Prepared remarks
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.
Questions and answers
Our first question comes from Alex Scott with Barclays.
First one I had for you is on the leverage in the business. When I look at AIG, 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. 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 from an excess capital standpoint first. As an insurance company, we're pretty fortunate to have a rock-solid balance sheet. As I said in the prepared remarks, we see a lot of opportunities to grow the business. Our preference is to focus on growing into the capital base. At the same time, we've demonstrated that we're big believers in returning capital through buybacks and dividends, which is a focus for us as well. We've entered into select targeted transactions over the last 12 to 24 months that 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. Ultimately, we're well capitalized. We have strong liquidity and debt capacity — three important strengths for us as a global insurer. To get to the high end of the ROE range we discussed at Investor Day requires strong execution around underwriting, expense discipline, investment income and capital management. We're focused on underwriting profitability, driving higher yields and supporting the balance sheet with financial flexibility. 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. Setting aside what you're booking and embedding in pricing, what are you monitoring? What are you seeing in terms of the pace of social inflation?
Meyer, thanks for the question. There has been a lot of talk around social inflation, litigation funding and the aspects that have driven increases, including nuclear verdicts and overall cost increases. There have been some efforts in some states, whether North Carolina around litigation funding or New York on auto reform, which are encouraging signs. However, we haven't seen anything that indicates social inflation is moderating at this point, and we're certainly not building a moderation 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. I understand why that wouldn't impact this year's loss picks. But what about accident years '22 and '21? Is there significant IBNR there that would also need to be reviewed?
Meyer, let me provide one or two comments before Keith answers. I think Keith covered the factors around our reserving process in the prepared remarks — limit management strategy, re-underwriting, our reinsurance program, and our reserving philosophy. I personally spent significant time in the last couple of months reviewing with the team our reserving process, how we build loss picks at a granular level, how actuarial, claims and underwriting triangulate to identify trends, and the governance around it. I feel really good about where we are. Keith, why don't you add a little color?
Thanks, Eric. Meyer, as we look at our reserves, there are ranges of estimates informed by different methods and assumptions. We made the comment predominantly about accident years 2016 and 2023, and that's where we saw the impact. Our experience, specifically for 2023, is broadly in line with our expectations, and we continue to be within our expected range of outcomes, which includes the more recent accident years as well. For 2023 specifically, we moved up within the current range to bring it more in line with 2024 and 2025. We're not seeing material deterioration in 2023 and no change in frequency or severity. It was prudent to move up in that range to be more consistent.
Our next question comes from Brian Meredith with UBS.
Two quick ones. First, Keith, you talked about the acquisition ratio trending up a little bit because of mix shift. What is the impact that's having on your core loss ratios? Do you expect that to continue to trend upwards as you shift out of property and more into casualty lines?
Brian, it's an important topic. As rates moderate across the portfolio, you can see pressure on loss ratios; we watch that closely. We've reduced exposure in certain property areas and earned in more casualty business. The acquisition ratio can increase due to mix changes or specific transactions that add acquisition cost but improve the overall expense ratio through other benefits. We ask you to look across the whole rather than at individual pieces. That said, we'll continue to manage mix and underwriting discipline.
Thanks, Brian. Mix is a big part of the loss ratio movement as we've reduced property exposure. Second quarter had a meaningful mix shift toward casualty. More broadly, our accident year combined ratio adjusted margins have largely held, a function of commercial lines pressures being offset by strong work in personal insurance and progress on the expense ratio. We feel good about our overall margins.
That makes sense. Second, Eric, how do you think about the pricing environment in the context of growth outlook and choosing organic versus inorganic growth? Do you think pricing will remain as it is today, get more competitive, or push you toward inorganic opportunities?
Great question. We did 9% in the quarter and 13% in the first half. When we talk about strategic transactions versus organic growth, it becomes harder to distinguish because our underwriters approach each client and program holistically. We manage it internally to keep visibility. It's about accessing the right products at the right pricing with appropriate terms and conditions for our clients. We're open to strategic opportunities that deploy capital with attractive returns, whether in the U.S. or internationally, because they broaden client relationships and bring talent and capabilities.
Our next question comes from Michael Zaremski.
Back to growth and the mid to upper end of the ROE goals set at Investor Day, how big of a factor is high single-digit to low double-digit premium growth to get to that range in terms of operating leverage?
Let me start with a few points and then Jon Hancock will add perspective. We're having a strong growth year — 13% in the first half is a good result. We're at a point in the cycle where cycle management is a primary tool to maintain discipline. There are attractive organic opportunities and we will be selective across our segments. We anticipated growth might be more challenging this year and focused on converting strategic transactions. Property remains under pressure; casualty is attractive and delivering rate increases that meet our risk-adjusted return needs. We like the international portfolio as well. Overall, we see good opportunities. Jon, would you add your thoughts?
