The insurer sees its costs rising from a split in part because of the way its sales force is structured, and AIG executives also are anxious about how credit-ratings firms would react, people familiar with the matter said.
Advertisement
It is hard to argue with his logic.
Shares of AIG are up about 9 percent year-to-date, hitting a high of $64.93 in July.
The campaigns by two of the most prominent USA investors are the latest evidence of how new rules passed since the financial crisis are roiling the financial-services industry.
The 79-year-old Icahn – known for making waves at companies he invests in – told Hancock that he is not alone in his belief that AIG needs to downsize and quoted fellow billionaire hedge fund manager John Paulson making the same request.
Shares in Apple rose 4.1% to $119.27 after the tech giant released another strong set of results late on Tuesday.
Carl Icahn doesn’t need to buy a majority of AIG stock-just enough to be taken seriously. Over the past five years, according to data from Bloomberg, AIG shares have, on average, traded at a 54% discount to the average price-to-book value multiple for its peer group of North American property and casualty insurers (current discount: 50%).
Icahn said AIG should immediately separate its life and mortgage insurance subsidiaries to create three independent public companies. The insurer has been deemed a non-bank systemically important financial institution by a US panel because of its size.
AIG is one of the largest insurance companies in the country. In fact, AIG’s shares have not traded at a premium to their book value since 2008!
AIG is one of the largest insurance groups in the US. However, it has had to cut its business dramatically to focus on its core insurance operations.
A few analysts expressed doubt at the prospect of a breakup, which for a US$78 billion insurer like AIG is likely a complex and potentially disruptive maneuver.
“It would be a mistake to think such a split could be accomplished quickly or easily considering the company’s substantial regulatory oversight and holding company obligations that are ultimately backed by the full organization”, RBC Capital Markets analyst Mark Swelle wrote in a research note.
AIG is expected to report third-quarter earnings on November 2.
Advertisement
AIG confirmed that it had received the letter and CEO Peter Hancock said in a printed statement that significant steps have been taken to reposition AIG by simplifying and lowering risk at the company.
