Great. Good morning, everyone. It's Meyer Shields, KBW's equity research team. Our next panel is with AIG CFO, Mark Lyons, and Deputy CFO and Treasurer, and I think a million other hats, Sabra Purtill . I want to thank both of you for taking the time to share your insights with us on what I've been describing, and I think this is accurate. It's the most interesting, in the positive and negative sense, most interesting time in the insurance industry since I started in the early '90s, where there's just so much going on. Getting your thoughts on that, I think, will be tremendously helpful to people. For everyone that is watching, please feel free to submit questions to me.
I do have access to those. We want to make sure that we're getting as many investor questions answered as possible during the time that we have with us. With that, I'm going to turn it over to Mark for some brief introductory comments. I'll jump in with a few questions of my own, but again, I'll be monitoring the question dashboard the entire time. Please don't hesitate to submit any questions that you have. With that, Mark, all yours.
Great. Meyer, well, thanks for inviting us today. It's great to be here. We're looking forward to the dialogue and the questions and so forth. I think it goes without saying that 2020 so far this year has been unusual, if that's not an understatement. I think one positive thing, though, is that the foundational work that AIG has done over the last couple of years is a great positioning. I think a lot of carriers can make a similar claim of being positioned, but both in a relative and an absolute sense, I think we're in a much better positioning, especially with this current market environment and the economic environment. Given that as a backdrop, our liquidity position is strong, our capital position is strong, our commercial lines book, particularly in North America, has been largely re-underwritten. It's gotten multiple bites at the apple.
I'm sure we may get into something like that a little bit more later. There's continuing hardening in the market. It comes in many forms. Price is most obvious, but there's other ways to improve books. That's continuing. We de-risked the cat exposure. You've heard Peter Zaffino talk about that quite a bit through underwriting and also increasing our aggregate reinsurance coverage. We created Syndicate 2019 to deal with that spike on the personal line side on the high net worth. As a result, the gross and net limit profile is radically different than it was before across many lines, including casualty. We've really managed our product offerings and the hedging programs on the life and retirement side, mitigating the impact of the low interest rates, the volatile markets, and the impact on reserves and capital that's consequent to that. COVID, though, continues to impact industry results.
There's also been a number of events this quarter that's really been, I think to your earlier point, pretty noisy. Certainly a lot of hurricanes. There's been typhoons. We've had the Beirut explosion, not that that's a cat, but it's a large unexpected risk event. Wildfires that are still ongoing, COVID that's still ongoing, civil unrest is still ongoing. Even the Iowa derecho, which I have to confess is, I had to go back and look at it as to, that's not a word I pronounce every day, by the way, so I needed to get up to speed on that. All of these things aggregated and low interest rate environments that make it more difficult and make things more price sensitive in a correction type of sense.
I think it's safe to say with all of that, we're at September 9th, so the quarter's not even over yet. It's really hard to get a figure for how the quarter would look on cats, given that we still have quite a ways to go, and cat season in the Atlantic Basin doesn't even end until basically Halloween, probably appropriately. As a result of that, though, we want to remind you that on the reinsurance side, in addition to our current covers, we have material aggregate protection as well, and we even bought an additional $500 million of that to help with that regard earlier this year before the reinsurance market started to harden. I think just broadly, we're confident in the team, we're confident in the business profile that we now have, and with the balance sheet.
Without taking any more time on overall comments, let me turn it back over to you, and let's kick off the chat.
Okay, fantastic. Certainly, people want to hear more from you than they do from me. I mean, that's always true. Let me kick off with one point that you made. Peter spent a lot of time talking about adjusting risk selection and limits management over the past couple of years, and I look at that as A, or the primary focus on the P&C side. I was hoping you could update us on where you are in that process and how much of that AIG specific effort needs to continue, and how does the fact that we're in a changing pricing environment impact that strategy?
