DEFA14A: AIG's Shareholder Engagement Highlights Executive Compensation and Strategic Transformation

AIG's recent shareholder engagement program reveals strong support for CEO Peter Zaffino's leadership and the company's strategic direction, alongside discussions on executive compensation structures.

Summary

• AIG conducted a shareholder engagement program in 2024, reaching out to shareholders representing approximately 70% of shares outstanding and meeting with those holding approximately 54% of shares outstanding.
• Shareholders expressed high regard for CEO Peter Zaffino's performance and supported the company's executive compensation program, with ongoing discussions about stock options and one-time awards.
• AIG has incorporated shareholder feedback by simplifying its plan design and increasing transparency for 2025.
• The company highlights its transformation under Zaffino's leadership, including improved underwriting profitability, reduced expense ratios, and strategic divestitures.
• AIG's stock is up 80% since Zaffino became CEO and 161% since he was announced to become CEO.
• The deconsolidation of Corebridge Financial, Inc. (CRBG) unlocked significant value for shareholders, with the combined market capitalization of AIG and CRBG increasing 63% since Zaffino became CEO.
• In 2024, AIG produced a strong calendar year combined ratio of 91.8% and an accident year combined ratio, as adjusted, of 88.2%.
• Net premiums written totaled $23.9 billion in 2024, with strong growth in the Global Commercial business.
• AIG returned $8.1 billion of capital to shareholders, including $6.6 billion of share repurchases, $1.0 billion of dividends, and $500 million in preferred stock redemptions.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on AIG's performance and strategic direction, highlighting significant improvements in financial metrics and shareholder value creation. While acknowledging some debates on compensation structures, the overall tone is optimistic and confident.

Positives

• Strong endorsement of CEO Peter Zaffino's leadership and pay level.
• Support for simplification in incentive plan design and increased transparency.
• General support for the current mix of equity vehicles used for executives.
• Successful completion of multi-year strategic initiatives, including the CRBG deconsolidation.
• Excellent underwriting results and meaningful growth in net premiums written.
• Exceptional new business and high retention of the portfolio.
• Significant multi-year improvement across both loss and expense ratios.
• Historic limit reduction with net written premiums growth.

Negatives

• Varied views regarding whether stock options constitute performance-based compensation.
• Ongoing debate regarding the appropriateness of one-time awards.

Risks

• The document mentions risks related to economic conditions, catastrophic events, cyberattacks, changes in laws and regulations, investment concentrations, reliance on third parties, and the outcome of legal proceedings.
• The company's ability to effectively implement technological advancements, including AI, and respond to competitors' AI initiatives is a potential risk.
• Changes in judgments or assumptions concerning insurance underwriting and insurance liabilities could impact results.
• The effectiveness of strategies to retain and recruit key personnel is crucial for future success.

Future Outlook

The company aims to sustain its momentum under Peter Zaffino's leadership and continue driving operational excellence and long-term sustainable value for investors.

Management Comments

• The CMRC considers a balanced mix of strategic and operational Key Performance Indicators that it believes reflect true company performance and long-term value creation.
• The CMRC focuses on industry-specific metrics that matter most to investors and applies its judgment in making final compensation decisions to attract and retain the right leadership team.
• We have continued to ensure that the CEOs total compensation promotes retention while providing an appropriate pay mix with 92.5 percent in variable pay.

Industry Context

AIG's transformation and focus on underwriting profitability align with broader industry trends emphasizing disciplined risk management and efficient capital allocation. The company's use of peer groups for compensation benchmarking is a common practice in the financial services industry.

Comparison to Industry Standards

• AIG benchmarks its compensation against two peer groups: a Compensation Peer Group and a Relative TSR Peer Group.
• The Compensation Peer Group includes companies like Allstate, American Express, Bank of America, BlackRock, Chubb, and MetLife.
• The Relative TSR Peer Group includes companies like Chubb, CNA Financial, The Hartford, Tokio Marine Holdings, and W.R. Berkley Corporation.
• AIG's leverage ratio of 17% at year-end 2024 compares favorably to the peer leverage ratio of 23.4%.

Stakeholder Impact

• Shareholders have benefited from increased stock value and capital returns.
• Employees are impacted by restructuring initiatives and potential cost-saving opportunities.
• Customers benefit from the company's focus on underwriting excellence and risk management.

Next Steps

• For 2025, AIG will continue to use a single set of corporate metrics for all eligible participants.
• Progress against these metrics will be readily discernible from quarterly earnings reports.
• The CMRC reviews the mix of equity vehicles annually and, given the general support for the current mix, retained that mix for 2025.

Key Dates

Keywords

executive compensation, shareholder engagement, Peter Zaffino, Corebridge Financial, underwriting profitability, net premiums written, capital return, strategic transformation, AIG