Good day, and welcome to AIG's Second Quarter 2026 Financial Results Conference Call. This conference is being recorded. Now at this time, I would like to turn the conference over to Quentin McMillan.
Please go ahead.
Thanks very much, Michelle, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations.
AIG's filings with the SEC provide details on important factors that could cause actual results or events to differ materially. Except as required by applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks may also refer to non-GAAP financial measures.
A reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, our financial supplement and earnings presentation, all of which are available on our website at aig.com. Finally, today's remarks related to net premiums written growth are presented on a constant dollar basis. Please refer to Page 26 of the earnings presentation for reconciliations of such metrics.
With that, I'd now like to turn the call over to our President and CEO, Eric Andersen.
Good morning, everyone. Thank you for joining us today. I'm pleased to share our strong second quarter results and the meaningful progress we are making across AIG.
Our team is executing well on delivering the financial commitments we outlined at our 2025 Investor Day, which we remain on track to achieve. On the call today, I will review our second quarter financial highlights, provide perspective on the current market environment and discuss our strategic priorities that will guide our continued progress and growth. Following my remarks, Keith Walsh will provide more detail on our financial performance, and Jon Hancock will join us for Q&A. Now let me review a few financial highlights.
In a dynamic environment, we delivered another strong quarter, which contributed to an exceptional first half of the year. Our performance reflects the benefits of our diversified portfolio, continued momentum from organic growth and our strategic transactions and disciplined execution by our talented team. Adjusted after-tax income per diluted share was $2, a 10% increase year-over-year, and adjusted after-tax income was $1.1 billion.
Core operating ROE was 11.1% in the second quarter and 11.6% for the first half of 2026. Underwriting income was $686 million, a 10% increase year-over-year. The accident year combined ratio as adjusted was 88.1%, an improvement of 30 basis points from the prior year quarter.
The calendar year combined ratio was 89%, also an improvement of 30 basis points over the prior year quarter. Net premiums written increased 9%, or 11%, excluding North American Property, reflecting organic growth in select high-performing segments of our Global Commercial portfolio, growth in Global Personal driven by our Accident & Health and high net worth businesses, and contributions from our recent strategic transactions, which are providing meaningful growth in line with our expectations. Global Commercial Insurance net premiums written increased 9% year-over-year.
North America Commercial net premiums written increased 9% year-over-year. We saw growth in retail casualty and across various segments of our financial lines portfolio, partially offset by declines in Lexington, driven by property, where we are continuing to take disciplined actions to effectively manage the competitive environment, which I will discuss in more detail. International Commercial net premiums written increased 10%, driven by growth in Property and Marine, partially offset by Financial Lines, where we continue to be targeted and disciplined in our underwriting.
In Global Commercial, retention was 88% and new business, including our strategic transactions, was $1.9 billion, a year-over-year increase of 37%. Our team made outstanding progress improving the performance of our Global Personal Insurance business. Net premiums written increased 8% in the quarter, driven by momentum in Accident & Health, reflecting our team's ongoing focus on building a robust pipeline that has resulted in several notable new client wins as well as continued organic growth in our high net worth business.
Finally, we returned $904 million in capital to our shareholders in the second quarter, inclusive of $641 million in share repurchases and $263 million in dividends. Now let me share some observations on the current market environment. There's a lot of conversation about where we are in the cycle.
I would characterize the market as transitioning from an extended phase of broad positive pricing into a more selective environment, where profitability and growth are increasingly dependent on line-specific dynamics. Over the last several quarters, capacity has increased significantly across the market, including through E&S carriers, MGAs and MGUs, delegated authority structures, ILS and sidecars. While this influx of capacity has created competitive pricing pressure in certain lines like property, we believe it has also created opportunities.
Our experience shows that in this type of environment, clients tend to become more discerning about the origination of capacity. They distinguish among providers that are simply pass-throughs for third-party paper or focused solely on excess coverage from those that offer holistic solutions along with underwriting excellence, client service and responsive claims handling. This is where AIG is strongly positioned.
We are seeing this play out in property, where our expertise and the diversity of our global property portfolio are important advantages. Last quarter, we detailed the challenging dynamics in the North American property market, particularly in E&S, where pricing has continued to be under pressure, fueled by excess capacity and competition. Given the ongoing rate pressure, we have intentionally continued to contract our Lexington property portfolio in targeted areas while selectively growing the parts of the property portfolio we believe will deliver the best risk-adjusted returns.
Where we see pricing that is not adequate, we are offering terms that reflect our view of the risks. As a result, we are retaining business where we can achieve acceptable terms while walking away from business that does not meet our underwriting standards. This has resulted in a meaningful 9 percentage point reduction in premium retention in Lexington property in the second quarter.
The pricing environment, combined with our deliberate actions, have reduced overall growth in North America by over 3 percentage points. Our North America Retail Property portfolio has a different composition than our Lexington property portfolio. While the environment remains competitive, we continue to find targeted opportunities for growth, including through our Everest renewal rights transaction.
In International Property, rates are declining at a more moderate pace than in North America. This remains an attractive portfolio with opportunities in many countries for sustained profitable growth, supported by lower peak catastrophe exposure. Turning to Casualty.
Our underwriting discipline and technical claims expertise have positioned us well across our portfolio. In North America Retail Casualty, pricing is up double digits and remains above loss cost trends. While rate increases have moderated from the elevated levels we saw at the peak of the market cycle, we are focusing on maintaining rate adequacy and strong risk-adjusted returns.