Yeah. Well, I think you're right. I think Peter spent a fair amount of time on the earnings call going into a lot of detail on that because there was a lot of lift that needed to happen, and it was done in a kind of a compounded way. When you talk to some of the underwriting executive management, you find out that you got multiple bites at the apple. Some are getting their second bite, some are getting their third bite at the apple. Some getting no bites because we identified poor risks and got them out. I'd say the first round, let's just put this in context. I'd say the first round dealt more with limits management in a purported reduction sense, price hardening, and really weeding out underperforming areas and accounts.
The second bite probably was a lot more with limit compression in concert with attachments or deductible movement up, not just capacity shrinkage. A lot more T&C, being terms and conditions, being involved and implemented. For those that are getting a third bite of the apple, you've got not only rate on rate, but rate on rate on rate. I think we're in a pretty good position. I think we're pretty far along. We're comfortable with the portfolio as a result of all those bites at the apple. I think one of the last things that we really had to do was the concentration risk associated with PCG High Net Worth, which we have now had a solution for. The short answer is we're pretty comfortable with the portfolio as it is.
The second part of your question was with regards to the hardening. That just allows that to be implemented on a continuing basis.
Okay. Thank you. Another strategic question. Earlier in the year, which now seems like centuries ago, there was this comment that we saw a hardening primary insurance market and a hardening retro market, with not much happening in reinsurance. My sense is that reinsurance is catching up. I was hoping you could comment on, one, does that match what you're seeing? And two, maybe more broadly, how should investors think about Validus Re in the context of AIG?
First, let me just reiterate the first point, which is the rate increases are continuing to occur at an increasing rate. On the primary side, that's what we continue to see, and we really haven't seen anything to dissuade that when we looked into early 3Q. With Validus, I think Peter may have commented on this as well, but with Validus, they grew their volume on non-property spaces last quarter pretty significantly. They continued to have the de-risk property view that we had across the board. I think they reduced their volatility as a result, and they saw areas of growth. As the reinsurance market hardens, Validus is in a position to really capitalize on. If the trade-off is correct between risk and exposure, then even the property aspect could probably inch up.
They are very well-positioned to capitalize on every line of business.
Just to add on that, Peter had commented on the earnings call that Validus Re net written premiums were up about 39%, and in terms of all lines combined, the rates were up about 16%. Clearly they are growing in this market opportunity.
It's important for us to understand that, again, you've had a lot of success in implementing this volatility reduction structure, the rate environment may actually now allow that to increase prospectively.
Yes.
That's one of the things why we pointed to, because I think one of the challenges that we have sometimes is when people look at AIG, they look at General Insurance in total. They don't drill down into North American Commercial Lines or just Commercial Lines in total versus Personal Lines. We got a fair amount of criticism earlier in the year and late last year about how our top line was not growing as much. As you'll note in Commercial Lines, in North American Commercial Lines, last quarter, net written was up about 7%. With the repricing and the re-underwriting that Mark talked about being significantly through the last couple of years, now we're in a market where we feel comfortable growing and obviously are getting rate.
You have to look at it drilling down into the four different segments we give you, because Personal Lines, on the other hand, as you know, is a completely different market and rate story than Commercial Lines.
Oh, absolutely. That's helpful. I do have one question coming in, asking about your thoughts for growth going forward. You grew during one of the challenging economic periods, so I think that's a positive sign. Is there anything you can share in terms of growth expectations the back half of 2020 looking forward?
Well, I think in a directional sense, I think it's pretty clear that there's margin expansion. To what Sabra's comments were, I think is a nice intro into the fact that all rates and margin expansion are not equal, either by line or by geography. I think it's fair to say that North American Commercial, in a rank order, North American Commercial should see the best gain, probably followed by International Commercial with Personal Lines underneath that, for all the reasons we know. A lot more heavily regulated, tougher to get larger increases, more muted. Where, especially with North American Commercial, it's not as retail-driven. There's a lot of wholesale non-admitted business as well, and you've got much more freedom of rate and form in that environment. I think there's quite a few areas which we are, for two reasons, pivoting. The book has been repositioned.
