AIG to spin off mortgage insurance unit
Print Edition
AMERICAN International Group said it will spin off its mortgage insurance unit and sell its broker-dealer network as part of sweeping changes promised to shareholders as it fends off activist investor Carl Icahn.
The biggest commercial insurer by premiums in the United States also said yesterday that it plans to cut costs by US$1.6 billion and return at least US$25 billion to shareholders over the next two years.
AIG’s cost structure has been a cause of concern for investors as rock-bottom commercial property and casualty insurance rates across the industry have battered underwriting.
The insurer said it plans to streamline its business through divestitures, including the sale of AIG Advisor Group, a network of independent broker-dealers, to Lightyear Capital LLC and PSP Investments.
AIG will also sell up to 19.9 percent of United Guaranty Corp in the middle of this year as a first step toward separating the business entirely.
The insurer said it also intends to overhaul its operational structure, making it easier to take parts public or to sell them if they underperform.
Tensions have been mounting between Chief Executive Peter Hancock and Icahn over the billionaire’s repeated suggestion that the insurer should split into three — an idea that Hancock has rebuffed.
The move would return more cash to shareholders, Icahn has said, helping AIG rid itself of the regulatory burden of being a too-big-to-fail insurer, which require higher capital cushions.
“A full break-up in the near term would detract from, not enhance, shareholder value,” AIG Non-Executive Chairman Douglas Steenland said.
Icahn disclosed in November that he owned a 3.4 percent stake in AIG, making him the insurer’s fifth-largest shareholder at the time.
Pressure across the industry to slim down was highlighted this month when MetLife Inc, the largest US life insurer, said it will split a substantial portion of its US retail business due to the “regulatory environment.”
AIG said it aims to improve its commercial property and casualty accident year loss ratio by 6 percentage points, and set a new 2017 consolidated return on equity target of about 9 percent.
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