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A and I and G

28 October 2015 By Richard Beales

American International Group has come back from its near-death experience to a swift kick. The mega-insurer needed a $182 billion rescue in 2008, four years to get the U.S. government out of the shares, and a couple more of hard work and bluster from the late Bob Benmosche to reset its compass. His replacement as chief executive, Peter Hancock, just got a clear message that any lingering investor sympathy for AIG has run its course.

It came from activist billionaire Carl Icahn, who has bought shares and thinks the $80 billion AIG is “too big to succeed.” He wants the company to split, most notably separating property and casualty insurance from its life business, and to cut costs faster. Part of the goal would be to shed the systemically risky label imposed by regulators.

Some of what Icahn is demanding is already under way. AIG’s balance sheet has shrunk dramatically while capital has increased. Hancock is selling businesses and reducing expenses. It’s hard to argue with Icahn’s complaint that AIG is underperforming, though. Subpar returns on equity mean it trades at only three-quarters of book value.

Icahn quotes hedge fund boss John Paulson saying that a carve-up, cost cuts and share buybacks could push AIG’s stock price above $100, more than 60 percent higher than where it closed on Tuesday.

Paulson tried something similar with insurer Hartford Financial Services a few years back. The company did some of what he wanted, but far from all. Icahn may do little better with AIG. Insurance is highly regulated, a hurdle to separating businesses cleanly. And in some markets, different kinds of insurance are sold together, arguing against a split.

Icahn’s objection to AIG’s designation as a systemically important financial institution is premature, too. Although fellow SIFI MetLife is fighting its tag in court, what it means for insurers still hasn’t been defined. Even if it involves holding more capital, existing regulations and credit-rating criteria may already have that covered for AIG.

It could be that all Icahn really wants is for Hancock to redouble his efforts and to bring AIG to the attention of more investors. The board doesn’t look like the sleepy sort Icahn often attacks. If any directors were dozing, though, they’ve received a rude awakening.



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