AIG American International Group Inc

By Leslie Scism and Erik Holm 

The head of American International Group Inc. said management and the board had on many occasions reviewed the idea of breaking up the insurer and concluded that such a move "did not make financial sense."

The comments from AIG Chief Peter Hancock, made in a conference call with analysts and investors Tuesday, were his first since activist investor Carl Icahn sent a letter last week urging the company to split into three pieces. Mr. Icahn argued that splitting apart would reduce the company's regulatory burden.

On Tuesday, Mr. Hancock said that assumption wasn't true. The "assumed outcome" under Mr. Icahn's proposal is the ability to return more capital to shareholders, but he said the company's designation as "systemically important" by a panel of federal regulators "has not limited our ability to return capital."

What's more, financial-institution ratings agencies like the stability and diversification of a combined company, Mr. Hancock said. Due to ratings-agency concerns, smaller companies would likely return "less capital" not more, he said.

Mr. Hancock said AIG sees a "tremendous benefit" in having a combined life and property-casualty operation, and that a split would be a distraction from the company's cost-cutting initiatives.

He said AIG's management would meet with Mr. Icahn to share its conclusions "and give him an opportunity to elaborate on his views."

Mr. Icahn didn't immediately respond to a request for comment.

Mr. Icahn and hedge-fund billionaire John Paulson have argued that by dividing AIG into smaller pieces, AIG could escape its federal designation as a systemically important financial institution. The label indicates the government believes the company could pose risks to the broader economy during a crisis. It brings with it heightened scrutiny and requirements to hold robust capital buffers against unexpected losses.

Paulson & Co. partner Charles Murphy said in an emailed comment Tuesday after the call that the "status quo is not acceptable" given the company's worse-than-expected third-quarter results, which missed "by a wide margin the very low goals" previously set by AIG. The Paulson firm has "little confidence in management, strategy and structure," adding that it continues to want to see spinoffs to shareholders of some of AIG's businesses, more divestitures and additional capital returned to shareholders.

Asked Tuesday whether the company's designation as systemically important was causing the firm to hold more capital, Mr. Hancock responded: "definitively no."

"We anticipated this designation before we exited the government's cradle," he said, referencing the government bailout of AIG during the financial crisis. The company has already completed what he said were massive divestitures. Unlike other systemically important financial institutions that are de-levering now, "we got that done by the end of 2011."

Since 2008, the company has sold more than 30 businesses for more than $90 billon, he said.

Mr. Hancock said the company continues to looks for ways "to reduce cost and complexity" of AIG. "There are no sacred cows and we consider all avenues to improve shareholder returns," he said.

AIG shares are down 4.7% to $60.76.

Write to Leslie Scism at leslie.scism@wsj.com and Erik Holm at erik.holm@wsj.com

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(END) Dow Jones Newswires

November 03, 2015 11:03 ET (16:03 GMT)

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