In North America Excess Casualty, we are achieving mid-teen pricing increases, and we have been disciplined on attachment points, terms and conditions, limits and risk selection. In International Casualty, we have a broad geographic portfolio with a significant portion of our business in markets with lower litigation environments. While there is increasing competition and pricing is beginning to become more competitive in some areas, we continue to see select opportunities for profitable growth, supported by our underwriting and claims expertise as well as our differentiated multinational capabilities.
In Global Specialty, we are closely watching the energy and aviation markets, where we are seeing pricing that we believe does not fully reflect heightened exposure in the Middle East conflict and recent large industry losses. In contrast, political violence and terrorism rates increased in the second quarter, driven by the elevated risk exposure associated with the broader conflict. For example, our political violence pricing increased 9% in the second quarter compared to a decrease of 8% in the first quarter.
We are also seeing broader demand for these products as clients sharpen their focus on risk mitigation and protection. In summary, across our global and diverse portfolio, we continue to deploy capital selectively where pricing, margin and risk quality are within our appetite and deliver targeted risk-adjusted returns. Now I'd like to expand on AIG's unique competitive advantages and how we intend to convert these strengths into sustained earnings growth and long-term value creation.
AIG has an enviable global platform, deep underwriting expertise, a broad set of products and risk solutions, robust claims capabilities and a team of outstanding colleagues. We also have one of the most recognized brands in the industry, which helps us compete in markets around the world. Together, these strengths make AIG a leading global underwriting company.
Our durable foundation enables us to expand the ways in which we access business, deploy capital and provide value to clients and distribution partners to become even more relevant in the market. At the core of our strategy is a significant opportunity to become an essential partner to our clients by connecting our businesses more effectively across AIG and deploying capital in innovative ways to drive long-term value. Our growth plan is built around 5 strategic priorities: Delivering exceptional underwriting performance and deploying capital towards opportunities with the strongest risk-adjusted returns; using our balance sheet and reinsurance program efficiently to support profitable growth while prudently managing volatility; expanding our AI capabilities to improve decision-making, quality and productivity; maintaining expense discipline; and investing in our team and talent to strengthen execution, connectivity and our ability to bring the full capability of AIG to our clients.
Let me go deeper into how we will execute against each priority, beginning with underwriting performance and our strategic deployment of capital. Our colleagues have done exceptional work, transforming AIG and building a stronger, more focused company. That foundation allows us to be more responsive to client needs and more effective in supporting our partners while maintaining underwriting excellence.
Across every line of business, we look at risk at the individual level, the portfolio level and through the lens of different distribution strategies in order to bring forward innovative solutions. We are focused on growing attractive areas of our portfolio by bringing together AIG's global underwriting, claims and risk expertise to help clients and partners better understand the risks they face and deliver more comprehensive solutions that support their evolving needs. Let's take data centers as an example.
These are end-to-end multiline projects for global AI hyperscalers that require financing, construction, marine, cyber, energy, operational, multinational programs and bespoke risk solutions. AIG is one of the few insurers that can bring all of these capabilities to the table with the expertise to manage the complex scale and timetable these projects require, and we are demonstrating leadership in this area. Moving to our geographic presence.
We are looking at opportunities to expand our reach in regions where we see attractive opportunities for disciplined growth. As an example, during the second quarter, we announced an agreement to acquire Everest Insurance operations in Colombia. Upon closing, it will give AIG access to one of the largest and fastest developing insurance markets in Latin America, supporting our growth ambitions in the region.
Beyond specific growth opportunities, our ability to bring AIG's full capabilities to clients navigating changing conditions and fast-moving risks is equally important. In the Middle East, where the conflict remains highly fluid, especially around the Strait of Hormuz, we have continued to provide advice, capacity and support to clients operating in the region. This is where our global platform and the expertise of our underwriting and claims teams really matters.
We are staying closely connected to governments, marine and shipping clients directly exposed to developments in the strait, and those on the ground managing supply chain constraints and other challenges. Our claims team has been working closely with clients to help them navigate these complex situations and respond quickly as conditions evolve. These examples demonstrate the demand of our diversified multiline solutions and the significant value we can create when we operate as one globally connected team.
Second, we will continue to use our balance sheet and reinsurance program to support profitable growth while managing volatility. Over many years, AIG has built a consistent framework for generating underwriting profit through disciplined risk selection, prudent limits and the strategic use of reinsurance. We benefit from an attractive portfolio and deep relationships with exceptional reinsurance partners, and we achieved favorable outcomes at our June 1 reinsurance renewals.
Reinsurance continues to be an important tool in managing volatility and tail risk, and we evaluate our program continuously to ensure it remains aligned with market conditions and our return objectives. This disciplined approach extends to how we manage capital. Fundamentally, we believe in a balanced capital management philosophy.
Our top priority is to grow the company profitably by expanding earnings, premiums, our invested assets and our overall tangible book value. If we can't deploy capital at attractive returns, we will return it to shareholders through share repurchases and dividends. Given our current share price at a modest premium to tangible book value, we view the repurchase of our shares as a very attractive use of capital.
Third, we intend to continue to scale AI to improve decision-making, quality and productivity across AIG. Technology and AI are central to how we are creating long-term value for clients, colleagues and stakeholders, helping us make better decisions, unlocking capacity for growth and enabling our teams to operate with greater speed, consistency and effectiveness. As we have scaled Underwriting by AIG Assist and Claims by AIG Assist, our operational results remain strong and consistent.