Thanks. We take a prudent approach. We know where we are in the cycle and have prepared for it. We have a diverse global portfolio with different market dynamics. Global Specialty is a market leader and we've seen several years of strong rate increases and profit. That leadership allows us to pursue the business we want and remain disciplined. Energy is strategically important and strong long-term, but current market pricing doesn't reflect the underlying risks, so we're being selective. At the opposite end, Accident & Health is high-volume and low-limit. We are a recognized leader with solid growth and a strong pipeline, and we expect that to continue. Those are two micro examples across our broad portfolio.
Thanks, Jon. To wrap up: our diversified portfolio lets us play both offense and defense across different environments. Profitability is our North Star; we want to grow in a smart, prudent way.
Our next question comes from Rowland Mayor with RBC Capital Markets.
Could you size the premium contribution from the Convex quota share in the quarter? It would be helpful since there's built-in growth from that over the next few years.
When you look at the 9% in the second quarter and the 13% for the first half, the organic component is roughly low to mid-single digits. The rest includes strategic transactions, including the Everest transaction and other placements where we have shared relationships, so it becomes harder to track exactly by piece. We haven't broken out all the components. The reinsurance tailwind noted in the first quarter has largely dissipated in the second, and the remaining transactions fill in the rest of the percent movements.
Shifting topics: corporate debt issuance to support AI build-out has been of interest. In your fixed income portfolio, are you starting to have significant allocations to AI-related corporate debt?
We don't have significant allocations to AI-specific related debt. I mentioned last quarter that within private credit, direct software exposure is around 16 basis points of the portfolio. These allocations are immaterial at this point.
Our next question comes from Pablo Singzon with JPMorgan.
Global Personal Lines combined ratio has been close to or better than your Investor Day target for several quarters. How much of that is due to a favorable environment for personal lines versus changes you've implemented and mix shifts? We recognize that the segment includes businesses beyond homeowners and personal auto.
It's difficult to allocate precisely, but we're excited about Global Personal's performance. We highlighted 7% NPW growth, a 220 basis point improvement in the expense ratio, and a 490 basis point improvement in the combined ratio. High net worth profitability benefited from premium growth, underwriting actions, reinsurance savings, lower acquisition costs and operating improvements. Accident & Health is showing good growth and we are investing behind that leadership team. The fundamentals of the business are solid and we continue to invest.
Second, on expenses: you said you're on track to reach the sub-30% target, but the expense ratio ticked up sequentially, reflecting seasonality. Could you discuss expectations for the second half and how expense management and tools like AI will help in subsequent years?
We remain on track to achieve the sub-30% expense ratio for full year 2027. We are disciplined on expenses and have made strong progress. Growth in 2026 will provide operating leverage. We emphasize looking at the ratio over a rolling 12 months rather than quarter-to-quarter. On AI, our deployment strategy is intended to make colleagues more efficient and enable them to work with more clients, not to reduce colleague headcount. We focused AI investments on underwriting and claims to improve productivity, consistency and client outcomes, and we're seeing benefits.
To add, look at the rolling four quarters — that's the best way to see the trend. We're at 30.7% on that basis, down from 31.1% at the end of 2025. Premium leverage from strong written premium this year will produce further leverage as it earns in. On nominal expenses, GOE and corporate expenses were flat year-over-year FX-adjusted against 5% premium growth for the second quarter and first half, demonstrating expense discipline and supporting confidence going forward.
One more comment: our AI investments are anchored to improving colleague experience and client outcomes. As we roll out Underwriting by AIG Assist and Claims by AIG Assist, we've gained broker-level insights and speed improvements. This allows us to focus distribution resources where we see the best outcomes. It's early days but the investments provide benefits we did not fully anticipate and will support efficiency and growth.
Our next question comes from Elyse Greenspan with Wells Fargo.
First, I don't think you updated the premium growth guide, which was low to mid-teens for the year. Given caution on property, do you think you're at the low end or maybe below that as we think about potential growth in the second half?
The market is dynamic. We're pleased with 13% through the first half and 9% in the quarter. We won't chase growth blindly; underwriting standards and discipline remain critical. We'll react to the cycle and pursue opportunities selectively. Right now, we feel good about where we are.
Second, on leverage target: the prior range was 15% to 20%. That's lower than some peers. Are there thoughts about potentially increasing that target to free up capital for growth, M&A or incremental capital management?
We haven't reiterated the 15% to 20% range in some time. We're at 17.6% now and within that range. We run with conservative leverage and have significant dry powder. We feel good about where we are. We have a eurobond that will be refinanced later in the year and due early next year, but at this point we like our leverage situation.
Thank you, everybody, for joining the call today. I 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 to Peter Zaffino. His partnership throughout this transition has been fantastic. His guidance has been great. The organization has benefited from it, and I certainly have as well. I'm looking forward to building on the foundation in the months ahead and sharing our continued progress. We'll talk next time. Thank you very much.