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AIG Icahn Takes ‘Large Stake’ in AIG, Encourages Split Into 3 Companies

Investor says insurer should separate life and mortgage insurance units from core property and casualty business

By
Chelsey Dulaney, WSJ
Updated Oct. 28, 2015 10:06 a.m. ET

http://stockcharts.com/h-sc/ui?s=AIG

Activist investor Carl Icahn said he has accumulated a “large stake” in American International Group Inc. and called for the insurer to split into three public companies.

In a letter to AIG Chief Executive Peter Hancock that Mr. Icahn posted on his website, he called for the global insurer to separate both its life and mortgage insurance units from its core property and casualty business, and embark on a “much needed cost control program.”

AIG shares climbed 3.6% in morning trading and are up 13% this year.

If split up, Mr. Icahn said each of the companies would be small enough to avert the “systemically important financial institution” designation.

AIG is one of three insurers that have been designated as systemically important by a panel of federal regulators created under the post-financial-crisis Dodd-Frank regulatory-overhaul law, and there is uncertainty about future capital levels these insurers will be required to hold.

In the letter, Mr. Icahn said AIG is too big to succeed, despite years of selling off non-core assets. He said the burdens of the systemically important designation, which include Federal Reserve oversight and increased capital requirements, hurt AIG’s returns and competitive position.

Mr. Hancock acknowledged in a statement that AIG received Mr. Icahn’s letter and said the company has taken significant steps to cut risk and sell noncore assets.

A representative for Mr. Icahn wasn’t immediately available for comment. The investor hasn’t yet made a regulatory filing disclosing the size of his stake in AIG and first disclosed his position in a tweet.

Mr. Icahn is famous for his strategy of targeting and publicly berating companies that he thinks are underperforming.

During the financial crisis, AIG became a poster child of the liquidity problems that hit many financial firms with exposure to subprime mortgage bonds after the real-estate bubble burst. In bailing out AIG, U.S. taxpayers at one point owned 92% of its equity. AIG fully repaid taxpayers by the end of 2012.

AIG has been on a several-year-long restructuring effort to improve profitability in its core business of selling property and casualty insurance to businesses. That business has faced headwinds recently amid pricing pressure and a strong dollar.

AIG has also been working to improve its returns under Mr. Hancock, who took the helm at AIG last year. The company has set a long-term goal of 10% return on equity.

In his letter, Mr. Icahn said AIG is lacking in cost controls and criticized the pace at which AIG is working to improve returns. “You must be proactive and commit to closing 100% of the [return on equity] gap between AIG and its peers,” he wrote in the letter.

In August 2013, AIG’s board decided to resume paying a common-stock dividend for the first time since the crisis. The company has also focused on buying back shares in recent periods to shrink the large number created in the wake of the 2008 government takeover.

AIG is due to report third-quarter results Monday.

Write to Chelsey Dulaney at [e-mail]