AIG's Q3 2025 Earnings Call: Contradictions Emerge on Property Pricing, Combined Ratios, Expense Ratio Targets, Convex Quota Share, and M&A Strategy

Business Commentary:

• Strong Financial Performance:
• AIG delivered an adjusted after-tax income per diluted share of $2.20, up 77% year-over-year.

• The growth was driven by a 52% increase in adjusted after-tax income for the General Insurance business and a 81% increase in underwriting income.

  

• Investment and Strategic Acquisitions:

• AIG announced strategic investments with Convex Group, Onex Corporation, and Everest Group, which are expected to be EPS and ROE accretive post-closing.

• These investments align with AIG's capital management strategy and aim to enhance long-term value and earnings growth.

• AI Integration and Underwriting Enhancements:

• AIG has made significant progress in deploying GenAI solutions in underwriting and claims processes, with rollouts and pilot programs showing positive results.

• The deployment aims to accelerate decision-making processes, improve underwriting efficiency, and increase submission-to-buying ratios.

• Capital Management and Shareholder Returns:

• AIG returned $19 billion to shareholders through share repurchases and dividends over the past three years and reduced debt by $4.5 billion.
• The company maintains a strong capital structure and continues to focus on disciplined capital management strategies to support strategic growth.
  

Contradiction Point 1

Property Pricing Trends and Impact on Combined Ratios

It involves differing perspectives on the impact of property pricing trends on combined ratios, which are crucial for assessing underwriting profitability and financial performance.

What's your take on commercial insurance pricing competition and its potential impact on loss ratios? - Michael Zaremski (BMO Capital Markets Equity Research)

2025Q3: The market is competitive, and we focus on portfolio mix and quality over broad market indices. Property has faced rate pressure, while specialty maintains profitability. - [Peter Zaffino](CEO)

Can you clarify how property pricing impacts underwriting and whether combined ratio targets remain achievable? - Taylor Alexander Scott (Barclays Bank PLC)

2025Q2: Our property portfolio is performing well despite market challenges. We buy significant reinsurance, which provides risk-adjusted pricing reductions, alleviating pressure from lower reinsurance costs. The combined ratio increase is expected, but the business remains strong, and we expect to retain business with suitable pricing adjustments. - [Peter Zaffino](CEO)

Contradiction Point 2

Expense Ratio Target and Improvement Cadence

It involves differing expectations regarding the expense ratio target and the cadence of expense ratio improvements, which are critical for assessing operational efficiency and financial performance.

What are your thoughts on post-Corebridge divestiture holdco liquidity levels? Also, how do you view the 30% expense ratio target? - Brian Meredith (UBS Investment Bank)

2025Q3: The expense ratio target of 30% is a benchmark, and we expect to achieve this by leveraging GenAI and portfolio growth opportunities. - [Keith Walsh](CFO)

How will the expense ratio improvement progress? - Michael David Zaremski (BMO Capital Markets Equity Research)

2025Q2: Expense improvements are ongoing. The second quarter had some onetime headwinds, but the third and fourth quarters should see less pressure, with more parent expenses absorbed into business. - [Peter Salvatore Zaffino](CEO and Chairman)

Contradiction Point 3

Property Pricing and Underwriting Discipline

It involves differing perspectives on the state of property pricing and underwriting discipline, which are critical for assessing the company's financial health and strategic direction.

How do you assess the competitive dynamics in commercial insurance pricing and their potential impact on loss ratios? - Michael Zaremski (BMO Capital Markets Equity Research)

2025Q3: Property insurance has increasingly faced moderate rate pressure, particularly in the United States, and some emerging markets like Turkey and Spain, but we've been able to manage our book very well. We've maintained underwriting discipline, and we are seeing some improvements in commercial motor and marine lines. - [Peter Zaffino](CEO&Chairman)

Did a North American property price decline impact AIG's performance? - Mike Zaremski (BMO)

2025Q1: Property pricing is a challenge, but technical pricing remains strong. We are disciplined in our pricing strategy. In North America, casualty rates are above loss cost trends, particularly in large accounts. We have strong retention rates and flight to quality. Financial Lines face mid-single-digit rate decreases, but we're focused on maintaining adequate returns. - [Peter Zaffino](Chairman & CEO)

Contradiction Point 4

Convex Quota Share Profitability and Combined Ratio Profile

It involves differing expectations and assessments of the profitability and combined ratio profile of the Convex quota share agreement, which can impact investor projections and strategic alignment.

Can you discuss the expected underwriting profitability from the quota share with Convex and renewal rights with Everest, and compare their combined ratio profiles? - Alex Scott (Barclays Bank PLC)

2025Q3: Convex's quota share will present significant profitability due to their strong track record and class of business. - [Peter Zaffino](CEO&Chairman)

Does the core ROE of 10% or more include the wildfire impact? And what areas are targeted for organic growth, particularly regarding price adequacy in property and casualty lines? - Alex Scott (Barclays)

2024Q4: From a commercial standpoint, we did 11% top line growth in the U.S., and we're up 500 basis points in the combined ratio. We grew our book about 3% in the quarter in commercial. - [Peter Zaffino](CEO)

Contradiction Point 5

M&A Approach and Capital Deployment

It involves changes in the company's approach to M&A and capital deployment, which are crucial for understanding the company's growth strategy and financial management.

Can you comment on the holding company's liquidity levels after the Corebridge divestiture? Also, can you comment on the 30% expense ratio target? - Brian Meredith (UBS Investment Bank)

2025Q3: Our M&A approach remains disciplined, focusing on medium to long-term acquisitions. We maintain ample capital to grow into. If we don't see additive opportunities, we'll return capital to shareholders. - [Peter Zaffino](CEO&Chairman)

Is economic uncertainty affecting AIG's M&A and capital deployment strategy? - Alex Scott (Barclays)

2025Q1: Our M&A approach remains disciplined, focusing on medium to long-term acquisitions. We maintain ample capital to grow into. If we don't see additive opportunities, we'll return capital to shareholders. - [Peter Zaffino](Chairman & CEO)