AIG changes include spinning off its mortgage insurance division and making other cuts, but that may not be enough to appease an investor.
Mega-insurance company AIG is spinning off its mortgage insurance, cutting jobs and selling its network of independent broker-dealers as part of a sweeping overhaul to slash costs and return more money to shareholders.
AIG, which stands for American International Group, said the changes would reduce operating expenses by $1.6 billion and return at least $25 billion to investors through dividends and share buybacks over the next two years.
As part of the plan, AIG said it let about 300 of what it calls its “top 1,400 employees leave,” with further job cuts expected this year. It also froze its pension plan. The changes are intended to make the insurer leaner, more profitable and focused.
The Jan. 26 announcement came amid rising tensions between AIG Chief Executive Officer Peter Hancock and billionaire activist investor Carl Icahn, the company’s fifth-largest shareholder. Icahn has repeatedly insisted that AIG split into three separate companies – life, mortgage and property/casualty – a move that Hancock opposed. Instead, Hancock preferred a plan to streamline the business through divestitures.
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Headquartered in New York, AIG said it is selling its broker-dealer network, AIG Advisor Group, to Lightyear Capital and PSP Investments. It will also sell a portion of United Guaranty Corp., its mortgage insurance unit, by the middle of the year as a first step toward spinning off the business.
Investors have raised concerns about AIG’s cost structure based on the low commercial property and casualty insurance rates throughout the industry.
Icahn, who owns a 3.4 percent stake in the company, advocates a simpler and smaller AIG. He has maintained that splitting the businesses will enhance shareholder value and remove AIG from some of the oversight, capital and reporting requirements of the Federal Reserve.
AIG became known as one of the companies considered “too big to fail’’ during the financial crisis of 2008 and subsequent government bailout. Its mortgage unit, especially its products tied to subprime loans, helped lead to AIG’s near collapse.