Because the book has been repositioned, we are now less reinsurance-dependent than we may have been in the past. Reinsurance was very valuable by all the partners that came on board with us, and you're always going to need that for catastrophe risks and vertical shock and that kind of thing. I agree with you, the market is hardening on the reinsurance side, and we have Validus to take advantage of that. From a reinsurance purchasing point of view, it's going to be negotiations that are going to be probably pretty complex. They are in their environment. As you said, they lagged on rate. We're in a position now that if the reinsurance terms and conditions or pricing we think are too stiff, we're much more comfortable taking that.
I would just add to that, in terms of the book itself, you got to keep in mind the components that drive growth, right? You've got retention on your existing book, which as we were repricing and re-underwriting, obviously the retention was lower. Peter commented that retention is up four and five points compared to where it had been a year ago. Secondly, there's new business. Peter also commented on the call that new business volumes are actually kind of light in the second quarter because of this, just the disruption that we're seeing, right? Sales were low at L&R as well. Now that people have adapted to this new environment, we would hope and expect to see higher volumes of new business as well. Then, of course, as we've all been talking about, there's rate.
From that perspective, we would hope and expect that we're going to continue to maintain strong retention. Rate will go where rate goes. As a market leader in many areas, we would hope to see stronger new business as well.
Excellent. Thanks. There was one comment that Mark made on the conference call, it got a lot of attention, and frankly, I was surprised at how surprising it was, and that's with regard to loss trend volatility when we go through a, I call it a once-in-a-century event. I was hoping you could flesh out what you're seeing with loss trends, and how comfortable you are that even maybe some of the more pessimistic scenarios are reflected in pricing and in reserving.
Okay. Well, I was a little surprised too, quite frankly, because I thought some of my statements were pretty consistent with what I've said in the past. Which I'm happy to go over and directly answer your question. I think it may have been because it was in the context of margin expansion as opposed to pure loss trend. I think I made the comment that, because Peter talked about a 16% increase globally, and it was 21% in North America and lesser internationally, and no one thinks there's 21% loss trend, right? Therefore there's margin expansion in that sector. I think maybe that had some of it. You do have a lot of other forces, some of which I think are really compounded now by COVID. You always had the litigation funding aspect.
You got some runaway verdicts and so forth, but they're still few and far. That wasn't a panacea at that point. With COVID, you've got now dockets and courtrooms that are really backed up. It's difficult to really get those things through. In some cases, it's going to be, especially on the GL side or GL products side, I think there's the real argument that that's not a claim reduction, it's a claim deferral. That it will manifest, it's just going to be a longer time of realization perhaps on some of those. Certain lines like comp, it'll become more self-evident, but AIG's comp book is largely the three-line large deals, so it's large deductible, so it's the insurance money more than it's AIG's money involved, and it's inside the deductible.
One advantage, because you'd expect to see with people off the streets that, from an auto perspective, it certainly would be a smaller exposure, but AIG has really shrunk its auto book pretty dramatically. I'm glad to say in the trucking space, because with trucking, you pretty much got to take it all in, right? You can't cherry-pick an exposure here or there. You take it all in. It depends on the size. Whereas smaller insurers, you got a much different choice on what you're doing. You've got that. You've got the upcoming elections. With Supreme Courts and appellate courts, designees, and so forth, there's always a change. I would say even the civil unrest aspects could find itself on personal and some commercial lines, creating different exposures and emergences on it.
I think my comment was mostly around the increased volatility of the loss trend as opposed to the loss trend itself. For clarity, is there a margin expansion in North America commercial? Yes.
Okay. I think that's probably the bottom line of what people are looking for. It sounds like you're comfortable with that on both the rate and the reserve side.
Yes.
