American International Group Inc (AIG) — Q4 2020 Transcript

Thank you, Orlando. Good morning, and thank you all for joining us. Today's call will cover AIG's fourth quarter and year-end 2020 financial results announced yesterday afternoon. The news release, financial results presentation and financial supplement are available on our website, www.aig.com. Our 10-K for 2020 will be filed on Friday, February 19. Our speakers today include Brian Duperreault, CEO; Peter Zaffino, President and COO of AIG; and Mark Lyons, Chief Financial Officer. Following their prepared remarks, we will have time for Q&A. David McElroy, CEO of General Insurance; Kevin Hogan, CEO of Life and Retirement; and Doug Dachille, our Chief Investment Officer, will be available for Q&A. Today's remarks may contain forward-looking statements, including comments relating to company performance; strategic priorities, including AIG's intent to pursue a separation of its Life and Retirement business; business mix and market conditions, including the effects of COVID-19 on AIG. These statements are not guarantees of future performance or events and are based on management's current expectations. Actual performance and events may materially differ. Factors that could cause results to differ include the factors described in our third quarter 2020 report on Form 10-Q and our annual 2019 annual report on Form 10-K and our other recent filings made with the SEC. AIG is not under any obligation and expressly disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, some remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at www.aig.com. I'll now turn the call over to Brian.

Good morning, and thank you for joining us today. I'd like to highlight some of the important milestones we achieved in 2020, and then I'll turn it over to Peter to provide more detail on our results for General Insurance and Life and Retirement as well as updates on strategic initiatives such as the separation of the Life and Retirement business and AIG 200. Lastly, Mark will provide a CFO update. 2020 was an extraordinary year during which our company demonstrated tremendous resiliency. We quickly and effectively transitioned more than 90% of our workforce in over 50 countries to remote working. We established a cross-functional task force to implement best practices to protect the health and safety of colleagues while continuing to deliver high-quality service to clients, distribution partners and other stakeholders. AIG continues to effectively manage through COVID-19 and its collateral effects on the global economy because of the strong foundation we began to build beginning in late 2017. We instilled a culture of underwriting excellence, adjusted risk tolerances, implemented best-in-class reinsurance programs, strengthened our vast global footprint, derisked the balance sheet and maintained a balanced and diversified investment portfolio. And in October, we announced our intention to separate the Life and Retirement business from AIG, which was made possible by the work our team has done to strengthen General Insurance in particular and position each business as a market leader. Before I turn it over to Peter, I want to note that this is the last earnings call I will participate in. As you know, we announced that on March 1, I will become Executive Chairman of the Board, and Peter will take over as President and Chief Executive Officer. The transition will be seamless. Peter and I have tackled many of the systemic and pervasive fundamental problems from the past, and the company is now positioned for long-term sustainable and profitable growth. While there is still work to be done, I have every confidence that AIG's stakeholders will continue to reap the benefit of the hard work that is taking place across the organization on our journey to make AIG a top-performing company. The turnaround of General Insurance and the enterprise-wide transformation at AIG is on a scale I've not seen in my 45-plus year career. I take great pride in what the team has accomplished. I know that the company and our colleagues will be in great hands with Peter as the CEO of AIG. Now I'll turn the call over to Peter.

