American International Group Inc (NYSE:AIG) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Debt Retirement vs Share Repurchase
Joshua Shanker – Deutsche Bank: As the capital return story unfolds and you get dividends from your subs, maybe ILFC closes. I’m wondering in the conversations you’ve had with the rating agencies, what kind of mix of debt retirement versus share repurchase are you thinking to keep in good stead with them?
Robert H. Benmosche – President and CEO: We’ve not had that level of conversation. We go to the rating agencies when we have something specific to say we want to do, but as overarching, we continue to focus on. We’ve taken care of the dividend doesn’t mean we might want to increase that, but our focus is on our debt and share buybacks, but David do you want to comment?
David Herzog – EVP & CFO, AIG: Thanks, Bob and good morning, Josh. As we think about our capital management where we’ve discussed in the past a targeted capital structure and we’re nearing that optimal mix of debt and capital. We still do have some expensive hybrids out that are of interest to us, but that will occur over time. We have taken an approach with the agencies with the other various stakeholders with respect to our capital management that we first raised the deployable capital, get it to the holding company, we then run through a rigorous set of internal stress test and analytics and then we consider the best way to deploy the capital, so we do not get out in front of ourselves with respect to spending it before we get it.
Joshua Shanker – Deutsche Bank: Understandable. Peter, can you talk a little bit about where you are on Sandy in terms of approaching the full limit of your – I guess, your deductible for the reinsurance?
Peter D. Hancock – CEO, AIG Property Casualty: We haven’t disclosed the attachment point on the reinsurance, but suffices to say that we don’t expect to pierce it, but on the other hand, we are not too far from it when you actually look at what we expect the ultimates to be, but in terms of where we are in terms of the remaining tail, we’re about 50% settled and about a third paid cash out the door on the Sandy claims, but there is a still a number of repairs underway as we speak. So it will be a probably another quarter before we really get to a final number.
Joshua Shanker – Deutsche Bank: Congratulations on a good announcements.
Paul Newsome – Sandler O’Neill: I was wondering if you could go just in a little bit more detail at into the steps that allowed you to announce the dividend in the repurchase and I guess I’m surprised that, that you’re able to do this before the ILFC transaction. So maybe if you could just talk a little bit more about how that process worked in terms of discussions with the regulators, as well as your own thinking and what’s left it’s contingent if anything on capital management, given the ILFC transaction?
Robert H. Benmosche – President and CEO: I’m not sure I understand the last question. You wanted to know how much more I’m going to do. I’m not sure I would give you specific answer. So let me give you a general answer that the way you look how we did it, I know you’re going to think I’m being right, but I’m not. The fact is, you first get your fundamentals right, make sure the Company is operating well, make sure all of the buckets of risks have been accounted for and we have a very, well we need to improve our stress testing, we have to improve the systems, improve the cost, improve the automation to be much more industrial strength in terms of what we do. We have a process that we know works well. So you really need to satisfy yourselves as management team that we can afford to do capital management, that’s number one. Number two, we then sit down with the rating agencies and walking us through what we want to do and they give us their opinion based upon the information we’ve provided them and the track record we are showing them. Then we spend considerable time with our Board of Directors, who want to make sure that we’re not being premature and some of the things we want to do as a management team and we’ve spend a great deal of time with the Board in detail, taking into our whole capital planning process, taking into our stress testing. For example, our stress testing is basically modeled using a lot of the information from the Federal Reserve, but as I’ve said before, when you think about – and I think it’s a shame that America doesn’t understand the amount of stress testing that is done at financial institutions to make sure (forget about) being too big to fail, they can’t fail because of what they are required to maintain on their books, so for AIG, we go through processes that is over the planning period of 2013 and ’14, what would happen if we underperformed our profit budget by $23 billion? What happens during that same time that the S&P is down close to 700? What happens if the credit aspect of credit spreads, not interest rate sensitive, but what happens if we have a period of roll coming on and you pick any other periods you want, and so credit spreads widened dramatically about 400 basis points and at the same time what happens if unemployment doesn’t go to 10s, but goes to 12.5% and by the way, if that’s not enough what would happen to AIG if in fact housing prices were to drop 20% from here, knowing the amount of mortgages we have on our books, plus the mortgage insurance business as well. By the way, since you are an insurance company, why you throw the Storm Sandy in there and make sure that you’ve got enough money to cover that storm at the time. That’s in English what a stress test is. I’ve given it to you a 10,000 (fee), and we show the Board that, after all of that we could maintain our CMA levels, maintain the risk-based capital in this company at those levels which are required for our rating. I would think if that kind of scenario occurred the states would be really pleased that we could at least meet our minimum regulatory requirements and work our way back up. We are not talking about minimums, we’re talking about the CMA levels. So based upon that, the Board said, we think it sounds muted as this time to proceed with your dividend and proceed with $1 billion share buyback. If ILFC closes or when ILFC closes, the Board and we’ll look at what we prepare. We will then update our stress test, update the information, we will share it with the Board. We will share it with the rating agencies, and based upon all of that, the Board will make a decision. So, that’s how the process works. I know that people are asking, what the fed approves, if the fed does not approve these things? The fed oversees what we’re doing and if the fed felt, at any point of time, that we’re doing something as a savings and loan holding company, they would go and say, look, I think you’re being imprudent, but they don’t approve things. Once we get under the CCAR test, however, then they will in fact, look at our CCAR, look at the amount of capital we have and look at the process we have in place to calculate that information and based upon the quality of our systems we have a runway to get there and we are working hard along that runway and that’s why we wanted to actually, people said, are you nuts? Why would you want to start early is because you want to get prepared so that you have an acceptable process and it’s a repeatable process such that the Fed is very comfortable that not only do you have numbers that say you are okay, but you have a process that says your numbers are okay, and that’s what we are working towards and that’s something at the end of ’14 into early ’15 (indiscernible) now is making sure we live with the first half of what I said and that is we run the Company the right way and we are being prudent. Long-winded answer, I apologize, but I know lot of you are trying to figure out what happened here and that’s what we said all along, when we’re ready, we’ll move up.
Paul Newsome – Sandler O’Neill: That was a terrific answer, it’s very helpful.