Where deployed, our underwriters are reviewing more submissions and generating quotes significantly faster, improving their productivity. Importantly, our AI capabilities also enable us to access valuable commercial insights, particularly in how we understand and engage with our broker partners. As more submission data flows through Underwriting by AIG Assist, we can analyze broker level results to gain greater visibility into their performance and distribution trends, including where we are seeing the most success.
This information will enhance how we partner with brokers, provide a clearer view of the broader market ecosystem and enable data-driven decisions that can create value across market cycles. We are pleased with the progress we are making and we continue to thoughtfully scale our AI capabilities across the company. Fourth, we will continue to maintain expense discipline while investing for growth.
Our expense philosophy is focused on prioritizing resources in areas that directly serve clients and support sustainable growth. We are investing in underwriting talent in priority areas, strengthening how we engage with distribution partners, advancing our claims capabilities and deploying technology to support these opportunities. At the same time, we are refining our end-to-end processes to simplify workflows, reduce friction and deliver efficiencies.
This discipline should create capacity to fund our strategic priorities. We remain on track to reduce the general insurance expense ratio below 30% for full year 2027. Fifth, we will continue to invest in our team and talent to strengthen execution, connectivity and our ability to bring the full capabilities of AIG to clients.
One of AIG's greatest strengths is the depth of talent across the company. Our colleagues are doing exceptional work, managing market dynamics, advancing underwriting excellence and serving as trusted experts to our clients and distribution partners. We have a deep bench of leaders across AIG and have made several internal promotions over the last few months, underscoring our commitment to developing and advancing talent from within.
At the same time, we are adding experienced external talent and new capabilities to strengthen connectivity across AIG, pursue emerging growth areas in key verticals and product lines and reinforce a more agile, connected go-to-market culture. These internal promotions and targeted external appointments reflect our commitment to invest in our teams with talent that supports our strategic growth initiatives and help us build capabilities in areas where we see attractive returns. In closing, we continue to make significant progress on shaping the future of AIG as a market leader and best-in-class global underwriting company.
Today, AIG has a stronger, more focused portfolio, talented and dedicated colleagues, a demonstrated commitment to underwriting excellence, meaningful growth opportunities, considerable potential to benefit from data technology and AI, a strong balance sheet and significant financial flexibility. I am very enthusiastic about the future of the company and confident in AIG's next chapter. That confidence reflects not only the achievements we have made, but the clear path ahead.
We are well positioned to drive value for our stakeholders over the long term, thanks to the dedication of our talented colleagues around the world. Their commitment to our clients, our partners, key stakeholders and each other continue to differentiate AIG. With that, I'll turn the call over to Keith to review our financial results in greater detail before we take questions.
Thank you, Eric, and good morning. We had a strong second quarter and exceptional first half of 2026. I will expand on the financial highlights.
Second quarter General Insurance adjusted pretax income was $1.5 billion, up 4% from the prior year quarter, reflecting higher underwriting income and higher interest income, partially offset by lower income from our alternatives portfolio. Net premiums earned were $6.2 billion, up 5% year-over-year. Underwriting income increased 10% year-over-year to $686 million, driven by improved accident year underwriting results and more favorable prior year reserve development, partially offset by higher catastrophe losses.
For the first half of 2026, General Insurance underwriting income increased 68% to $1.5 billion, reflecting an excellent 13% increase in accident year underwriting earnings, lower catastrophe losses and more favorable prior year reserve development. Overall, first half 2026 net premiums written grew 13%, which we expect to support earnings growth as it earns in over 2026 and 2027. Moving to second quarter underwriting ratios.
General Insurance accident year combined ratio as adjusted was 88.1%, an improvement of 30 basis points from the prior year quarter. The improvement was driven by a lower expense ratio of 30.8%, which improved 20 basis points year-over-year. As we've mentioned in prior calls, it is better to look at our expense ratio over the course of the year to see the trend in underlying improvements.
As of June 30, 2026, the trailing 12-month expense ratio was 30.7%, reflecting increased operating leverage and continued expense discipline. As Eric stated, we are on track to bring our expense ratio below 30% for full year 2027. The accident year loss ratio as adjusted of 57.3% improved 10 basis points from the prior year quarter.
Total catastrophe charges for the quarter were $210 million and included $75 million in net losses related to the Middle East conflict. Prior year development, net of reinsurance and prior year premium was $145 million favorable and included $146 million of net favorable loss reserve development, $26 million of ADC amortization and $27 million of prior year return premiums. The favorable development was driven primarily by continued favorable loss experience, most notably in U.S. workers' compensation of $177 million and U.S. property and special risks of $79 million.
This was partially offset by strengthening in U.S. excess casualty of $74 million, predominantly in accident years 2016 and 2023. Specifically in 2023, we took the opportunity to slightly increase that accident year to bring it in line with the level of prudence reflected in 2024 and 2025. There are several key factors in our process that give us confidence in our reserves.
First, the continued execution of our limit management strategy has resulted in lower limits with tighter terms and conditions across our portfolio. Second, our comprehensive reinsurance program helps to mitigate severity risk while providing an additional layer of external validation from our reinsurance partners about our assumptions. Third, we conduct a review of the entire portfolio every 90 days, allowing us to identify emerging trends earlier and react quickly.
We complement this with monthly looks at actual versus expected movements and regular interactions to inform the underwriting, claims and actuarial feedback loop. We continue to feel confident with our reserve position. Overall, second quarter General Insurance calendar year combined ratio improved 30 basis points year-over-year to 89.0%.
