We're executing on AIG 200 to instill operational excellence in everything we do.
I will also provide an update on the considerable progress we're making on the operational separation of life and retirement from AIG and our strong execution of AIG 200.
Adjusted after-tax income in the third quarter was $0.97 per diluted share compared to $0.81 in the prior-year quarter.
This result was driven by significant improvement in profitability in general insurance, very good results in life and retirement, continued expense discipline and savings from AIG 200 and executing on our capital management strategy.
And we were especially pleased with our adjusted accident year combined ratio, which improved 280 basis points year over year to 90.5%.
One data point that I believe demonstrates the incredible progress we have made is our accident year combined ratio for the first nine months of 2021, which was 97.7%.
This represents a 770-basis-point improvement year over year, with 600 of that improvement coming from the loss ratio and 170 from the expense ratio.
This business delivered a return on adjusted segment common equity of 12.2% for the third quarter and 14.3% for the first nine months of the year.
And we recently achieved an important milestone in the separation process by closing the sale of a 9.9% equity stake in life and retirement to Blackstone for $2.2 billion in cash.
We ended the third quarter with $5.3 billion in parent liquidity after redeeming $1.5 billion in debt outstanding and completing $1.1 billion in share repurchases.
Year-to-date, we have reduced financial debt outstanding by $3.4 billion and have returned $2.5 billion to shareholders through share repurchases and dividends.
We expect to redeem or repurchase an additional $1 billion of debt in the fourth quarter and to repurchase a minimum of $900 million of common stock through year-end to complete the $2 billion of stock repurchase we announced on our last call.
Adjusting for foreign exchange, net premiums written increased 10% year over year to $6.6 billion.
This growth was driven by global commercial, which increased 15%, with personal insurance flat for the quarter.
Growth in commercial was balanced between North America and International, with North America increasing 18% and International increasing 12%.
Growth in North America commercial was driven by excess casualty, which increased over 50%; Lexington Wholesale, which continued to show leadership in the E&S market and grew Property and Casualty by over 30%; financial lines, which increased over 20%; and Crop Risk Services, which grew more than 50% driven by increased commodity prices.
In international commercial, financial lines grew 25%, Talbot had over 15% growth and Liability had over 10% growth.
In addition, gross new business in global commercial grew 40% year over year to over $1 billion.
In North America, new business growth was more than 50% and in International, it was more than 25%.
We also had very strong retention in our in-force portfolio, with North America improving retention by 200 basis points and International improving retention by 700 basis points.
Strong momentum continued with overall global commercial rate increases of 12%.
North America commercial's overall 11% rate increases were balanced across the portfolio and led by excess casualty, which increased over 15%.
Financial lines, which also increased over 15% and Canada, where rates increased by 17%, representing the 10th consecutive quarter of double-digit rate increases.
International commercial rate increases were 13% driven by EMEA, excluding specialty, which increased by 22%.
U.K., excluding specialty, which increased 21%.
Financial lines, which increased 24% and Energy, which was up 14%, its 11th consecutive quarter of double-digit rate increases.
As I noted earlier, general insurance's accident year combined ratio ex CAT was 90.5%.
These results were driven by our improved portfolio mix, achieving rate in excess of loss cost trends, continued expense discipline and benefits from AIG 200.
Global commercial achieved an impressive accident year combined ratio ex CATs of 88.9%, an improvement of 290 basis points year over year and the second consecutive quarter with a sub-90% combined ratio result.
The accident year combined ratio ex CAT for North America commercial and international commercial were 90.5% and 86.8%, respectively, an improvement of 370 basis points and 210 basis points.
In global personal insurance, the accident year combined ratio ex CATs was 94.2%, an improvement of 220 basis points year over year driven by improvement in the expense ratio.
Given the significant progress we have made to improve our combined ratios and our view that the momentum we have will continue for the foreseeable future, we now expect to achieve a sub-90% accident year combined ratio ex CAT for full year 2022.
After three years of significant underwriting margin improvement, we believe that the sub-90% accident year combined ratio ex CAT is something that not only will be achieved for full year 2022, but that there will continue to be runway for further improvement in future years.
As I said earlier, the third quarter was very active, with current industry estimates ranging between $45 billion and $55 billion globally.
We reported approximately $625 million of net global CAT losses with approximately $530 million in commercial.
The largest impacts were from Hurricane Ida and flooding in Europe, where we saw net CAT losses of approximately $400 million and $190 million, respectively.
We have each and every loss deductibles of $75 million for North America wind, $50 million for North America earthquake and $25 million for all other North America perils and $20 million for international.
Our worldwide retention has approximately $175 million remaining before attaching in the aggregate, which would essentially be for Japan CAT.