Thanks, Brian. Good morning, everyone, and thank you for joining us today. This morning, I'd like to cover four topics that are key areas of focus for us in 2021 and which we will update you on each quarter: the separation of Life and Retirement from AIG, capital management, progress we've made on AIG 200 and financial and operating highlights for General Insurance and Life and Retirement. 2020 was a pivotal year for AIG, and I'm pleased to report that 2021 has gotten off to a good and fast start due to the momentum we have coming into the new year. Like 2020, this year will be another year of substantial progress for our company. As Brian noted, we made a critical and strategic decision last October to separate the Life and Retirement business from AIG. We could not have made this decision without the significant turnaround taking place in General Insurance and solid performance in Life and Retirement. Our fourth quarter results provided further evidence that each of our businesses remains financially strong, market leaders, and well-positioned for profitable growth over the long term in their respective markets. Since our last earnings call, we've been working purposefully and with a sense of urgency on several fronts related to separation. We are actively working towards an IPO of up to 19.9% of Life and Retirement with teams focused on stand-alone audited financials, actuarial work, and rating agency discussions, among other things. Based on our work to date, we continue to believe that no additional equity capital will be required, given the improvement in our subsidiary capital positions over the last few years. Additionally, in connection with our October announcement, we received inquiries from parties interested in strategically aligning with us and potentially purchasing the 19.9% stake in Life and Retirement. We are pleased with the level of interest and quality of potential partners for the Life and Retirement business and believe a sale of a minority stake could be an attractive option for AIG, its shareholders, and other stakeholders. We are carefully weighing the relative merits of this path compared to a minority IPO, taking into account the impact on value creation for AIG, execution certainty, regulatory and rating agency implications and delivery of Life and Retirement's growth strategy over the long term. As you know, any decisions we make will be subject to regulatory approvals. Overall, I am very pleased with the progress we are making on the separation, and we'll provide a further update in the near term. Turning to capital management. We ended 2020 with parent liquidity of $10.5 billion, a $2.9 billion increase from 2019. We entered 2021 with significant financial flexibility as a result of our focus on derisking, capital management, and liquidity, particularly in 2020 as a result of COVID-19. We will continue to invest in our businesses to support growth and operational transformation, and we will return at least $500 million of capital to our shareholders through stock repurchases in the first half of 2021. This amount will more than offset dilution from stock-based compensation, which, at a minimum, will be a core principle of our capital management strategy going forward. As we move forward on the path to separate Life and Retirement and generate capital, we will continue to focus on delevering and investing in growth in our businesses. We also intend to be active and prudent managers of capital and return it to shareholders when appropriate. Our current expectation is that an initial disposition of 19.9% of Life and Retirement, whether through a minority IPO or sale to a third party, will generate net proceeds such that some portion can be used towards further share repurchases. And while it is not currently a priority, over time, we may consider inorganic growth opportunities that would be accretive to our businesses and growth strategy and otherwise create value for our shareholders and other stakeholders. Once we make a decision on the initial step of the separation of Life and Retirement, we will provide more detail on our medium- and longer-term capital management priorities. Now I'd like to provide an update on AIG 200. As a reminder, AIG 200 has four core objectives: underwriting excellence, modernizing our operating infrastructure, enhancing user and customer experience, and becoming a more unified company. Throughout 2020, we made measurable progress in spite of the ongoing remote work environment and, in some cases, accelerated certain initiatives. On December 31, we completed the sale of our shared services operations to Accenture, which streamlines our operating model. We've made significant progress in driving improvements in infrastructure and systems architecture while reducing real estate costs and other general operating expenses. We exceeded our target run rate savings for 2020, and the costs required to achieve were lower than initially expected. We exited 2020 with a $400 million run rate benefit, which was 30% ahead of the guidance we provided in 2020. The success of AIG 200 to date demonstrates the discipline and rigor that the team leading the strategic initiative is using. The team is taking decisive action as we execute to position the company for the long term. AIG 200's success to date also reflects the resiliency and flexibility of our global colleagues who have embraced change while making significant contributions to our progress. In 2021, a major focus of AIG 200 will be advancing our digital strategy through effective use of data and process-enabling technologies as well as driving greater operational efficiencies and improved customer experience. We also expect to make significant progress in 2021 on a global data warehouse in support of our finance and underwriting transformations. Our overall target for AIG 200 remains unchanged. We still expect to achieve run rate savings of $650 million by the end of 2021 and to deliver aggregate run rate savings of $1 billion by the end of 2022 against the total investment of $1.3 billion. Turning to our financial results. I'll start with General Insurance. In the fourth quarter of 2020, we saw growth in net premium written in our commercial businesses, with year-over-year net premium written increasing 7% after adjusting for foreign exchange, driven by improved retention and higher rates. North America Commercial grew approximately 10% with meaningful growth from AIG Re, and International was up 5% after adjusting for foreign exchange. As we previously outlined, North America Personal Insurance continued to experience reduced net premium volumes. This was primarily due to our decision to strategically reposition our high net worth business to Syndicate 2019, the partnership we established with Lloyd's, which resulted in higher ceded premium and the impact of COVID-19 on lines such as Travel and Accident & Health. While it's still very early in the year, based on what we are seeing, we expect a similar overall growth trend to continue particularly in commercial, and we will achieve top line growth for the full year 2021.

