Executive Summary / Key Takeaways

• AIG has fundamentally transformed, shedding complexity (Corebridge deconsolidation, business divestitures) to focus on its core General Insurance business, now structured for profitable growth and enhanced financial flexibility.
• Underwriting excellence remains paramount, evidenced by sustained strong combined ratios and disciplined risk selection, even amidst elevated catastrophe activity and competitive market dynamics.
• Strategic investments in technology, particularly GenAI and data capabilities, are accelerating operational efficiency, improving underwriting effectiveness, and are expected to drive future operating leverage and growth.
• Disciplined capital management, including significant share repurchases and dividend growth, is enhancing shareholder value and contributing to the target of achieving a 10%+ core operating ROE in 2025.
• While navigating market pressures in certain lines and the inherent volatility of the insurance business, AIG's strategic repositioning, robust reinsurance program, and focus on high-return opportunities position it for continued progress towards its financial targets.

The Reimagined AIG: Underwriting at the Core

American International Group, Inc. (NYSE:AIG) stands at a pivotal juncture, having undergone a multi-year, comprehensive transformation to emerge as a more focused and financially flexible global insurance underwriter. The narrative of AIG is one of strategic evolution, moving from a complex conglomerate to a streamlined entity centered on its General Insurance operations. This journey, marked by significant portfolio reshaping and operational enhancements, sets the stage for understanding the company's current investment thesis.

At its heart, AIG's business is about assessing and pricing risk across diverse markets. Its General Insurance segment, now organized into three reportable segments – North America Commercial, International Commercial, and Global Personal – provides a broad spectrum of insurance products and services globally. This segment is the engine of the "new AIG," supported by a renewed emphasis on underwriting discipline and technical expertise. The strategic decision to separate the Life and Retirement business, culminating in the deconsolidation of Corebridge Financial (CRBG) on June 9, 2024, was a watershed moment, simplifying the organizational structure and creating substantial financial flexibility at the parent level. Further divestitures, such as the global individual personal travel insurance business and Validus Re, underscore the commitment to focusing on core strengths and managing volatility.

This strategic repositioning is not merely structural; it is deeply embedded in the company's operational DNA. Initiatives like AIG 200 and the more recent AIG Next program have targeted operational efficiencies, contributing approximately $1.5 billion in expense reductions since 2018. The AIG Next program, launched in early 2024, specifically aims to further streamline operations and reduce retained parent costs to a range of $325 million to $350 million annually, pushing non-core expenses into the business segments or eliminating them entirely. Management expects to fully realize the benefits of AIG Next by the first half of 2025, with corporate general operating expenses projected to migrate towards a run rate of approximately $90 million per quarter over the course of 2025.

A critical differentiator in AIG's strategy is its accelerating investment in technology, particularly in data, digital workflow, and artificial intelligence (AI). Over the past two years, AIG has invested approximately $300 million in these areas, building upon over $1 billion in foundational technology investments since 2018. The focus is on leveraging GenAI and large language models (LLMs) as digital accelerators to enhance underwriting efficiency and augment execution capabilities. The primary objective is to create an AI-powered underwriting portfolio optimization capability.

This technology aims to provide faster, more thorough analysis, improve customer service in quoting and policy issuance, and increase underwriter productivity by automating manual processes. Specific initiatives include developing mechanisms using LLMs to automatically filter submissions based on real-time underwriting guidelines, allowing underwriters to assess more opportunities that fit AIG's risk appetite. In underwriting management, AI is used to dynamically manage submission data review and guideline application, enabling leadership to analyze market conditions more deeply and make dynamic adjustments to pricing and limit deployment. Early pilots have shown promising results, with data collection and accuracy rates within underwriting processes improving from around 75% to upwards of 90%, while significantly reducing processing time. AIG is building an "agentic ecosystem" using a multi-vendor technology strategy designed for flexibility and scalability globally, crucially keeping the underwriter at the center of decision-making. This technological push is expected to drive operating leverage and support growth.

In the competitive landscape, AIG operates against formidable global, national, and local insurers. Key rivals like Chubb (CB), Travelers (TRV), and Berkshire Hathaway (TICKER:BRK.A/BRK.B) in P&C, and MetLife (MET) and Prudential Financial (PRU) in Life and Retirement (though AIG is exiting this segment), present intense competition across risk acceptance, pricing, and service. While AIG's transformation has improved its standing, some competitors, notably Chubb and Travelers, have demonstrated faster claims processing and greater digital efficiency in certain areas, potentially offering lower operating costs per policy. Berkshire Hathaway's vast capital reserves provide significant financial strength and scale advantages, particularly in reinsurance.