Since 2012 and excluding COVID, there have been 10 CATs with losses exceeding $10 billion.
And nine of those 10 occurred in 2017 through the third quarter of this year.
Average CAT losses over the last five years have been $114 billion, up 30% from the 10-year average and up 40% from the 15-year average.
And through 2021, catastrophe losses exceed $100 billion and we're already at $90 billion through the third quarter.
First, while CAT models tended to trend acceptable over the last 20 years, that has not been the case over the last five years.
Second, over the last five years, on average, models have been 20% to 30% below the expected value at the lower return periods.
Adjusted pre-tax income in the third quarter was approximately $875 million.
Individual retirement, excluding retail mutual funds, which we sold in the third quarter, maintained its upward trajectory with 27% growth in sales year over year.
Our largest retail product, Index Annuity, was up 50% compared to the prior-year quarter.
Group retirement collectively grew deposits 3% with new group acquisitions ahead of prior year but below a robust second quarter.
Kevin and his team continued to actively manage the impacts from a low interest rate and tighter credit spreads environment and their earlier provided range for expected annual spread compression has not changed as base investment spreads for the third quarter were within the annual 8 to 6 points guidance.
Having said that, we currently expect to retain a greater than 50% interest immediately following the IPO and to continue to consolidate life and retirement's financial statements until such time as we fall below the 50% ownership threshold.
With respect to AIG 200, we continue to advance this program and remain on track to deliver $1 billion in run rate savings across the company by the end of 2022 against a cost to achieve of $1.3 billion.
$660 million of run rate savings are already executed or contracted, with approximately $400 million recognized to date in our income statement.
As with the underwriting turnaround, which created a culture of underwriting excellence, AIG 200 is creating a culture of operational excellence that is becoming the way we work across AIG.
Shane joined AIG in 2019 and his strong leadership helped accelerate aspects of AIG 200 and instill discipline and rigor around our finance transformation, strategic planning, budgeting and forecasting processes.
He has a strong financial and accounting background having worked at GE for over 20 years in many senior finance roles, including as Head of FP&A and chief financial officer of GE's international operations.
Shane has already begun working with Mark on a transition plan and we've shifted his AIG 200 and shared services responsibility to other senior leaders.
Elias has been with AIG for over 15 years and was most recently our Deputy CFO and Principal Accounting Officer for AIG as well as the CFO for general insurance.
I am extremely pleased with the strong adjusted earnings this quarter of $0.97 per share and our profitable general insurance calendar quarter combined ratio, which includes CATs, of 99.7%.
life and retirement also produced strong APTI of $877 million, along with a healthy adjusted ROE of 12.2%.
The quarter's strong operating earnings and consistent investment performance helped increase adjusted book value per share by 3% sequentially and nearly 9% compared to one year ago.
The strength of our balance sheet and strong liquidity position were highlights in the period as we made continued progress on our leverage goals with a GAAP debt leverage reduction of 90 basis points sequentially and 350 basis points from one year ago today to 26.1%, generated through retained earnings and liability management actions.
Due to our achieved profitable growth to date, together with demonstrable volatility reduction and smart cycle management, makes us even more confident in achieving our stated goal of a sub-90% accident year combined ratio ex CAT for full year 2022 rather than just exiting 2022.
In fact, for a more extensive view, within North America over the three year period, 2019 through 2021, product lines that achieved cumulative rate increases near or above 100% are found within excess casualty, both admitted and non-admitted.
Last quarter, we provided commentary about U.S. portfolio loss cost trends of 4% to 5% and in some aspects were viewed as being near term.
And in fact, our U.S. loss cost trends range from approximately three and a half percent to 10%, depending on the line of business.
Approximately $42 billion of reserves were reviewed this quarter, bringing the year-to-date total to approximately 90% of carried pre-ADC reserves.
On a pre-ADC basis, the prior-year development was $153 million favorable.
On a post-ADC basis, it was $3 million favorable.
And when reflecting the $47 million ADC amortization on the deferred gain, it was $50 million favorable in total.
The first of these two impacts is the direct reduction from North America personal insurance reserves of $326 million, resulting from the subrogation recoveries.
As a result, we also had to reverse a previously recorded 2018 accident year reinsurance recovery in North America commercial Insurance of $206 million since the attachment point was no longer penetrated once the subrogation recoveries were received.
These two impacts from the subrogation recovery resulted in a net $120 million of favorable development.
So excluding their impact restates the total general insurance PYD as being $70 million unfavorable in total rather than the $50 million of favorable development discussed earlier.
This $70 million of global unfavorable stems from $85 million unfavorable in global CAT losses together with $50 million favorable in global non-CAT or attritional losses.