The combined ratio for the first half of the year was 88.1%, an improvement of 450 basis points, an outstanding result. Moving to segment results. North America Commercial accident year combined ratio as adjusted was 86.7%, an increase of 50 basis points over the prior year quarter.
The accident year loss ratio as adjusted was 63.4%, an increase of 30 basis points, driven by changes in business mix as we reduced certain property lines and earned in more casualty business, combined with rate pressure, particularly in property. The expense ratio increased 20 basis points, driven by the acquisition ratio, which was 50 basis points higher due to mix change, while the GOE ratio improved by 30 basis points. This quarter included 410 basis points of catastrophe losses and 680 basis points of favorable prior year development.
Overall, North America Commercial calendar year combined ratio was 84.0%, an excellent result and an improvement of 190 basis points from the prior year quarter. International Commercial accident year combined ratio as adjusted was 87.3%, an increase of 230 basis points. The accident year loss ratio was 55.2%, a 100 basis point increase year-over-year, reflecting rate pressure, partially mitigated by underwriting actions and reinsurance benefits.
The expense ratio rose 130 basis points to 32.1%, driven entirely by a higher acquisition ratio. The increase in the acquisition ratio was primarily driven by strong new business growth and changes in business mix. While our recent strategic transactions benefited the overall expense ratio in the quarter, they contributed to a higher acquisition ratio, which was more than offset by the benefits in the GOE ratio.
The International Commercial calendar year combined ratio of 91.3% included 390 basis points of catastrophe losses, driven by $75 million of net losses related to the Middle East conflict. Moving to Global Personal. The business generated strong growth momentum in Accident & Health and high net worth, as Eric outlined, while delivering continued profitability improvement.
Second quarter underwriting income of $114 million increased nearly $90 million year-over-year, and our adjusted accident year underwriting income more than doubled. The accident year combined ratio as adjusted was 91.2%, a 490 basis point decrease year-over-year, driven by strong improvement in both the accident year loss ratio and expense ratio. The accident year loss ratio improved 270 basis points to 51.5%, driven by underwriting actions and lower reinsurance costs.
The expense ratio improved 220 basis points, primarily driven by continuing benefit of more favorable high net worth commission terms. This quarter included 170 basis points of catastrophe losses and de minimis prior year development. Second quarter calendar year combined ratio was 92.9%, an improvement of 560 basis points year-over-year.
For the first half of 2026, the combined ratio was 91.2%, a 1,200 basis point improvement. We are pleased with the progress we are making as the actions we've taken to reposition the portfolio continue to earn through. Moving to pricing, starting with North America Commercial.
Eric outlined details of the property market, so my comments will focus on other lines. Excluding property, North America Commercial renewal pricing increased 5% year-over-year. North America Casualty pricing remains favorable with retail casualty pricing increasing 10%, exceeding loss cost trend and including a 14% pricing increase in excess casualty.
In Glatfelter and programs, which focus on small and medium businesses, pricing increases were 7% and 5%, respectively. In Financial Lines, our pricing, excluding cyber, was flat for the quarter, which improved from the prior year. We have been successful in obtaining rate across all segments of our book and in targeted classes of D&O, we have seen positive pricing change.
Overall, we believe Financial Lines will be less of a headwind moving forward. In International Commercial, renewal pricing declined 6% following multiple years of compounded rate increases. By line of business, Global Energy saw pricing decreased 15% and Financial Lines pricing was down 4%.
Where the market conditions are highly competitive, we will focus on preserving margin and being disciplined in the application of our underwriting standards. Moving to net investment income. Second quarter total net investment income on an APTI basis was $908 million.
General Insurance net investment income was $871 million, flat year-over-year. In our core fixed income portfolio, net investment income grew 4% from the prior year quarter. During the second quarter, we continued to reinvest at higher yields with the average new money yield on our core fixed income portfolio roughly 60 basis points higher than sales and maturities.
The annualized yield was 4.72%, a 30 basis point improvement over the prior year quarter. The steady growth in our core fixed income portfolio was partially offset by lower alternative investment income of $13 million, down from $48 million in the prior year quarter. The decline was due to private equity, which posted a loss of $8 million.
As a reminder, private equity is reported on a 1-quarter lag and the second quarter results reflected the market volatility and valuation marks from the first quarter of 2026. We continue to execute on our previously announced investment partnerships where we have deployed capital and expect to see the benefits moving forward. Moving to other operations.
Second quarter adjusted pretax loss was $142 million versus a loss of $101 million in the prior year quarter. The difference was driven by lower net investment income and other of $39 million compared to $92 million in the prior year quarter, which included $27 million of Corebridge dividends. In addition, the current quarter had lower short-term investment income.
Turning to capital management. We have a strong balance sheet and significant financial flexibility. Our capital management priorities remain focused on deploying capital to support profitable growth and delivering attractive long-term returns to shareholders.
We maintained our strong financial position and ended the quarter with $9 billion of debt outstanding and a total debt to adjusted capital ratio of 17.6%. In May, we sold approximately 25 million shares of Corebridge common stock for $710 million, which was the remainder of our holdings. This sale marks the culmination of our 5-year separation process and a significant milestone as we've transformed into a focused global property and casualty insurer.