Okay. Another issue that emerged in second quarter was the impact of a much smaller book of travel insurance within North American Personal. I think that was more just the mix of loss and expense as opposed to anything sort of fundamental with profitability. I was hoping you could update us on how that market, in terms of demand, and how the market for event cancellation has been evolving over the course of 2020.
Well, I'll say ready to start off that one.
Sure. To start with, our travel book, which is in personal lines in both North America and international, although the bulk of it's North America. It's about a $1.3 billion book. Clearly when COVID emerged and flight restrictions and travel restrictions went into place, people weren't buying plane tickets, so they weren't buying the travel insurance. As we talked about in the first quarter, we had, I think it was about $86 million of our loss picks for the first quarter were related to travel. We have a commission sharing arrangement with that, a profit-sharing arrangement, so that as people start traveling and buying tickets again, we'll actually recoup some of that through lower commission rate. As you pointed out, the travel book is a relatively low loss ratio, high expense ratio book of business.
Lacking the premium in that in the second quarter, combined with the fact that we obviously still have employees in the travel business, of course, claims and customer service and finance and the rest, it really kind of made the North American personal lines ratios quite strange compared to prior years. When you added the Syndicate 2019 on top of it was unusual. We continue to be a market leader in that business, and we would expect as 2021 comes along, that again, people will be buying it. Frankly, I think the type of the product that people buy will be a lot different, going forward, in part because you've had this experience that we've all gone through, right? Probably there'll be higher utilization.
By the same token, you do have some airlines, for instance, United has permanently waived change and cancellation fees. I think people might be more likely buying in on hotels and car rentals and things like that. The other thing I would just note then on the event cancellation, the event cancellation book is largely written through Talbot in our international portfolio and its commercial lines. Obviously, and Mark can comment on this with his actuarial background, that we have taken reserves for those events that we have known cancellations. There are some events that were postponed, like the Kentucky Derby, which ran this weekend, or the Olympics, which were pushed to 2021. We still have exposure to the extent there's additional cancellations. As far as a product right now, as you can imagine, given the uncertainty, first of all, people just aren't scheduling events.
Secondly, it's kind of hard to price and underwrite in this very unusual environment for event cancellation. The events cancellation and the travel book, combined with the business interruption where we have what I would call affirmative contagious disease coverage, that's about 70% of the reserves that we've taken for COVID.
I wouldn't add much more to that really. I think it's important to realize that distribution is inventive and innovative. As airline travel has dropped off, let's say European travel, they pivoted towards having Western RV park visits and things like that. They're just shifting to a different item. The indications of course, is that generally there was more travel, incrementally more travel in July and August, and we're really a derivative product of travel itself. There would've been a little uplift on that. On event cancellation, you also have non-appearance, so you could have a broader event where it's not just an event or a rock group. It could be a series of performers, and there could be a non-appearance by one of them where it goes on, but it's still impactful.
You have that coverage too, but that's not similar, right? People don't want to take the risk of going through all that event creation and being on the hook.
Okay. Thank you. The next question is both internal and external, and it's with regards to changing work environments. That has implications, I think, both for potential losses, right? If people aren't shopping, you don't have the slip and falls. You don't have workers' compensation claim frequency. How does a company like AIG anticipate a changing set of exposures in pricing and in underwriting? Then internally, obviously there's AIG 200 ongoing right now, and I imagine that this has ramifications for that as well. I was hoping you could talk about those two sides of this COVID-induced phenomenon.
Well, let me just start that, and I'll start it with the insurance evaluation on it. Clearly, if there's fewer companies that need insurance, that's impactful, and the ones that continue to need it, if their exposures have dropped, that's impactful, meaning negatively impactful. Therefore, the exposure base itself may not necessarily be proportional to the risk anymore. I think the classic example, let's say pre-COVID, is why you can't get quarterly cat covers, right? Because it would be too concentrated. The cat is over the course of the year, and you just can't buy a 3Q cat cover, as an example. It's disproportionate. I think from that respect, you get that kind of impact. What do you got to do? You got to be very careful as to what the exposures are. Have there been divestitures?
