(Reuters) – Assureur American International Group Inc AIG.N On Monday, its board of directors approved a plan to separate life and retirement activities from the rest of the company and appointed chairman Peter Zaffino as chief executive, effective next year.
AIG shares rose almost 8% under extended trading.
Zaffino, 53, who succeeds Brian Duperreault, 73, will take the helm in March. Zaffino will be AIG’s seventh CEO since 2005.
The insurer, which ranks among the top 10 U.S. carriers in terms of market value, said it has yet to make a decision on how to proceed with the separation, beyond the board vote of administration to create two independent market-leading companies.
The separation of the company could take “a few years” and be done in stages via sales of minority stakes, according to two people familiar with the matter.
The board’s decision does not preclude a one-time sale and any proposed transaction will also need to be approved by the board, AIG said.
Life and retirement business accounted for 34% of AIG’s $ 49 billion (£ 37.62 billion) in adjusted revenue in 2019, compared to 64% for its general insurance business, AIG said in September. .
AIG is in the midst of a turnaround initiated by Duperreault, who took charge of AIG in 2017.
Duperreault focused on improving underwriting, doing more with worthy clients, investing in technology, restoring talent and reducing costs.
Zaffino, has been key to achieving these goals, in part by reducing losses in the property and damage business and relying more on reinsurance while modernizing technology and processes. He also helped recruit a number of executives.
Zaffino joined AIG as Global COO in 2017. His rise to CEO was widely expected after being named president in December, but AIG had not indicated when the change would take place.
AIG struggled to recover from a $ 182 billion US taxpayer bailout in 2008 to save it from collapse. Since then, the company has sold big chunks to pay off debt plus a yield of $ 22.7 billion.
It has also had to overcome heavy losses from disasters in previous years, which have resulted in unexpected increases of more than $ 11.2 billion in reserves since 2015, most of which took place under previous management.
In May 2019, AIG published its first technical benefit in general insurance since the 2008 financial crisis, a key objective.
AIG’s life insurance business separation echoes a move by billionaire activist investor Carl Icahn, who targeted the insurer in 2015 with a breakout plan also backed by former hedge fund manager John Paulson.
Icahn, who wanted AIG to become a smaller and simpler company, demanded that AIG abandon its life insurance business and now former mortgage insurance business.
The move would bring more liquidity to shareholders, Icahn said at the time.
Icahn sold its stake in AIG in 2018.
Analysts also saw the logic in a separation. While the general insurance industry is prone to fluctuations from hurricanes, wildfires and other catastrophic events, the Life and Retirement Unit’s large investment portfolio makes it highly sensitive to interest rates – and current low rates weighed on earnings.
AIG also said on Monday it suffered disaster losses estimated at $ 790 million in the third quarter, net of reinsurance and before taxes, including $ 185 million in estimated disaster losses for COVID-related claims. 19.
The losses were broadly in line with analysts’ expectations.
AIG also recorded a pre-tax charge of $ 9 million in its life insurance business after performing an annual review of the assumptions used to underwrite life insurance policies.