Book value per share at June 30, 2026, was $77.39, up 4% from the prior year quarter, reflecting growth in net income as well as the favorable impact of lower interest rates, partially offset by capital return to shareholders through dividends and share repurchases. Adjusted tangible book value per share was $72.18, up 3% from the prior year quarter. In summary, we delivered a strong second quarter with excellent underwriting results that contribute to an exceptional first half of 2026.
We remain on track to deliver on our Investor Day goals. With that, I will turn the call back over to Eric.
Thanks, Keith. And Michelle, we're ready for questions.
[Operator Instructions] Our first question comes from Alex Scott with Barclays.
First one I had for you is on the leverage in the business. I mean when I look at AIG, I mean, you guys have done so much on the combined ratio and expenses, and you really look similar to peers on a lot of those metrics now, but the ROE is still lower than peers, mostly because of, I think, the premium leverage in the business. And so I just wanted to get your feel on how do you think about the excess capital that you have?
Is there anything structural that prevents that from moving up more significantly? And how do you manage that through a soft market where it's a little bit more difficult to grow?
Thanks, Alex. There's a lot of questions in there. Let me start by saying just from an excess capital standpoint first.
As an insurance company, we're pretty fortunate to have a rock-solid balance sheet. And as I think I said in the prepared remarks, we see a lot of opportunities to grow the business. And so our preference is to focus on growing into the capital base.
But at the same time, I think we've demonstrated that we're big believers in returning capital through buybacks and dividends, which is a focus for us as well. I think you also saw that we've entered into select targeted transactions over the last 12 to 24 months that do contribute to premium volume and capabilities, which has been additive to the portfolio, and we're going to continue to look for things that fit that same category. But ultimately, we're well capitalized.
We have strong liquidity. We have debt capacity, 3 important strengths that drive and are so important for us as a global insurer. And ultimately, to get to the high end of the ROE range that we talked about at Investor Day, it requires strong execution around underwriting, around expense discipline, investment income, capital management.
We're focused hard on the underwriting profitability. We're focused hard on driving higher yields and then talking through how we actually support the balance sheet with the financial flexibility. So we feel pretty good about where we are, and we see a lot of opportunities in the future.
Our next question comes from Meyer Shields with KBW.
We've heard a number of executives talk about how social inflation in the U.S. may be leveling off or moderating a little bit. And I'm wondering, setting aside what you're booking and what you're embedding in pricing, what are you monitoring? And what are you seeing in terms of the pace of social inflation?
Meyer, thanks for the question. Listen, I think there's been a lot of talk around social inflation and litigation funding and all the aspects that have been driving everything from nuclear verdicts to just overall cost increases. I would say there's been some efforts in some states, whether it was North Carolina around litigation funding, New York on auto reform, all good green shoots.
But ultimately, we haven't seen anything that says that it's moderating at this point, and we're certainly not building that into our pricing at this stage.
Okay. Perfect. And then a quick question for Keith.
You talked about getting accident year '23 excess casualty sort of in line with subsequent years. And I understand why that wouldn't have an impact on any need for changing this year's loss picks. But what about accident year '22, '21?
Is there significant IBNR there that would also need to be reviewed?
Meyer, maybe -- this is Eric. Let me just jump in, and I just want to provide 1 or 2 comments before Keith answers that question, which he will do well. I think he laid out in the prepared remarks sort of the factors around our reserving process, right, whether it was the limit management strategy, the re-underwriting, the reinsurance program, the reserving philosophy.
And I personally spent a lot of time in the last couple of months going through with the team our reserving process, how we build the loss picks at a granular level, what the actuarial claims and underwriting triangulation does to get ahead of trends, the robust governance over it. So I feel really good where we are. But with that, Keith, why don't you add a little bit of color?
Yes. Thanks a lot, Eric. Meyer, as we look at our reserves there's ranges of estimates that are informed by different methods and assumptions.
Eric commented on our process, so I won't repeat that. What I'll tell you is we made the comment predominantly in accident years '16 and '23, and that's where we saw the impact. But our experience, specifically on '23 is broadly in line with our expectations, and we continue to be in our expected range of outcomes, and that includes the more recent accident years as well.
For 2023 specifically, we took the opportunity to move up in the current range. And that now brings us to a similar level to years '24 and '25. We're not seeing material or any deterioration, any real deterioration in '23 and no change in frequency or severity.
We just felt it was simply prudent to move up in that range to be more consistent.
Our next question comes from Brian Meredith with UBS.
So 2 quick ones. First, I guess, for Keith, I'm just curious, Keith, you talked about how the acquisition ratio is kind of trending up a little bit because of mix shift. What is the impact that's having on your core loss ratios?
And do you expect that to continue to kind of trend upwards here as perhaps you shift out of property and more into the casualty lines?
Listen, let me just open with that for a second because I do think it's important to just lay a few comments on top of it. Certainly, as rates moderate across the portfolio, you're going to see some pressure on the loss ratios. It's something we watch.
We talked -- I think, in the prepared remarks, we mentioned what we've been doing in the E&S portfolio. We mentioned that we're talking -- we're looking at the energy business just to make sure that we're getting the right price for the risk-adjusted return that we're looking for. So business mix is going to be an important part of this.
But I think on the acquisition ratio, I think the point we're trying to make here is that there are certain portfolios and certain transactions that may add to the acquisition cost, but ultimately, you provide less expenses to that portfolio. And so it improves the overall expense ratios, but it just comes in different buckets. And so I think we're trying to do is get you to look across the whole in its entirety versus the individual pieces.
But with that, Keith, anything you would add?
