from natural catastrophes from 2017 through 2023 has increased approximately 90% when compared to the average from 2000 to 2016. Since 2017, seven of the last eight years, including the 2024 forecast, have had over $100 billion of annual insured losses. It's important to note, against this heightened level of natural catastrophe losses, based on published reports, we estimate approximately 50% of the insured natural catastrophe losses were absorbed in the reinsurance market from 2017 to 2022. However, following the major market reset in 2023, approximately 90% of the losses were retained by the primary insurance companies. And this is a significant change.
As I have discussed several times, the work we've done to change AIG's approach to underwriting and reinsurance has resulted in dramatic improvements in our financial performance and balance sheet. Let me give you some specific points to contextualize the magnitude of this impact. Based on AIG's legacy underwriting strategy and reinsurance choices in 2012, AIG posted an initial pre-tax loss of $2 billion from Superstorm Sandy, which represented almost 7% of the estimated $30 billion market loss for that single event. And for the full-year 2012, AIG recognized approximately $2.7 billion of losses or approximately 4% of the market losses. Today, AIG is forecasted to be within our catastrophe loss expectations for the full-year or more importantly, less than 1% market-share of the forecasted total industry loss for 2024 of over $125 billion.
Additionally, it's worth noting that our property portfolio net premiums written are approximately the same amount in 2024 as they were in 2012. However, today, we have 80% lower CAT losses and volatility. And importantly, our year-to-date 2024 commercial property combined ratio is in the low 80s compared to a combined ratio of nearly 120% in 2012. We've completely transformed our business over the past five years and this is the new AIG. AIG's strategy to manage volatility through our gross underwriting actions and our approach to reinsurance, including our decision to maintain the lowest net retention amongst our global competitors, has delivered significant benefits for the company and positions us well for the future in an environment with significantly elevated insured loss activity and modeling uncertainty.
Let me take a minute to comment on high-level expectations for the upcoming January 1 renewal season for property. First, the significant reset in the property CAT reinsurance market in 2023 means that reinsurers generally have higher attachment points, provide name perils and have significant retro protection and therefore are likely to make an underwriting profit on their global catastrophe portfolios in 2024, given the current loss levels and the benefit of reinstatement premiums. With this expectation of underwriting profit, the overall reinsurance market should remain healthy. Despite the strong capital position of the market, generally speaking, I would expect the market to remain disciplined at January 1, not reducing attachment points and focusing on deploying capital to the insurance companies with higher-quality portfolios like AIG. Given that this has become the industry norm, as I mentioned earlier, industry losses from increased frequency and severity will continue to be realized by primary insurers and will not be solved by the reinsurance market in 2025.
Let me move on to provide an update on AIG Next, which we launched in early 2024 to further position AIG for the future. Over the past several years, we've been on a journey to simplify the company by weaving the organization together to operate seamlessly across underwriting, actuarial, claims and all of our functional areas with the necessary skills and capabilities to effectively differentiate AIG for the future. In 2025, we expect to fully realize the $500 million in savings from AIG Next. These savings will impact multiple areas across other operations and General Insurance.
As part of the AIG Next program, we've established a new definition of parent expense to exclusively reflect costs related to being a global regulated public company and expect those costs to be around $350 million going forward. In the future, costs currently attributed to other operations will either be eliminated or included within the General Insurance results. You can see the impact of this effort already flowing through our income statement as other operations expenses are down nearly $30 million year-over-year or $40 million sequentially. This reduction reflects the expense benefits from AIG Next and the transfer of a portion of these costs to General Insurance GOE. The ability of the businesses to absorb these additional costs with minimal impact to the expense ratio is due in large part to our significant focus on managing expenses.