In that, does sales and workers' comp payroll, are they matching up with each other? You could wind up having some of the distribution force trying to help their customers take the low end of the exposures, and therefore you're setting yourself up for an additional premium on audit and things of that nature. You don't want to have a disproportionate amount of your book subject to annualized being an audit premium as opposed to the front-end premium. Overall, insurance side, it's fewer exposure units and perhaps lower exposures within those exposure units, coupled with the measurement of exposure itself being appropriate. There's certain coverages or certain industries that you can tag, hotels, for example, and others that you can tag as going to be down for a while. On the line-by-line, account-by-account basis, they're the things you have to focus on.
I don't know, Sabra, you have anything to add before we pivot to, I'll say, the inside as opposed to the outside?
The only thing I would add is just a reminder that obviously within AGRM, the AIG Risk Management book of business, a lot of that experience change is going to be in the working layer of the policyholder as opposed to the excess layers, which is where we would attach.
Right. I think we said the average deductible attachment, these are comp GL auto three-line deals, it's averaging north of $1 million. You're going to eliminate a lot down there. If it was a softer market and you had $100,000, $200,000 deductibles, different story. This eliminates a lot of frequency and a fair amount of severity at those levels as well. On the inside, just take AIG, for example. We are targeting January 1st. We're in a lot of countries, right? A lot of different offices. It's not an absolute rule, it's not a bright line. It's a line of demarcation.
We made that call a while ago, with all the increasing unknowns, kids are going back to school, you see in press all the aggregations of whether it's college or just other events that happen that could possibly reopen things again. Others are doing similar things. If they're not reopening their offices, that could also lead to your first question about insurable exposures. It could just change the level of the recovery, depending on your stress assumptions. From an AIG 200 perspective, we actually got some benefits because people aren't traveling, everyone's really available for group meetings. We're actually getting more done in that respect, as opposed to less done in that respect. Sabra, anything you want to add?
I would just add, we commented on the second call, the priority of some of the programs and the progress that we've made under AIG 200 is a little different than what we thought it was going to be at the start of the year. We do remain on track, both from an expense realization as well as the project perspective. It's a three-year program, right? We've still got some time to go.
Right. I don't want to put words in your mouth, it sounds like you've had the opportunity to move ahead with some of the things because you've had more time to discuss them.
Yeah. An example would be on our commercial underwriting platform, because as Mark said, people are available to work on the projects. We aren't traveling. We're not doing client entertainment and things like that people are available and focused on getting that technology platform pulled together and making very good progress on that, faster than we expected.
Okay. We've had a question come in, I can guarantee it's not the first time that you've heard this question, it clearly comes up a lot. That is with regard to both the financial and strategic benefits of keeping life and property and casualty under one umbrella instead of having multiple companies. Well, I guess, does your thinking on that change over time, and how are you thinking about it now?
As Brian said, that's something that is a primary responsibility of the CEO and his senior team with the board. Those things are constantly reviewed and on the landscape of competing alternatives of things you can do. Let's not forget, we still have, although tax rate was 21, right, from 35, so it shrunk the size of it. It's still meaningful. It's about 8.6, I think, at quarter end between the NOLs and foreign tax credits. They're still meaningful, as is the capital diversification benefits that you get. There's other aspects, too, but just because they shrunk doesn't mean they're not still material. Depending on who wins, you read some of the platforms, if the at rate goes back to 28%, that kind of takes half of that back that was cut prior.
It's a continual topic, of course, but I just don't want people to underplay the material impact of the items I just referenced.
Right. The way you're discussing it, though, if I understand correctly, is more on the financial side than the strategic side. Is that a fair read?
No. You got to look at more than one lens on those things. Multiple lenses would be used.
Okay. I guess this is a related capital question, or maybe I'm trying too hard for a natural segue that doesn't exist. Can you give us your thoughts on capital management opportunities, whether that's share repurchases, M&A opportunities, or more broadly?