Yes. Thanks, Eric. And just specifically on the loss ratio piece, mix is a big part of it, Brian, as you mentioned, and we've been talking about this for several quarters as we have pulled back or reduced in the property market.
And remember, second quarter is a very large quarter, and we've gotten larger in casualty, you tend to get that mix shift and you get the loss ratio tick up a bit. More broadly speaking, you've seen this in the commercial lines book for 5 of the last 6 quarters, right, as we've moved forward. I'll just make a broader comment, and this goes back to what we've been saying for the last couple of years.
Our accident year combined ratio adjusted margins have largely held. And that's a function of some of the pressures you're seeing in commercial lines loss ratios being offset by the really strong work that was done on the personal insurance side as well as the progress we continue to make on the expense ratio. So we feel really good about where we're at with our overall margins.
That makes a lot of sense. And then, Eric, just curious, thanks for all the commentary on kind of growth and how you're thinking about growing here. But how do you think about the pricing environment in your context of what the growth outlook is here and how you're thinking about growth via organic or inorganic?
Are you thinking we're going to see consistent kind of pricing out like we are today, things get more competitive, do you think maybe look more towards inorganic versus organic? Maybe give us a little color around that.
Sure. It's a great question. It's something we talk a lot about.
Listen, from a component of growth standpoint, we did 9% in the quarter, and we did 13% in the first half. And when we talk about the strategic transactions versus what we're doing organically, it's getting more difficult to distinguish between the 2 when you think about our underwriters and the way they are approaching each client and each program, whether it's an Everest renewal placement on top of an AIG placement, certainly, how we work that down into a structure for a client is important. So we take a client view as opposed to a transaction view.
But we do manage it internally just to make sure we've got eyes on it, as you would expect. So for us, it's really about can we get access to the right products at the right pricing with the right terms and conditions to be able to sort of do that with our clients. But as I said in the prepared remarks, we're not opposed to continuing to look for strategic opportunities where we can deploy capital and get the right return for ourselves, whether that's in the U.S., whether that's around the world, we're going to continue to do that because I do think it allows us to continue to broaden our relationships with our clients.
It often brings new talent and new skill sets to the organization. And so it's something you're going to see us continue to do.
Our next question comes from Michael Zaremski with
Back to the topic of growth and relative to the kind of the mid, maybe upper end range of the ROE goals that you set out at the Investor Day last year, which Eric, you mentioned on the call this morning. How big of a factor is the high single-digit to low double-digit premium growth to kind of get to that range in terms of operating leverage ultimately?
So listen, let me start with a couple of opening points, and then I'm going to ask Jon Hancock to jump in as well to get his perspective. But as I said a few minutes ago, I think we're having a great growth year. I mean 13% in the first half, I think, is an excellent result.
But we are at a point in the cycle where cycle management becomes a primary tool to make sure that we maintain a disciplined approach to the market. We do think there's attractive organic opportunities in the market, and we're going to continue to be selective to be able to position ourselves across all 3 of our segments. And maybe if you think about the strategic transactions we did, we knew going into this year that growth was likely going to be more challenging.
And so converting them has been a big priority for the work that the team has been doing over the last 6 to 12 months as those things have come online. But listen, the property market continues to be under broader pressure. We talk about the E&S market a lot, but certainly, internationally, which doesn't have as much volatility, but certainly seems to want to mimic the U.S. market more and more as the days go by.
But -- and casualty remains pretty attractive. We're seeing the rate increases in the book that we need and to be able to hit our risk-adjusted returns. And we like the international portfolio.
So overall, we actually see some great opportunities. But Jon, why don't you chime in with your thoughts?
Okay. Yes. Thanks.
I won't repeat what you and Keith have already said. But I think it's worth just repeating, we take a prudent approach. We know where we are in the cycle.
And this isn't the first time any of us have experienced a market cycle, isn't it? We've been expecting it. We've been preparing for it, and we're managing it for sure.
And Eric said a couple of times, we have a really diverse portfolio across the globe, and we're seeing different market dynamics and different risk attributes actually in different parts of the world. So yes, it's a competitive market for sure, but lots of good growth opportunities. So without repeating what's been said, I'll give you a couple of examples, I think, which are relevant.
I mean Global Specialty, which we talk about a lot. I mean, we're market leaders in all of those segments. And we've seen several years of significant rate increase and strong profit.
And that leadership means we can go after the business we want and at the same time, remain disciplined about obtaining the right risk-adjusted returns to hit those targets we talk about. And we expect to continue to grow. But I'd also call out energy within that Global Specialty portfolio, strategically important to us.
It's one of the strongest long-term underwriting franchises we've got. But right now, we're not happy with what we see going on in the market in terms of pricing, which we don't believe is reflective of the loss activity or the underlying risks actually. But we're not an index step to the market.
We've got a great leadership team, huge amounts of management data. So we're taking the right actions all the way through. But we're watching it carefully.
And in the meantime, we pick our way through the best opportunities. And I'll just give one more, I'll flip to probably the opposite end of the risk spectrum, actually. And we've talked about it a couple of times on the call.
We talk about accident health a lot. So in many ways, it is the opposite of Global Specialty, high-volume and low limit. We're recognized as a leader in A&H. We've been starting to show some really solid growth, which we expect to continue.
We've got a global footprint in A&H, and we see good near- and long-term opportunities in a lot of the countries we operate. We've got a great pipeline already delivering some notable wins, and we expect to see more. So 2 micro examples across a broad portfolio.
