Daily Management Review

AIG to Pursue Spin-Off of Mortgage Insurance Unit: Reuters


AIG to Pursue Spin-Off of Mortgage Insurance Unit: Reuters
In a move that would come as the U.S. insurer fends off activist investor Carl Icahn, American International Group Inc has decided to pursue a spin-off of its mortgage insurance business, reported Reuters citing people familiar with the matter.
Icahn, who is calling for AIG to break up into three separate businesses, is however unlikely to be appeased by the spin-off of that business which accounted for 7.4 percent of AIG's pre-tax operating income in the first nine months of 2015.
In the first nine months of 2015, the mortgage insurance business had revenue of $791 million.
It is reported that the future of the mortgage insurance business would be discussed by AIG is expected on Tuesday at a time when the company would also release its strategic plan. Reuters reported that the company will pursue a partial spin-off of the asset this week. Some of the shares of the spun-out company would be received by shareholders after the spinoff while the remainder kept by AIG itself.
While updating other initiatives aimed at winning shareholder support would be done by the company, AIG is also expected to update investors on the sale of its Advisor Group division on Tuesday.
Since the deliberations were still underway and confidential, the sources cautioned that details were still being finalized.
"AIG continues to take steps to narrow its focus, improve its financial performance, and return capital to shareholders. AIG maintains an active dialogue with shareholders, including Carl Icahn," the company said in an emailed statement, reported Reuters.
By shedding its label as a non-bank Systemically Important Financial Institution (SIFI) - a tag that comes with enhanced regulation from the U.S. Federal Reserve, Icahn wants AIG to become a smaller, simpler company.
Icahn's call to split the insurer into three separate divisions has been resisted by AIG and its CEO Peter Hancock.
According to Thomson Reuters data, Icahn, who disclosed in November that he owned a 3.4 percent stake in AIG, is the insurer's fifth-largest shareholder.
The Valic arm, which manages retirement money for teachers, and its life and annuity unit Sun America are the other businesses that AIG may consider shedding.
The driving force behind the inclusion of certain non-banks as SIFIs was AIG's near collapse in 2008 and U.S. government bailout.
MetLife Inc, the largest U.S. life insurer, said it would split a substantial portion of its U.S. retail business from the core company due to the "regulatory environment" was representative and highlighted the pressure across the insurance industry to slim down.  
AIG’s underwriting operations have suffered from falling rates for commercial property and casualty insurance and its cost structure has remained a cause of concern for investors.