The $85 million unfavorable in CAT is driven by marginal adjustments involving multiple prior-year events from 2019 and 2020.
The $15 million non-CAT favorable stems from the net of $255 million unfavorable from global commercial and $270 million of favorable development, predominantly from short-tail personal lines businesses within accident year 2020, mostly in our International book.
Consistent with our overall reserving philosophy, we were cautious toward reacting to this $270 million favorable indication until we allow the accident year to season.
North America commercial had unfavorable development of $112 million, which was driven by financial lines' strengthening of approximately $400 million with favorable development and other lines led by workers' compensation with approximately $200 million, emanating mostly from accident years 2015 and prior and approximately $100 million across various other units.
North America financial lines were negatively impacted by primary public D&O, largely in the more complex national accounts arena and within private not-for-profit D&O unit, in addition to some excess coverage mostly in the public D&O space, with 90% emanating from accident years 2016 to 2018.
International commercial had unfavorable development of $143 million, which was comprised of financial lines' strengthening in D&O and professional indemnity of approximately $300 million led by the U.K. and Europe, but the accident year impacts are more spread out.
Favorable development was led by our specialty businesses at roughly $110 million with an additional favorable of approximately $50 million stemming from various lines and regions.
In 2017, AIG provided D&O coverage to 67 insurers involved in SCAs, which represents 42% of all U.S. federal security class actions in that year.
Whereas in 2020, that shrunk to just 18% and through nine months of 2021 is only 15 insurers or 14%.
This is significant because roughly 60% to 70% of public D&O loss dollars historically emanate from SCAs.
The policy retention rate here between 2018 and 2021, which is a key strategic target, is just 15%.
And yet it should also be noted that the corresponding cumulative rate increase over the same period is nearly 130%.
The year-to-date ROE has been a strong 14.3% compared to 12.8% in the first nine months of last year.
APTI during the third quarter saw higher net investment income and higher fee income, offset by the unfavorable impact from the annual actuarial assumption update, which is $166 million pre-tax, negatively affected the ROE by approximately 250 basis points on an annual basis and earnings per share by $0.15 per share.
But our exposure sensitivity of $65 million to $75 million per 100,000 population deaths proved accurate based on the reported third quarter COVID-related deaths in the United States.
Within Individual retirement, excluding the Retail Mutual Fund business, net flows were a positive $250 million this quarter compared to net outflows of $110 million in the prior-year quarter largely due to the recovery from the broad industrywide sales disruption resulting from COVID-19, which we view as a material rebound indicator.
The adjusted pre-tax loss before consolidations and eliminations was $370 million, $2 million higher than the prior quarter of 2020, driven by higher corporate GOE primarily from increases in performance-based employee compensation, partially offset by higher investment income and lower corporate interest expense resulting from year-to-date debt redemption activity.
Overall net investment income on an APTI basis was $3.3 billion, an increase of $78 million compared to the prior-year quarter, reflecting mostly higher private equity gains.
general insurance's NII declined approximately 6% year over year due to continued yield compression and underperformance in the hedge fund position.
As respect share count, our average total diluted shares outstanding in the quarter were 864 million and we repurchased approximately 20 million shares.
The end-of-period outstanding shares for book value per share purposes was approximately 836 million and anticipated to be approximately 820 million at year-end 2021 depending upon share price performance, given Peter's comments on additional share repurchases.
Lastly, our primary operating subsidiaries remain profitable and well capitalized, with general insurance's U.S. pool fleet risk-based capital ratio for the third quarter estimated to be between 450% and 460%.
And the life and retirement U.S. fleet is estimated to be between 440% and 450%, both above our target ranges.

Summary:
Adjusted after-tax income in the third quarter was $0.97 per diluted share compared to $0.81 in the prior-year quarter.
We ended the third quarter with $5.3 billion in parent liquidity after redeeming $1.5 billion in debt outstanding and completing $1.1 billion in share repurchases.
Adjusting for foreign exchange, net premiums written increased 10% year over year to $6.6 billion.
In addition, gross new business in global commercial grew 40% year over year to over $1 billion.
Kevin and his team continued to actively manage the impacts from a low interest rate and tighter credit spreads environment and their earlier provided range for expected annual spread compression has not changed as base investment spreads for the third quarter were within the annual 8 to 6 points guidance.
I am extremely pleased with the strong adjusted earnings this quarter of $0.97 per share and our profitable general insurance calendar quarter combined ratio, which includes CATs, of 99.7%.
As respect share count, our average total diluted shares outstanding in the quarter were 864 million and we repurchased approximately 20 million shares.