AIG Next has also enabled us to invest in core capabilities and the implementation of strategic innovation initiatives, notably in underwriting, claims and our data, digital and AI strategy. Let me provide you with more detail. Many companies are discussing their data, digital and AI strategies, but what is actually being done varies greatly from company to company. At AIG, we're utilizing Gen AI in large language models as digital accelerators in applications that support the innovation journey, but they are not the innovation alone. This is what makes our recently-announced collaborative space in Atlanta so unique. It will be the first location in our global footprint where an end-to-end underwriting process will exist from distribution, sales to data insights, underwriting, claims payments and client servicing. This location will allow us to innovate and evolve the end-to-end process, further develop our Agentic [Phonetic] Gen AI ecosystem, drive role clarity and digitize and modernize our processes. Gen AI can produce meaningful gains from reducing manual inputs and driving process efficiencies. However, our Gen AI ecosystem is doing much more than that. It integrates proprietary data from multiple sources with data ingestion capabilities to give us better data quality in a fraction of the time. In our early pilots, we've seen data collection and accuracy rates within our underwriting processes improve from levels near 75% to upwards of 90%, while reducing processing time significantly. We're also using our Gen AI ecosystem to increase our submission response rate while enabling our underwriters to prioritize the highest-value business within our risk appetite. These improvements will help drive growth and operating leverage as we deliver Gen AI to our businesses at scale. It will allow our underwriters to spend more time quoting and winning business and less time manually collecting data.
Our culture at AIG is one that is deeply rooted in underwriting expertise and excellence. We help clients solve complex risk issues that require judgment and a nuanced understanding of clients' needs, maintaining the underwriter at the center of decision-making will continue to be paramount and a key differentiator for us. Our AI initiatives are designed to do just that, deliver better outcomes and drive operating leverage while keeping highly experienced underwriters at the core of the process.
I'm now going to turn to capital management, where we continue to execute our balanced disciplined strategy. Our objectives are to preserve strong insurance company capital levels to support organic and potentially inorganic growth, maintain conservative debt leverage ratios, return excess capital to shareholders in the form of share repurchases and dividends and maintain parent liquidity. We made substantial progress over the last several years to improve the financial strength of AIG. General Insurance is well-positioned for sustained profitable growth. This has been a multi-year process that's centered on executing on our underwriting strategy, while increasing profitability and reducing volatility in our portfolio through a better mix of business along with the strategic use of reinsurance.
An important result of our improved profitability is our ability to receive ordinary dividends from our operating subsidiaries, which provides consistent and increasing liquidity to the parent company. Year-to-date, we received ordinary dividends or their equivalents of approximately $3 billion from our businesses. Our financial strength is also evidenced by the lower levels of debt on our balance sheet. Historically, AIG had one of the highest debt to total capital leverage ratios in the industry at over 30%. In 2024, we have reduced debt levels by $1 billion, bringing our debt to total capital leverage ratio to 17.9%, including AOCI, amongst the lowest in our peer group, an achievement that requires significant discipline. Through the first nine months of 2024, we returned over $5.5 billion to shareholders through $4.8 billion of common stock repurchases and $765 million of dividends. As we've stated previously, we will continue to execute on our $10 billion share repurchase authorization over the course of 2024 and 2025, subject to market conditions and timing of the closing of pending transactions. The current authorization will bring us within our target share count range of 550 million to 600 million shares. Importantly, our anticipated parent liquidity provides the flexibility to support additional share repurchases, which we will review in 2025.
Earlier this year, we increased the cash dividend to shareholders on AIG common stock by 11%. We will continue to review our dividend annually, considering additional increases as appropriate, supported by our increased earnings power. This will be an important focus for us in 2025 and beyond. We ended the third quarter with parent liquidity of $4.2 billion. With the combination of our disciplined capital management, sustained continued underwriting performance and focus on expense management, we expect to deliver a 10% core operating ROE for the full-year 2025. We recognize that with core operating equity of $34.5 billion at the end of the third quarter, parent liquidity, our capital in the insurance company subsidiaries and future proceeds from corporate sell-downs, we have excess capital for the size of the business we are today. We will proactively manage our capital over time to support growth in our business and we will maintain a capital management strategy centered on balance and patience while remaining nimble to execute should attractive opportunities arise.
In summary, I'm very pleased with our outstanding third quarter performance. As we approach year-end and plan for 2025, our path forward is clear. We will continue to solidify AIG's position as a global market leader and remain focused on value creation for our customers and shareholders.
With that, I'll turn the call over to Sabra.
