AIG weighs IPO, private sale of life insurance unit after solid Q3

Last modified November 6, 2020. Published November 6, 2020.
The AIG logo is shown above the post where it trades, on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)

The AIG logo is shown above the post where it trades, on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)

American International Group executives said the carrier’s third-quarter turnaround allows it to push ahead with structural overhauls, including divesting its life insurance business through either an initial public offering or private sale.

In a conference call with analysts Friday, CEO Brian Duperreault and other senior executives said the U.S.’s largest commercial insurance underwriter had achieved solid earnings growth and underlying expense reductions, even amid a stretch of heavy catastrophe losses.

Executives detailed the company’s outlook after the September-ended quarter, during which the insurer posted 40% year-over-year gains in adjusted after-tax income and beat Wall Street earnings projections.

Duperreault said that lean operations and strong capital positions in both the general insurance and life and retirement segments showed that the carrier is ready to execute the businesses’ separation from one another, as unveiled plans to do last week.

“We currently contemplate either an [initial public offering] or a private sale of up to 19.9% of Life and Retirement, followed by one or more dispositions of our remaining ownership interest over time,” said Peter Zaffino, president of AIG, who will take the reins from Duperreault as CEO in March.

Independent legal and financial advisors concluded AIG’s core units would be best served by a “simpler structure,” Duperreault said, adding that obstacles to the separation of general insurance and life and retirement “have greatly diminished” over the past three years.

Specifically, he said that the tax and capital diversification benefits associated with the current composite structure have faded since he took over AIG’s top job in 2017.

Increased operational efficiency and underlying profitability in the general insurance lines was a key factor in AIG’s decision to separate it from the life and annuity business, according to Zaffino. While general insurance saw adjusted pre-tax earnings slide 18% year over year, a 2.6-point improvement in the adjusted accident year combined ratio signaled continued solid performance despite the quarter’s unusually high catastrophe losses.

Zaffino said AIG, which hasn’t yet arranged the sale of the life and retirement unit, won’t break the business up into pieces because of the value of its broad product portfolio and strong distribution network.

While the New York-based insurer will need to raise new debt for the life and retirement unit and restructure existing debt at the parent company, he said, risk reduction, lowered expenses and improved business mix in the general insurance business enabled the separation.

“Our current expectation is that no additional equity capital will be required [for either unit] given the improvements in our subsidiary capital positions over the last three years,” he added.

AIG’s president said the AIG 200 modernization plan, first set in motion to cut $1 billion in operating costs by 2022, was on track to meet its target run-rate savings for the current fiscal year and would pave the way for a successful corporate restructuring process.

He added that AIG can use its efficiency gains “to facilitate operational separation,” putting some of its savings toward the “limited” legal restructuring and “expense dis-synergies” stemming from the separation process.