Daily Management Review

In a Sweeping Overhaul of its Structure, AIG is to Spin Off its Mortgage Insurance Unit


In a Sweeping Overhaul of its Structure, AIG is to Spin Off its Mortgage Insurance Unit
As part of the sweeping changes that the company has been promising shareholders as it fends off activist investor Carl Icahn, American International Group Inc (AIG) said it would spin off its mortgage insurance unit and sell its broker-dealer network.
It would cut $1.6 billion of costs and return at least $25 billion to shareholders over the next two years, also said the biggest U.S. commercial insurer by measure of the premiums on Tuesday.
As rock-bottom commercial property and casualty insurance rates across the industry have battered underwriting, AIG's cost structure has been a cause of continuous concern for investors.  
The company intends to conduct sale of AIG Advisor Group, a network of independent broker-dealers, to Lightyear Capital LLC and PSP Investments as the insurance company said it planned to streamline its business through divestitures.
As a first step toward separating the business entirely, the company would also sell up to 19.9 percent of United Guaranty Corp in mid-2016 said the company. In order to make it easier for the company to sell them if they underperform, AIG has announced that it would overhaul its operational structure so that it would become easier to take parts of its commercial or consumer businesses public.
AIG's shares were up 1.8 percent in premarket trading.
Over the last few months billionaire Icahn had been making repeated suggestion that the insurer should split into three. This has been a source of mounting tensions between the Chief Executive Peter Hancock of the company and Icahn as the former has repeatedly rebutted the idea presented by Icahn.
Apart from helping AIG rid itself of the regulatory burden of being a too-big-to-fail insurer, which require higher capital cushions, Icahn has said that the move would also return more cash to shareholders.
"A full break-up in the near term would detract from, not enhance, shareholder value," AIG Non-Executive Chairman Douglas Steenland said in a statement.
According to Thomson Reuters data, Icahn claims to own a 3.4 percent stake in AIG, making him the insurer's fifth-largest shareholder when he made the announcement in November last year.
MetLife Inc (MET.N), the largest U.S. life insurer, said it would split a substantial portion of its U.S. retail business due to the "regulatory environment" which has highlighted the pressures across the insurance industry to slim down their operations in order to garner more cash reserves and reduce cut spending.
While AIG has announced the setting of a new 2017 consolidated return on equity target of about 9 percent, the company said it would also aiming to improve its commercial property and casualty accident year loss ratio by 6 percentage points.