Thank you, Peter, and good morning, everyone. Before I go into the fourth quarter results, I want to highlight that we resegmented our financials this quarter and now have three business segments: General Insurance, Life and Retirement, and Other Operations. The historical recasted information and description of the changes were in the 8-K filed on February 1 and posted on our website and were principally the elimination of the legacy segment and the realignment of its book into Life and Retirement and Other Operations as well as some small shifts within General Insurance. Turning to the quarter. AIG reported adjusted pretax income or APTI of $1.1 billion and adjusted after-tax income of $827 million or $0.94 per diluted share compared to $923 million or $1.03 per share in the fourth quarter of 2019. The key drivers of this quarter were: first, a General Insurance accident year 2020 combined ratio ex CAT of 92.9%, which is a 290 basis point improvement over the fourth quarter of 2019; second, strong Life and Retirement APTI of $1 billion, driven by Individual and Group Retirement as well as Institutional Markets activity and strong net investment income; consecutively, $3.2 billion of consolidated net investment income on an APTI basis, primarily reflecting higher private equity and hedge fund income. Moving to General Insurance. Fourth quarter adjusted pretax income was $809 million, up $31 million year-over-year as increased net investment income from alternatives offset the impact of higher catastrophe losses, which totaled $545 million pretax or 9 loss ratio points this quarter compared to 6.5 loss ratio points in the prior year quarter. The CAT losses were comprised of $367 million of natural CATs primarily related to fourth quarter events Hurricane Zeta, the East Troublesome and Silverado fires, and Hurricane Delta, along with revised estimates for Hurricane Sally, which occurred late in the quarter and Hurricane Laura, where Delta has a similar path. Additionally, there were $178 million of COVID-related losses primarily related to Travel, Contingency, and Validus Re. Prior year development or PYD was slightly unfavorable this quarter at $45 million compared to favorable development of $139 million in the prior year quarter. This quarter included $51 million of net unfavorable development in North America and $6 million of net favorable development internationally. The North America unfavorable PYD was driven mostly by Financial Lines, EPLI, E&O, and mergers and acquisition insurance primarily from accident years 2016 to 2018and thus not covered by the ADC, with favorable indications primarily in GL, AIGRM, some workers' compensation units, and short-tail lines. As an additional lens, the $45 million of unfavorable development was also split as $5 million unfavorable in global Commercial Lines and $40 million unfavorable in global Personal Lines, primarily driven by adverse development in prior year CATs as opposed to attritional losses. As usual, there is net favorable amortization from the ADC, which amounted to $52 million this quarter. I'll point out that our 2020 net premium profile is now skewed towards our international operations, totaling 57% of global net premium. Furthermore, the international book is nearly evenly balanced between Commercial and Personal Lines, and this demonstrates the truly global platform of our General Insurance business, led by an international book that has had better results with less volatility than North America. We expect these proportions to stay approximately the same in 2021 but skewed a bit less towards international as North America Commercial growth strengthens. A key indicator of the turnaround of our General Insurance business is the improvement in the accident year ex CAT combined ratio results for North America and International Commercial Lines. As Peter has noted, North American Commercial had an accident year combined ratio ex CAT that was 400 basis points better than last year's quarter to 93.6%, and International Commercial Lines improved their accident year combined ratio ex CAT by 490 basis points to 89.2%. We continue to view the current accident year prudently, with an appropriate view towards the margin of safety as the book has undergone a massive transformation and also anticipate continued margin expansion into 2021, resulting from the favorable global market conditions.

Thank you, Mark. Operator, we're ready for the Q&A.

My first question, going back, Peter, to some of your introductory comments on Life and Retirement. You pointed to however the 19.9% transaction takes place, that some portion of the proceeds would be able to use for further share repurchases. So I'm just trying to get a sense -- when you make that comment, what are you guys assuming for, I guess, the leverage target for L&R as a stand-alone entity? And then also, is the goal for RemainCo AIG still to get its leverage target within the vicinity of, I think you guys have pointed to, around 25%?