AIG differentiates itself through its deep industry expertise, disciplined underwriting, and a global franchise with multinational capabilities. Its strategic use of reinsurance, including maintaining lower net retention and utilizing aggregate coverage, is a key tool for managing volatility, particularly against peers who have increased attachment points. The partnership with Ryan Specialty (RYAN) for E&S distribution in high net worth and the launch of Syndicate 2478 at Lloyd's backed by Blackstone (BX) are examples of strategic collaborations leveraging AIG's platform and expertise to access additional capacity and drive growth. While AIG's growth trajectory and profitability metrics (like net margin and ROIC) have historically lagged some top-tier peers, its strategic focus on improving underwriting profitability and operational efficiency, coupled with its technological investments, is aimed at closing this gap. AIG's diversified portfolio across geographies and product lines provides a hunting ground to allocate capital to the most attractive risk-adjusted opportunities, a key competitive advantage in a dynamic market.

Performance Reflecting Strategic Shifts

AIG's recent financial performance provides tangible evidence of its strategic transformation and operational focus. The first quarter of 2025, while impacted by elevated catastrophe losses, demonstrated the underlying strength of the core General Insurance business and the benefits of the company's reinsurance strategy.

For the three months ended March 31, 2025, AIG reported Net income attributable to AIG common shareholders of $698 million, a decrease of $496 million compared to $1,194 million in the prior year quarter. This decrease was primarily driven by the accounting impact of the Corebridge deconsolidation, which resulted in a significant reduction in income from discontinued operations ($803 million decrease). However, the underlying General Insurance performance remained robust.

General Insurance reported Net Premiums Written of $4,526 million in Q1 2025, an increase of 3% on a reported basis compared to $4,512 million in Q1 2024. On a comparable basis (adjusting for divestitures and FX), growth was 8%. Net Premiums Earned were $5,769 million. The segment's Underwriting Income was $243 million, down from $596 million in Q1 2024. This decrease was largely attributable to higher catastrophe losses, which totaled $525 million in Q1 2025, representing 9.1 points on the loss ratio, compared to $106 million or 1.9 points in Q1 2024. The California wildfires alone accounted for $460 million of these losses.

Despite the higher CAT impact, the Accident Year Combined Ratio, as adjusted (excluding CATs and prior year development), remained strong at 87.8% in Q1 2025, compared to 88.4% in Q1 2024. This reflects continued underlying underwriting discipline. The Calendar Year Combined Ratio was 95.8%.

Segment-specific performance highlights underscore the strategic focus:

• North America Commercial: Net Premiums Written grew 14% year-over-year (comparable basis) to $1,174 million. Underwriting Income was $129 million, down from $236 million, primarily due to higher CATs ($186 million impact). The Accident Year Combined Ratio, as adjusted, was 84.3%, improving 1.6 points year-over-year, driven by a 2.0 point reduction in the expense ratio (reflecting lower GOE and acquisition costs), partially offset by a 0.4 point increase in the accident year loss ratio, as adjusted, due to business mix. Favorable prior year reserve development contributed $29 million.
• International Commercial: Net Premiums Written grew 8% year-over-year (FX-adjusted) to $2,027 million. Underwriting Income was $240 million, down from $330 million, impacted by higher CATs ($56 million impact). The Calendar Year Combined Ratio was 88.2%, marking the eighth consecutive quarter below 90%. The Accident Year Combined Ratio, as adjusted, was 85.4%, an increase of 2.4 points, driven by a 1.3 point increase in the expense ratio and a 1.1 point increase in the accident year loss ratio, as adjusted, due to business mix. Favorable prior year reserve development contributed $7 million.
• Global Personal: Net Premiums Written decreased 11% year-over-year (FX-adjusted, adjusting for travel sale) to $1,325 million. The segment reported an Underwriting Loss of $126 million, compared to an income of $30 million, primarily due to significantly higher CATs ($177 million impact). The Accident Year Combined Ratio, as adjusted, improved 1.4 points year-over-year to 95.6%, reflecting a 1.5 point reduction in the expense ratio.

Net Investment Income on an APTI basis was $845 million in Q1 2025, a modest increase of $4 million year-over-year. General Insurance net investment income was $736 million, down $26 million, primarily due to lower income from other invested assets and alternative investments, partially offset by higher income from the fixed maturity portfolio benefiting from improved reinvestment rates. Other Operations net investment income was $108 million, including $31 million in dividend income from Corebridge and $209 million from changes in its stock price, partially offset by a decrease in the fair value of equity securities.

Other Operations Adjusted Pre-Tax Loss improved significantly to $70 million in Q1 2025 from $205 million in Q1 2024. This improvement was driven by higher net investment income and other ($37 million increase), lower corporate general operating expenses ($73 million decrease), and lower interest expense ($24 million decrease), reflecting the benefits of AIG Next and debt reduction.

Liquidity and capital resources remain strong. AIG Parent held approximately $7.90 billion in liquidity sources at March 31, 2025. The company continued its disciplined capital management, repurchasing approximately 29 million shares for $2.20 billion and paying $234 million in common stock dividends in Q1 2025. The debt to total capital ratio stood at 17.1% at quarter-end.

Outlook and Path Forward

AIG's management is confident in the company's trajectory and has provided clear financial targets that underscore the expected benefits of its transformation and ongoing strategic initiatives. The outlook is centered on achieving profitable growth, enhancing operational efficiency, and delivering increased shareholder value.

