8-K: AIG Reports Strong Q4 and Full Year 2023 Results, Driven by Underwriting and Strategic Divestitures

American International Group (AIG) announced robust financial results for the fourth quarter and full year 2023, marked by improved underwriting performance and strategic portfolio adjustments.

Summary

• AIG reported a net income per diluted share of $0.12 and an adjusted after-tax income (AATI) per diluted share of $1.79 for the fourth quarter of 2023.
• For the full year 2023, net income per diluted share was $4.98 and AATI per diluted share was $6.79.
• General Insurance net premiums written (NPW) increased by 3% year-over-year in Q4, or 7% on a comparable basis, and 5% for the full year, or 7% on a comparable basis.
• The General Insurance combined ratio improved to 89.1% in Q4 and 90.6% for the full year, with the accident year combined ratio, as adjusted, at 87.9% and 87.7% respectively.
• Life and Retirement adjusted pre-tax income (APTI) was $957 million in Q4, up 12% year-over-year, and $3.8 billion for the full year, up 15% year-over-year.
• AIG returned $1.3 billion to shareholders in Q4 and $4.0 billion for the full year through share repurchases and dividends.
• The company reduced its ownership in Corebridge Financial to 52.2% by the end of 2023 through three secondary offerings.
• AIG's parent liquidity stood at $7.6 billion at the end of 2023.
• The company's book value per common share was $65.14 as of December 31, 2023, an increase of 18% from December 31, 2022.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, strategic progress, and improved underwriting performance. While there are some negative aspects, the overall tone is optimistic and forward-looking.

Positives

• AIG achieved excellent underwriting performance in 2023, with significant improvements in combined ratios.
• The company successfully executed multiple complex strategic initiatives, including the divestiture of Validus Re and Crop Risk Services.
• AIG demonstrated strong capital management, reducing debt and returning substantial capital to shareholders.
• Life and Retirement segment showed strong financial results, with increased APTI and favorable investment income.
• The company's liquidity position improved significantly, reaching $7.6 billion by the end of 2023.
• AIG's book value per common share increased by 18% year-over-year.

Negatives

• Net income attributable to AIG common shareholders decreased in both Q4 and full year 2023, primarily due to net realized losses on Fortitude Re funds withheld embedded derivative.
• Corebridge's earnings included in AATI decreased due to the reduction in AIG ownership.
• North America Commercial Lines NPW declined 7% on a reported basis in Q4, although it grew 5% on a comparable basis.
• The expense ratio for General Insurance increased by 1.2 points in Q4, largely from an increase in general operating expenses.

Risks

• AIG faces risks related to adverse economic conditions, including fluctuations in interest rates and foreign currency exchange rates.
• The company is exposed to potential losses from catastrophic events, both natural and man-made.
• Disruptions in information technology systems and cyberattacks pose a risk to AIG's operations and data security.
• AIG's ability to successfully dispose of, monetize, or acquire businesses and integrate them effectively is a risk.
• The company's reliance on third-party investment managers and the valuation of its investments are potential risks.
• Changes in laws and regulations, including those related to insurance, could impact AIG's business.
• The outcome of legal, regulatory, or governmental proceedings could affect AIG's financial results.

Future Outlook

AIG expects to deconsolidate Corebridge in 2024, which will bring greater visibility into its business, capital structure, and operations. The company enters 2024 with significant momentum and aims to continue its growth through underwriting excellence and disciplined capital management.

Management Comments

• AIG Chairman & Chief Executive Officer Peter Zaffino stated that AIG delivered outstanding financial results in 2023, highlighted by excellent underwriting performance and the successful execution of multiple complex initiatives.
• Zaffino also noted that the full year adjusted after-tax income per diluted share increased 33% from the prior year.
• He emphasized the company's commitment to underwriting excellence and ability to manage volatility as fundamental to the sustainability of AIG's underwriting income growth.
• Zaffino highlighted that 2023 margins and underwriting income were the best results achieved in recent history.

Industry Context

AIG's results reflect a broader trend in the insurance industry towards improved underwriting discipline and strategic portfolio management. The divestiture of non-core assets and focus on core insurance operations aligns with industry best practices. The company's strong performance in a complex global risk environment positions it well against competitors.

Comparison to Industry Standards

• AIG's combined ratio of 90.6% for the full year 2023 is competitive with industry leaders such as Chubb (around 88-90% combined ratio) and Travelers (around 92-94% combined ratio), indicating strong underwriting performance.
• The 15% increase in General Insurance underwriting income is a significant achievement, comparable to the growth seen in other large commercial insurers like W.R. Berkley, which has also reported strong underwriting results.
• AIG's strategic divestitures, such as Validus Re, are similar to moves by other insurers to streamline operations and focus on core businesses, such as AXA's divestment of its US life insurance business.
• The return of $4 billion to shareholders through buybacks and dividends is in line with capital management strategies of other large insurers, such as Allstate and Progressive, who also prioritize returning capital to investors.
• AIG's reduction of debt by $1.4 billion is a positive step, aligning with industry trends of deleveraging and improving financial stability, similar to actions taken by companies like MetLife.

Stakeholder Impact

• Shareholders benefit from increased dividends and share repurchases.
• Employees are recognized for their contributions to the company's success.
• Customers benefit from AIG's commitment to providing sustainable and differentiated value.
• Partners and stakeholders are assured of AIG's financial stability and strategic direction.

Next Steps

• AIG will continue to focus on underwriting excellence and disciplined capital management.
• The company expects to deconsolidate Corebridge in 2024.
• AIG will host a conference call on February 14, 2024, to discuss the results.

Key Dates

Keywords

insurance, financial results, underwriting, net premiums written, combined ratio, adjusted after-tax income, share repurchases, dividends, Corebridge, divestiture, liquidity, investment income