Okay. So Peter, the question is on the repurchase and leverage at AIG, I believe. So do you want to start? And maybe Mark can jump in if he has to.

Yes, sure. I think Elyse, what I said in my October comments and then just reinforced and provided a little bit more detail on the prepared remarks is that we have made assumptions in terms of the stand-alone Life and Retirement business with acceptable debt and capital structure that is going to work with the rating agencies. We've also had assumed how we would set up AIG, the remaining company, with the guidance that Mark has given on our delevering. I focused that in my prepared remarks. It's our first priority. And we think that based on the base case, getting Life and Retirement set up, getting the delevering done at AIG, we think we will have capital available for share repurchase. That was the context of the comment I made. I don't know if you want to add anything, Mark.

No, I think you covered it, Peter.

Okay. And then my follow-up. You guys gave some pretty healthy price increases for another quarter throughout your Commercial Lines business. We're getting asked questions or I am regarding just the pricing cycle and the continued upward momentum from here. So as you guys think about 2021 and beyond, I mean, do you think that we can continue to see this level of price increases throughout your Commercial Lines book in both North America and internationally for the good part of 2021 and perhaps into 2022?

Peter?

Thanks, Elyse. Yes, this momentum will continue. As we look into 2021, we expect to see rate increases to continue. We expect to see these rate increases to be above loss cost. We expect that these rate increases will be balanced across our global portfolio and across multiple lines of business. And so this is a very disciplined market, one that our capacity is highly valued. And as we deploy it in property and casualty, we're going to be very disciplined in making sure we get the right price for the exposure, make sure that we're there to solve problems for our broker distribution partners and clients.

I think Mark wants to add something, Peter.

Yes, if I could. Elyse, also, as Peter's commented, we -- the momentum has been strong. We have really seen no evidence of deceleration. It's pretty broad-based across all lines and geographies. I would just remind you that the timing was different internationally versus in North America. So it started a little bit later. So its trajectory is going to be different by definition, and thus far, no slowdowns.

First, Brian, just wanted to say best of luck to you in the new role.

Thanks.

And Peter, just wanted to come back on the consideration of the private sale for the 19.9% stake in L&R. Should we think about this as just the sale of the stake? Or are you considering doing something more strategic, including reinsuring a portion of your in-force block or outsourcing investment management functions? Anything you could add?

Peter?

Well, as I mentioned in my prepared remarks, I mean, we have received a number of inbound inquiries, high-quality companies. Those high-quality companies see the real value in our Life and Retirement franchise, a very diversified portfolio, minimal legacy. And so how they are approaching AIG is that they want to do something strategically on the 19.9% because that's what we've outlined. But we are focused on how we drive long-term value for Life and Retirement with any partner that we decide to go with, in the event we do go with that over the initial public offering. And that's -- we're working towards that as a primary focus. So I don't want to go into the specific details because we don't have them. But you should just think about it as, if we did enter into an agreement, it would be about positioning the business for more long-term success.

Got you. And then just my follow-up is just, I guess, how are you thinking about the adverse development you saw on the '16 to '18 accident years? Particularly, 2016 seems to be a recurring problematic year. Do you feel there's some conservatism in there? How does that inform your picks going forward? Any -- and anything we should be thinking about with regard to what you saw with the year-end review?

Okay, Tom.

Yes, happy to. So a few things I could just point out is that in North America, we had -- we recognized in Financial Lines, I'd say on the EPLI side, a little bit on the E&O side and the mergers and acquisition insurance, some little changes in M&A insurance. Originally, it was a product that was really to sellers and now sellers and buyers. That kind of changes your forecasted utilization and things like that. So there's some recognition there which I think makes some sense. In the past, when we've talked about this, we've always focused on like primary D&O and SCAs and so forth. And every assumption that we had on the public side is still coming to bear. No matter how we look at it, our commercial book, our national book, the SCAs continue to drop as the underwriting continues to improve, and that's been a steady pattern. What we would say this time is really on the private not-for-profit side, mostly centered in the EPLI, we saw some trends that we recognized. But we think we're in pretty good shape. We think we pretty much nailed it at this point. And I would say, the second part of your question, on a go-forward, this book has had such massive transformation that the predictive value, given the turnover of the past to the future, is almost nonexistent. So we use it. We try to carve all those things out, index forward. But the impact of that on such a transformed book is negligible. So the net is we're very comfortable with where '19 and '20 are.