Well, I think let's make a couple observations first, right, as a setup. I'll ask Sabra to also join in on that. Prior to COVID, we made the comments that leverage reduction was one of our higher-level key priorities. In the face of COVID, what have we done? We initially took a partial drawdown on our revolver in a liquidity and capital risk management framework. We've repaid debt fully, as we've disclosed, and we went to the capital markets as both a better economic time period to do it, but also to get in advance. We could return that revolver money and pre-fund a fair amount of debt maturities that go through the early part of next year, like $2.8 billion, which go through the early part of next year. View it as a temporary, meaningful, still unknown COVID risk management approach overall.
The consequence of that is to have your debt and coverage change. There's going to be natural improvement on that as the maturing securities run through. That'll take the leverage back to a much more manageable period of time, which would then open the door to other capital management options. I think what I'm trying to do is similar to your segue, is to say what was the priority and how has that changed and why did it change? It was for that reason, but it will also naturally reduce over time and then make that not as a key concern because it won't be viewed really as a debt leverage outlier.
Thank you.
I would just add to that because you did ask especially about M&A. Obviously, with our stock price trading where it is, the most attractive opportunities we see for capital deployment are first organically within the Commercial Lines book because of everything we've been talking about in terms of the pricing momentum and expected improvement in the margins in that book of business. Then secondly, obviously, share purchase. M&A is not something that's a priority for us at this point in time. I know that there are some transactions out there and notably like Allstate's transaction. For us, we're really focused on organic growth opportunities and as Mark mentioned, managing the balance sheet relative to our leverage ratios right now.
Okay. That's helpful. Yeah, certainly there are. I'm sure you're getting no shortage of people encouraging some sort of share purchase, obviously when your confidence in the economic environment allows it. Another obvious use of cash is on the investment portfolio. Here, this is a multifaceted question. How has the strategy evolved when you've got lower interest rates, you've got other opportunities and challenges in the investment arena? How do we take all of that, all of those inputs, and understand how the investment approach is staying the same or changing?
I think you saw in the deck that IR put together for the second quarter in fixed income, quarter-over-quarter, roughly a 40 bps drop-off, quarter-over-quarter on fixed income, which is an amalgamation of things. You're going to get compression, and that's going to hit NII across the board, that's going to hit L&R, which is a spread business, right? It's clear that there's a lot of places where that could hit. On the GI side, for example, first off, remember, the durations and the volatilities are radically different. In rough numbers, you got about a three and a half year duration on the GI side and eight and a half years on the L&R side. The volatility characteristics are also radically different, right?
You can have massive cat calls and other aspects on the property casualty side and a lot of risk losses. Where things are more long-term, the variability is not as great on the life and retirement side in any given quarter or any given calendar year. You need longer-dated assets. We have other issues because of variable annuity guarantees and things like that you have to manage around. Whereas GI, you have to have it, you're trying to maximize yield, you can't do it in a silly way because you got to have highly liquid assets, let alone the regulatory framework on that. Going into a planning season is what is your mix of business, what is the volatility characteristics, therefore the predictable aspects of those cash flows on both sides of the house going out the door?
Given we have $350 billion investable assets, first you got to think about what's the scale that we have to buy. You can't go out and try to get 20% of an asset class market as an extreme example because good luck on something like that. You're also doing it with an eye to tax efficiency and capital efficiency. You're trying to get a good enough spread that you also minimize the capital allocated to the investment functions, the diversification credits that you get there. There's a lot that goes on, but I think it would be naive to say anything, but there's increased pressure on as we stay into this continued low-rate environment, there's increased pressure. What's that do on the other end?
That's another sustaining clear force towards, on the P&C side anyway, of keeping rates strong and maintaining that because that's got to be made up somewhere, and that's where it has to be made up.
Okay. I've got a related question to this. I was hoping you could share with us your thoughts on earnings visibility going forward, because we've got interest rate pressure, we've got potential improvement on underwriting results within P&C. We've got pressure in life and retirement. Can you cobble all that together for us in terms of earnings visibility?