A key financial target is achieving a 10%+ core operating ROE for the full year 2025. This goal is supported by expectations for continued strong underwriting results, improvements in the Global Personal segment's profitability, increasing net investment income yields, the realization of benefits from a simpler and leaner operating model through AIG Next, and disciplined capital management. Management also targets achieving a General Insurance expense ratio below 30%, building on the progress seen in Q1 2025.

Looking further ahead, AIG expects to achieve a 20%+ earnings per share compound annual growth rate over the next three years and aims to fully replace Corebridge earnings by 2026. This ambitious EPS growth is expected to be fueled by organic growth in the core insurance business, operational efficiencies, and the impact of significant share repurchases. The Board has authorized a substantial $7.50 billion share repurchase program effective April 1, 2025, and the company expects to repurchase $5 billion to $6 billion of shares in 2025, aiming to reach a share count range of 500 million to 550 million over time.

Shareholder returns are a priority, with the Board approving a 12.5% increase in the quarterly dividend to $0.45 per share, payable in June 2025. Management anticipates growing the dividend per share by 10%+ in both 2025 and 2026, supported by increasing earnings power.

The outlook is underpinned by several key assumptions and strategic responses. Despite elevated industry catastrophe losses, AIG's robust reinsurance program is expected to keep net retained losses within expectations. The company's strategic shift towards lower net retention and aggregate coverage provides protection against both frequency and severity of events, a critical advantage in the current environment. Management is also proactively monitoring and addressing potential impacts from macroeconomic factors like tariffs, which could introduce uncertainty and affect loss costs and transactional activity.

The technological roadmap, particularly the deployment of GenAI and AI capabilities, is expected to contribute meaningfully to achieving expense reduction targets and driving underwriting efficiency, supporting operating leverage and profitable growth. The focus on disciplined underwriting and allocating capital to opportunities with attractive risk-adjusted returns, especially in areas like Casualty and International Property, is central to the growth strategy.

Risks and Considerations

While AIG's transformation has significantly de-risked the company and enhanced its financial flexibility, several factors could impact its ability to achieve its stated objectives.

• Catastrophe Risk: Despite a robust reinsurance program, significant natural or man-made catastrophes could still result in material losses, impacting underwriting income and potentially requiring capital deployment. The increasing frequency and severity of secondary perils and the potential for demand surge and inflation following major events remain concerns.
• Reserve Adequacy: The estimation of insurance liabilities, particularly for long-tail exposures like certain casualty lines and latent exposures, involves significant judgment and is subject to uncertainty. Adverse development in prior year reserves could negatively impact future earnings. While AIG emphasizes its rigorous review process and confidence in reserve adequacy, this remains an inherent risk in the insurance business.
• Market Conditions and Competition: Intense competition in certain lines, such as Financial Lines and parts of the Property market, could put pressure on pricing and retention, potentially impacting premium growth and underwriting margins. While AIG maintains pricing discipline, a prolonged soft market could challenge profitability targets.
• Macroeconomic Factors: Fluctuations in interest rates, inflation (including social inflation), and foreign currency exchange rates can impact investment income, loss costs, and the value of assets and liabilities. Geopolitical events and changes in trade policies (like tariffs) introduce further uncertainty that could affect business activity and claims.
• Execution Risk: Successfully executing strategic initiatives like AIG Next, integrating new technologies like GenAI at scale, and managing the transition in segments like Global Personal require effective operational management and talent retention. Failure to fully realize expected efficiencies or growth opportunities could impact financial targets.
• Regulatory and Legal Risks: AIG operates in a highly regulated environment and is subject to ongoing regulatory scrutiny, investigations, and litigation. Adverse outcomes from legal or regulatory proceedings could result in significant financial penalties, restrictions on business activities, and reputational damage.

Conclusion

AIG has embarked on a new chapter, fundamentally reshaping its structure and strategic focus to become a more agile, disciplined, and profitable global General Insurance underwriter. The successful deconsolidation of Corebridge Financial, coupled with targeted divestitures and a rigorous approach to capital management, has created significant financial flexibility and a leaner operating model.

The core investment thesis for AIG rests on its ability to leverage its deep underwriting expertise, global franchise, and accelerating investments in technology to drive sustainable profitable growth and enhance shareholder returns. The company's strong Q1 2025 results, particularly the underlying performance of the General Insurance segments and the benefits realized from expense reduction initiatives, provide evidence of this strategy's effectiveness, even when navigating challenging market conditions and elevated catastrophe activity.

With clear financial targets, including a 10%+ core operating ROE for 2025, significant share repurchase authorization, and planned dividend growth, AIG is actively working to unlock value for shareholders. While risks inherent to the insurance industry and the broader macroeconomic environment persist, AIG's strategic repositioning, robust reinsurance program, and disciplined approach to risk and capital management position it to continue its progress and solidify its standing as a leading global insurer. The successful execution of its technological roadmap and its ability to capitalize on opportunities in key markets will be critical factors to watch as AIG moves forward in this new era.