Congratulations to both Brian and Peter.

Thanks, Tracy.

Yes. I have some similar questions about the reserve development. Maybe you could just talk about how you feel about rate adequacy and liabilities since you've had some adverse development in Excess Casualty. And I noticed it is one of the only Commercial Lines where you've actually had net premiums written decline.

Maybe I'll start. And then -- thanks, Tracy. And then I'll turn over to Mark. Just two things to keep in mind. One is the net premium written. What I said in my prepared remarks on how we've restructured the reinsurance fee, $10 million excess of $15 million was purchased in December. So you would have seen that as an impact on net premium written for the casualty lines in the fourth quarter. So that's one. And two is I just want to reinforce Mark's point and give you an example in terms of what we're doing with the Excess Casualty book. We had talked about we were, years ago, over 90% lead in what we were doing in Excess Casualty and wanted to make sure that we were getting better balance. And so the team led by Dave McElroy and Barbara Luck have done an amazing job. We now have increased our mid-excess by over 400% in terms of policy count. So the book is changing and getting better balance across the portfolio. And you don't really see that, but I think that's to Mark's point before when he was commenting on the vast changes, the improvement of the portfolio. So that just needs to emerge a little bit over time, but I think we have done some very strong work on the underwriting side. And the balance is much better as we position ourselves for the future.

Yes, sure. Two things. One, I'll follow up on your direct question, which is on the rate changes and rate adequacy. Secondly, I think on the fin sup, we could have done a little better job. We said Excess Casualty was really the Lexington casualty, which really has primary in it. The traditional admitted casualty book that's either written out of American home or like London or Bermuda has performed very, very well during the year. And so I'm just letting you know that this is not an issue whatsoever. So it's really a combination of Lexington primary and excess. But my comments will now address all of that. So as you know, rate changes have not only been large, they've been compound over a period. The terms and conditions which drive this line of business are tighter and tighter. And whether you have a calm or an aggressive view of loss cost trends that could affect casualty businesses, getting further away from risk is the preferred way to go, and that's the strategy that Peter and Dave have put in place, moving that portfolio higher so you're further away from risk in case anything unforeseen happens. So we're very comfortable with that. We're very comfortable on, our indications are that the rate adequacy as opposed to rate change is stronger on new business than it is on renewal business, which you'd expect to be the case in a hard cycle of acceleration like we have. And we continue to see inferior rate adequacy on the business we're not renewing. So that's what I call the implicit lift as opposed to the explicit lift. So we feel good about that.

Okay. Excellent. And at this point, it's been a few months since your initial announcement to separate L&R. And I know you've had a lot of discussions with various market constituents. I'm just wondering, at this stage, how firm is your 19.9% initial sale target. I get your point it would be a full separation, but just wanted to get a sense if you had maybe more flexibility by the rating agencies or you've figured out a way to accelerate your debt structure that could lead to a different path.

Peter, I think you should address that one.

Okay. Yes. Thanks, Tracy. The 19.9% remains the base case. We think it's the best way forward for the organization. We're working on all the different work streams that I outlined in my prepared remarks, working with all of our stakeholders and believe that, that will be the path that maximizes value for the organization.

I'll reiterate the congratulatory comments to Brian and Peter. I guess my first question is on the comment around expectation of similar growth trend in Commercial Lines. Are you saying that you expect commercial net premiums written to be in the high single-digit range in 2021? And I guess what I'm trying to get at is, why wouldn't we see further acceleration from 4Q levels considering that rates remain very robust, you have less reinsurance purchase and potentially we see an economic recovery?

Peter?

Thanks, Yaron. It's hard to give specific guidance in terms of whether it's going to be high single digits or even more. I mean we have a lot of momentum in the commercial portfolio. We talked about strong retention, strong rate. New business in 2020 was impacted by -- if I look globally, particularly in international and some of the Specialty classes, our new business was very strong but it wasn't at the normal levels that we expect within 2021. And again, we're still in the global pandemic. We'll see -- with the economic recovery, we're cautious but we're optimistic that new business will continue to pick up. And we believe our retentions will get stronger. And so we're very optimistic that we'll have very good growth balance across commercial globally next year. I don't know, Dave, if you want to add anything in particular on the new business and your optimism of growth.