Thanks, Jon. And maybe just to put a bow on that topic. It does in this market and with our diversified portfolio, it gives us a chance to play both offense and defense under different market environments.
But -- and we're focused on converting these advantages, but profitability is always the North Star, and we want to make sure as we grow, we're growing in a smart, prudent way.
Got it. That's helpful. And just quickly a follow-up, which a question on technology, but it dovetails on the growth conversation again.
At the Investor Day and subsequently, you guys have discussed some kind of exciting initiatives to -- I guess I'd phrase it as get more business through the pipes in terms of being able to respond to submissions, et cetera. Is -- maybe you can kind of update us of is that having a noticeable difference yet? Or is that still kind of more of a work in progress?
No, that's a great question. And I would say maybe just from a little bit of personal perspective on it, and then we'll go into what AIG has been doing, which I do think is industry-leading and very exciting for our company. But just from my background, an area of focus over many years has been working on the end-to-end insurance process, identifying ways to make it more efficient, more scalable, more effective, everything from how do we get more business to how do we process it more efficiently and how do we make sure we're delivering a better colleague experience and a better client experience, which are really a term you're going to hear us anchor to over in the future, making sure that all the investments that we're making really do improve our colleague experience and how they do their business, whether it's an underwriter, an underwriter assistant, a claims person, someone that works in one of our corporate functions.
And then ultimately, they have to drive client outcomes, whether it's new business for us and new products for them, whether it's better claim service, whether it's speed of the business of insurance, whether it's invoices or policies or all those things. So really focused on anchoring to what makes it better for our colleagues first and then what makes it better for our clients. And I would say, over the last couple of months, I've been investing a lot of personal time in with our team, making sure that I'm up to speed with AIG strategy, whether it's the relationships we have with our great partners, but really more importantly, how are we rolling out AIG Assist Underwriting by AIG Assist and Claims by AIG Assist that we're actually -- as we've been talking about in prior quarters that we're actually getting it into the hands of our colleagues, and we're able to see advantages that grow from that investment.
And I talked a little bit in the prepared remarks about the broker level insights. I could have talked about the speed and the number of submissions, which I think we've talked about in the past, which continues to happen for us. We're seeing more business.
We're quoting more business, and we're able to actually get a better line of sight on consistency in the underwriting, speed in the process. And we feel really good about that, and we're going to continue to drive that forward. The broker level insight, it was -- we wanted to point out is something a little bit different.
And that what we're learning as we go through the volume and in a way where our AI strategy gives us better insight is as we're dealing with our distribution partners, we're able to learn pretty quickly where we're seeing better business, from an office -- from a firm, from an office down to a broker, which gives us the opportunity to pivot and actually spend the right resources where we are getting the best outcomes. And so we're at early days of that, and it was sort of a derivative outcome to all the work we've been doing around Underwriting by AIG Assist. But as we roll that through the organization, the ability to use our client distribution teams and our broker distribution teams to focus in on where we see our best opportunities, we think we'll make it more efficient.
It may not be more submissions, but it might be better submissions, submissions that match our appetite with partners and clients that want to use our organization to handle their risk needs. So early days on that, but an exciting new piece for us and really just underscores making these kind of investments as you innovate and lead in this space does provide benefits that we didn't necessarily see going into this. But ultimately, it's something as we connect our sort of front-end facing part of the organization, really starting to work that angle pretty hard.
Our next question comes from Rowland Mayor with RBC Capital Markets.
I was wondering if you could size the premium contribution from the Convex quota share in the quarter. I think it would be helpful since there's built-in growth from that over the next few years.
Listen, I would say when you look at the 9% in the second quarter and the 13%, we've talked about it coming in a couple of different buckets. Certainly, the organic number, somewhere I would call low to mid-single digits. And then the other -- but honestly, as I said before, with the Everest transaction, it gets a little difficult to track as we start to go client by client where we have a shared relationship.
And so the rest of it fills in with some of the other transactions. So we haven't really broken out the pieces. But just to give you some sense, we talked a little bit about the reinsurance tailwind in the first quarter.
That's largely dissipated in the second. And the rest of the transactions kind of fill in the rest of the percentages.
And then maybe going a bit of a different direction. Corporate debt issuance to support AI build-out has been a growing topic of interest. I'm just wondering if in your fixed income portfolio, you're starting to have significant allocations to AI-related corporate debt.
Yes, go ahead, Keith.
Yes, Rowland, thanks. We don't have significant allocations to AI-specific related debt. I mean I did mention on the last quarter call a bit about within private credit, direct software exposure, for example, is 16 basis points of the portfolio.
So I would say any of these allocations are pretty immaterial at this point.
Our next question comes from Pablo Singzon with JPMorgan.
The Global Personal Lines business combined ratio has been running close or better to your Investor Day target for the past several quarters. So how much of that, in your view, is the result of a generally favorable environment for personal lines versus changes that you have put through and perhaps your mix as well, right? Because we recognize that there are other lines in there aside from homeowners and personal auto.
So any perspective would be helpful.
Sure. Listen, I think it's always hard to put those answers in specific buckets because they all have an impact on it, but we're excited about what's happening with the Global Personal business. We highlighted in the prepared remarks, the growth that we're seeing, 7% NPW growth, 220 basis point improvement in the expense ratio, 490 basis points improvement in the combined ratio.
So all really positive and positive direction. We're excited about the business in general. We see it as an opportunity for us to really expand and connect the firm globally in areas that are pretty exciting.