I still think COVID's still throwing such a screwball that we're not going to really have a lot of visibility. I still feel the same way I did in March on that. I still think there's going to be increased government programs. That's going to possibly change the dynamics and what it supports and what it may not support in terms of keeping assets strong and so forth. We don't know what effect that's going to have on liquidity. I think it's going to have to drive taxes up, right? If we keep doing that, which changes it. I think really the straightforward answer to your question is 2021 is going to be where we should have some increased visibility, but not the latter half of this year.
Okay. Thank you. One of the issues with the third quarter is an actuarial assumption review. Can you update us on current long-term interest rate assumptions? How on the outside we should think about the updating process.
Okay. Well, the current 10-year assumption was 3.5%. Last year when we actually lowered it to 3.5%. I think on those that disclose, it was pretty much down the middle. It was some higher, some lower than that. I think a couple of our L&R peers have come out, and one lowered it from 3.75%-3.25%, I believe, and another one's in the twos. We have a pretty good internal process on it. The process is going to be the same. It's not like we're radically changing the process. The governance is good. There's a robust process around reviews of outside eyes, whether it be ERM or other constituents inside the company and outside the company on taking a look at those assumptions. I don't have the details for you. That'll be on our call that we'll have it.
I think it's fair to say that it'll wind up being at least that plug, which is the 10-year that everyone focuses on, which is only a piece of the action, right? The spreads are a mean reversion of that over time, of whatever you target at. What's it going to be in five years, 10 years, 15 years, and so forth. I think it's safe to say it's going to be lower than what we have now.
Yeah, just to add, recall, it's all assumptions, right? It's policyholder behavior, lapse behavior, expenses, and the rest. As you know, a lot of this will, with LDTI coming along in 2022, 2023, it's all going to change again, so. It is a soup to nuts kind of evaluation of the performance underlying the contracts. As you know, our portfolio is mostly annuity-based. There is a life portfolio as well where we look at mortality assumptions, although we have talked about how although COVID has elevated mortality, it's not significantly different than pricing assumptions with respect to mortality. With respect to lapse assumptions, in a low interest rate environment, the lapse performance on fixed annuities and fixed indexed actually improve which lengthens the duration and you have a longer recovery period to obviously make the spreads on that.
It is, like I said, there's an excessive amount of focus on the interest rate assumptions, I think, and we'll be talking about all of those when we report third quarter earnings.
Yeah, no, it's certainly very complex, so thank you. We've got about a minute left, and I was just going to ask both Mark and Sabra for closing comments in terms of maybe what, this will be my opinion, I trust you share it, what the market is missing with regard to AIG and its intrinsic value.
That's a great question. I would say that although I believe it's acknowledged that the General Insurance turnaround has been complex and a steep incline to pull off, we have pulled it off. I think more than anything else, the engine inside that has not really been appreciated by the marketplace yet. I'll keep it succinct.
Good. I'll say that I think that look, we understand the Life and Retirement businesses aren't particularly well valued by the market at this point in time. We do have a very strong, balanced, conservative portfolio of Life and Retirement products. It is more retirement than it is life. We have, as you know, a very strong group retirement business with VALIC. Diversification among the products. We have no legacy exposure to long-term care. We don't have legacy exposure to what I would call the nuclear arms race variable annuity type product. We have a very strong, stable portfolio that has generated significant income over time.
Perhaps because people are focused on the GI turnaround and perhaps because we don't do a good enough job explaining that to people, I do think that the valuation that's being put on our life and retirement business isn't reflective of their cash flows or returns.
I'd put in a plug for a three-hour conference call with every earnings, I'm not sure that that's actually practical. Mark, Sabra, thank you. This was very informative, very helpful, and thank you very much for your time, and we look forward to speaking with you again soon.
Okay. Thanks for inviting us.
Thank you.