(Bloomberg) — Carl Icahn’s vision for AIG is about to become a reality.
Five years after the activist investor called for its breakup, American International Group Inc. announced plans to shed its massive life and retirement operation, the final dismantling of a company built over decades by former Chief Executive Officer Maurice “Hank” Greenberg.
Dropping a business that accounted for about a third of AIG’s revenue last year leaves a much simpler company for Peter Zaffino, who takes over as CEO on March 1. For years, investors and analysts have questioned whether AIG would make more sense if it split in two: a property-casualty operation serving corporations and wealthy individuals, and a life-insurance and retirement business.
“After years of being poked, prodded and questioned, AIG is finally ready to pull the trigger and step back from its multiline strategy,” David Havens, a credit analyst with Imperial Capital LLC, said in a note to clients.
No decision has been made on how to separate the unit, according to AIG. Two likely possibilities are an initial public offering or a minority disposition with additional sales down the road, a person familiar with the matter said.
Photographer: Christopher Occhicone/Bloomberg
Icahn, who sold his AIG stake two years ago, was one of the most vocal supporters of a split, calling for a breakup as early as 2015. He pushed the company to explore separating into three businesses: a P&C company, a life and retirement operation and a mortgage insurer. The company sold the mortgage business in 2016.
Former CEO Peter Hancock resisted Icahn’s calls for a breakup, arguing that keeping the company together, at least in the short term, had tax and diversification benefits.
Some of those advantages have started to fade in recent years. Chief Financial Officer Mark Lyons said in August that tax reform had diluted one part of that argument, and management was routinely thinking about how to respond strategically. Investors also tend to prefer “well-positioned” property-casualty insurers over life and annuity sellers, Havens at Imperial Capital said.
“We think this split would create far simpler investment stories, and it signals material confidence in AIG’s post-separation P&C prospects, where results have been most significantly challenged,” Meyer Shields, an analyst with Keefe, Bruyette & Woods, said in a note to clients.
Life insurers have come under pressure during the pandemic as interest rates creep lower and lower, cutting into investment returns. MetLife Inc. has plunged 24% this year while Prudential Financial Inc. has declined 30%.
AIG, which is down 37% this year, climbed 4.2% to $32.56 at 9:40 a.m. in New York.
The company has already spent years whittling itself down after racking up a bailout in the financial crisis that swelled to $182.3 billion. That meant selling off prized units including an insurance business that operated in regions including Japan and Europe.
Zaffino, who was named Monday as AIG’s next CEO, is inheriting a company with a market capitalization that’s plunged 88% since 2000. He’s been an integral part of the turnaround plan put in place by his predecessor, Brian Duperreault, who joined the insurer in 2017.
Read more about Peter Zaffino
Zaffino, 53, initially came on board as chief operating officer, but quickly took on a role helping fix the sprawling property-casualty business. His promotion to president at the end of last year stoked speculation he would one day succeed Duperreault, 73.
What Bloomberg Intelligence Says
“We view Peter Zaffino as a solid choice for AIG’s next CEO. Given his success in the considerable effort of reshaping P&C underwriting and reinsurance, we have confidence in his ability to unlock value by successfully separating the life insurance unit. The P&C business may have a higher multiple as a stand-alone entity.”
–Matthew Palazola, senior industry analyst, and Derek Han, associate analyst
Duperreault’s arrival in 2017 led Icahn to ease his demands. The CEO has focused on fixing underlying issues that led to frequent charges as the firm was burned by old policies. That included shoring up underwriting at its property-casualty business and altering the way it uses reinsurance.
Zaffino has held a range of jobs, including a stint at a General Electric Co. venture, leading Guy Carpenter and taking the helm at Marsh & McLennan Cos.’ large-insurance brokerage business. He was most recently in charge of an effort called AIG 200, a series of initiatives for the firm to improve its operations and efficiency.
(Adds analyst’s comment in ninth paragraph, updates share prices in 10th and 11th.)
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