Yes. Thank you, Peter. In a simple way, I just -- I think we've had a couple of turns with the book. We look at this as less limit reduction. Okay? And then our new business opportunities have always continued to be, on the commercial side, on a $3 billion range worldwide with the platform that we have. And then I look at our -- the renewal retention rate. Okay? We can forecast rate, but we also have certain positions that we think that we can actually consistently earn those rates going forward. Okay? We are not in a commodity position in our portfolio. And if you look at this worldwide in terms of the different franchises we have, we think that the rate we're looking at and the risk-adjusted rate and the -- and what -- how we're thinking about the portfolio, they are very defendable. So there was a lot of work done over the last couple of years, okay, and we freely admit that, in terms of addressing the exposure that might have been an outlier exposure. We feel very comfortable with where we are going into 2021 with a portfolio that we can add to, not only on rate but new business and then our renewal retention. Okay? And key point, and it's worth saying, the limit reduction that went through in these last two years, we are through that portal. And therefore, if anything, we're adding risk, and we're thinking about growth with risk, not just risk on top of limits, on top of accounts, but additional risk with additional clients. And that's actually where we think very strongly that the brand and the formidable nature of what is AIG, we will succeed in 2021. Okay? That's very much part of the plan, is that we've taken some of the outlier exposures down to the studs and now we are very comfortable with the portfolio that we have going forward.

I think Mark wanted to add something too, David.

Yes, Yaron, if I could, I'm going to purposely give you an arithmetic view. And it's this -- Peter touched on it a bit with the XOL when he was talking about some of the reinsurance. So loss-occurring contracts, you basically have ceded written all bulleted, right, in the quarter, and then it's earned smoothly. Risk-attaching quota shares, you see the recognition quarter-by-quarter. So from a net earned basis, which is what's going to really matter, you're going to see much more uplift on a net earned basis over the course of the year. The benefit of a smaller cession on the casualty quota share will overwhelm the additional XOL cession. So you'll see that increase, right, but it won't be at 1Q. You're going to see that over the course of the year.

Got it. Very, very helpful comments. And then switching over to L&R. A lot of moving parts this quarter, pandemic mortality, alternative income, a little bit of AIG 200. Can you help us think about kind of the core earnings power of that business, whether as an earnings power or ROE that you talked about in the past? How should we think about that going forward?

Peter, do you want to take that?

I'll give it to Kevin. [That is his work]. Kevin?

Yes. Thanks, Yaron. So I think Mark's comments highlighted the sensitivities to equity markets and interest rate levels. This year, we did benefit from some strong market support that, frankly, is laid out in the noteworthy items in the earnings deck. And we had a strong year based on where the markets were with both alts and the call and tender income. We continue to target low to mid-double-digit returns for the medium term, and our current pricing conditions suggest we are able to continue that. And so I think it's really the alternatives are the big anomaly. This year, we turn those to normalized levels. The call and tender income strength could continue based on where interest rates are, and that's, to a certain extent, the wildcard.

I want to just go back to that guidance, and we'll call it guidance, about a 90% accident year ex CAT combined ratio in General Insurance in 2022. Is that a year forecast or was that an exit forecast? And the other part -- I'll give both my questions upfront. If you told me we'd have 15% to 20% rate increases in 2020 and maybe in 2021, I would think you could improve the combined ratio by more than 300, 400 basis points in harmony with AIG 200. Do you have any thoughts on those two areas?

So let's have Mark talk about it, the 90%, and then we'll take it from there. Go ahead, Mark.

So I think -- Peter and I go back and forth on this. On the 90% which we are, Josh, reiterating, Peter will get into some of the expense ratio aspects of it. With regard to loss ratio, that was the second part of it, well, we would expect improving margins as well as we go through '21 and '22. We're viewing that as exit though, Josh. So that's much closer and equivalent to 4Q. But the -- but nevertheless, you have to watch the compound growth or change because as the book continues to improve, and it's improved fabulously, the degree of improvement narrows and narrows and narrows that you can do. So the big, huge changes have already occurred, but we're comfortable on our cadence and approach to get there.