But the high net worth profitability, it was premium growth. It was underwriting actions. It was some reinsurance savings, lower acquisition costs, running the business better around operating expenses.
And then Jon talked about the A&H business. We're starting to see some good growth with a building pipeline, and we're investing behind that leadership team. We feel like they are really world-class and have really got the sort of the business line growing for us.
So it has some cat to it, as we all know, especially the high net worth business, but -- and we've been a little bit fortunate. But ultimately, I think the fundamentals of the business are very solid, and we continue to invest in it.
And then second, just on expenses. You had mentioned you're on track to reach your 30% target. The expense ratio ticked up sequentially, but I think that reflects the seasonality in your reporting, right?
So maybe if you could talk about your expectations for the second half and more broadly, how you think expense management and perhaps newer tools like AI will help you in subsequent years?
Great. So maybe I'll take it first and then maybe I'll turn it to Keith for some additional -- some color. But as we said in the prepared remarks, we remain on track to achieve the sub-30% expense ratio for full year '27.
That's been something that the organization has been on a journey on even before the Investor Day commitment, but obviously, it's a focus for us. And why are we confident about it? We are really disciplined on expenses, and we've made tremendous progress.
The growth that we're achieving in '26 is going to bring some strong operating leverage. And I would just say before Keith probably says it 3 more times, you can't really look at it quarter-to-quarter. It does have fluctuations.
But look at it over a rolling 12 months. But Keith, why don't you go from here?
Yes, Pablo, thanks for the question, and I appreciate it could sometimes be difficult on the outside the quarter-to-quarter movements. And that's why we always stress looking at it over the course of a year or a longer stretch of time. And as Eric said, we continue to make progress.
Just a couple of points and not to belabor, but I'll say it again, 3 points. Point one, on a rolling 4 quarters, which I think is the best way to look at it to see the trend, we're at 30.7%. And just keep in context, we ended 2025 at 31.1%, right?
So we continue to make progress on that metric. Point two, premium leverage, right? As Eric has stated, the written premium is quite strong this year.
And as that earns in, that will continue to give us leverage on this ratio as we move forward as our net premiums earned grows. And then point three, expense discipline. Another way to look at it is looking at the nominal numbers.
I think that's really important to give it another view. And what I do is you look at the GOE and the other expenses in the corporate segment, add them together. And if you look at for the second quarter and the first half, those expenses were flat year-over-year FX adjusted against 5% premium growth.
So it shows the expense discipline and the leverage that we're getting and why we have confidence going forward, we'll continue to get that.
And maybe one more comment. I think you also asked about the AI expense and whether we'll see that as a help. Ultimately, how we become more efficient, technology will play a big role in it.
But if the underlying question was really about headcount, the strategy for us on the deployment of AI is not to have less colleagues, but to have our colleagues become more efficient and work with more clients. And so that's really where we're going with the investments, and that's how we're looking at it. And I think that's why we went hard at the center of the business.
When we went to underwriting, we went to claims, that's what we do, and we feel really strongly that the rollout of our AI strategy will help us be better in both. Certainly, with the underwriting side of it, you see more, you get more consistent, you learn distribution things as we were talking about. And then on claims, our ability to interact with our clients faster, more efficiently in a way that helps them solve either get their claim paid quickly or at least to respond to them in a way that they feel like they're being cared for, I think, helps us build brand and helps us build relationships that ultimately help us drive more business and help us hold the business that we have.
Our next question comes from Elyse Greenspan with Wells Fargo.
My first question, I don't think you guys updated -- gave an update on the premium growth guide, right, which was low to mid-teens for the year. It does sound like maybe a bit more cautious on property that we've heard from others. So do you think you're at the low end or maybe a bit below that as we think about potential growth in the second half?
Listen, I think it's a marketplace right now, right? And as we look into the second half, we're pretty happy with the 13% through the first half and 9% in the quarter. But ultimately, what we've been trying to communicate is that we're not going to chase growth blindly that we want to make sure we maintain our underwriting standards and we maintain the discipline because we want to be a profitable, well-run organization over a long period of time.
So we're going to react to the market cycle as it is. That said, we do see opportunities for growth, and we're pushing really hard in that space to make sure that we are taking advantage of every opportunity that we have. It's still a little early in the year.
And so right now, we feel really good about where we are.
And then my second question, one target you guys didn't address today, right, was the leverage target, which is -- had been 15% to 20%. Obviously, that was taken down through the years, and that's lower than what we typically see from some P&C companies. So is there thoughts about potentially bringing that up or changing that target at some point as a way to free up capital, whether for growth, M&A or incremental capital management?
Elyse, it's Keith. We haven't given -- we haven't reiterated that 15% to 20% in quite some time. Obviously, we're at 17.6%.
We're within that range. But we run with a conservative leverage in the company, and we have a lot of dry powder, and we feel really good about where we're at. And so we have a eurobond that will be coming -- get refinanced later in the year that will be due early next year.
But at this point in time, we like our leverage situation where it's at.
So thank you, everybody, for joining the call today. I just want to express my sincere appreciation to our colleagues around the world as well as our clients and partners. I also want to give a special thank you, if I can, to Peter Zaffino.
His partnership throughout this transition has really been fantastic. His guidance has been great. And I think the overall organization has benefited from it, and I certainly have as well.
So I'm looking forward to building on the foundation in the months ahead and sharing our continued progress, and we'll talk next time. Thank you very much.
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