Yes. Can I just add to that? Thanks, Josh. I mean a couple of things to keep in mind. One is AIG 200 contributes a meaningful portion of the improvement in expense ratio. Now while I said $400 million was the exit run rate of 2020, that hasn't even fully earned in yet. So we expect the full $1 billion by 2022. So you can just do the math that, that will contribute to the expense ratio and overall combined ratio. The other is we think there's two components to growth. One is, Dave mentioned it, that we think that the portfolio is in a very good place for top line growth, and we would expect to see that to continue in 2021 and 2022. Additionally, contributing to that growth will be we need less reinsurance. I think the terms and conditions that we were able to improve at 1/1 speak volumes in terms of the trajectory and what we would expect for reinsurance going forward. That will contribute. I think when we do, and the team has proven it does very good work on operational excellence, that when we separate Life and Retirement AIG RemainCo, we will find ways to improve the expense ratio as we work through the actual separation, and we have a very disciplined expense behavior in the company. And then just the rate above loss cost and as we continue to reposition the portfolio, we think there will be improvement in the loss ratio as we look to the future. So when you add all of those components together, we are very confident that we will be below the 90% as we exit 2022.

And Josh, don't forget this is a -- Josh, don't forget this is both commercial and personal. It's the entire book of business going below 90%. And the Personal Lines are not getting the kind of rate increases in Commercial. So you just got to put that weighted average in too. Do you have -- you asked your questions didn't you, Josh?

Those were two. Good luck in your new roles, and congratulations to everyone.

I appreciate that, Josh. Thank you very much.

I just wanted to follow up on Tom's question about the potential sale of the 19.9% stake in L&R. Can you just discuss how you're thinking about the benefits of that approach versus an IPO and some of the key considerations on which makes more sense for delivering long-term value?

Peter?

Yes. And Mark, you can weigh in. I mean certainly, the path with the IPO is very clear with the 19.9% IPO sale. When we look at -- I think the heart of your question on the private is that it has to be a better alternative for us. We have to be more strategic, more financially advantageous and making certain that when we look at the 19.9%, we don't look at that in isolation. We look at the 80.1% and how we position the Life and Retirement business for the future. So those are the things, among other factors, that we will consider in terms of do we go through the IPO or would we do a private sale as we work through the coming months.

Got it. The next one...

Yes. Do you have another follow-up there?

Yes, please. Just one other on Life and Retirement. I was just hoping you could provide some additional detail on the mortality results this quarter. Any sensitivity to general population COVID deaths or maybe another metric to help us think about the potential impacts in 1Q?

Kevin, do you want to do that?

Yes, absolutely. Thanks, Erik. So look, the reality is it's hard to isolate COVID deaths. So the way we approach it in looking at our portfolio is to focus on the total portfolio actually to expected versus pricing. And in this context, we saw mortality for the year continue to be acceptable relative to our pricing in terms of short-run variances driven by COVID. Either way, we look at this as an earnings and not a capital event, and we haven't seen any data that suggest a change to our long-term assumptions. That being said, based on our best understanding of what are the COVID-related deaths, we estimate that up to 40% of the reported claims -- COVID reported claims could be an acceleration of claims we would otherwise expect in the next 5 years. And again, based on our best understanding of the COVID deaths, we estimate our exposure to the population of approximately $65 million to $75 million per 100,000 population deaths, which is a slightly better estimate than what we would have assumed a couple of quarters ago.

Okay. So thank you all for all your questions. Before I end the call, I want to thank everyone who's been part of the multiyear journey that began when I joined AIG in 2017 to fix the fundamental needed -- fundamentals needed for AIG to once again be a leading insurance franchise. What has been accomplished over the last few years would not have been possible without the extraordinary efforts of AIG's exceptional talent at all levels of the organization. And I'm thankful for everyone's dedication and commitment to this great organization. I'm also grateful to the clients and distribution reinsurance partners, shareholders, regulators, and many other stakeholders who have actively supported me since I returned to AIG. I look forward to being a part of the next chapter of AIG under Peter's leadership. Be well. Stay safe and healthy.