AIG American International Group Inc

   (FROM THE WALL STREET JOURNAL 11/4/15) 
   By Leslie Scism and Erik Holm 

The head of American International Group Inc. delivered a defiant message to billionaire investors Carl Icahn and John Paulson, who are pushing for a breakup of the insurer: We aren't budging.

AIG Chief Executive Peter Hancock said in a conference call with analysts Tuesday that management and the board have "carefully reviewed" the idea of breaking up the insurer on many occasions, and concluded that such a move "did not make financial sense."

The comments were his first public ones since Mr. Icahn last week sent a letter urging the company to split into three pieces. Messrs. Icahn and Paulson have argued that breaking up the company would reduce its regulatory burden and allow it to return more capital to stockholders through share buybacks.

Mr. Hancock said that assumption wasn't true.

AIG's designation as "systemically important" by a panel of federal regulators "has not limited our ability to return capital," Mr. Hancock said.

Rather, he said, ratings firms like the stability and diversification of a multiline insurer, and the firms "are the key determinant of how much capital is available for distribution" to shareholders.

In the insurance industry, ratings firms don't just provide grades that determine a company's borrowing costs. They also provide assessments of financial strength and claims-paying ability that are widely used by corporate risk managers, agents, brokers and consumers in deciding where to buy insurance policies.

Due to ratings-agency concerns, breaking AIG into smaller companies likely would result in the return of "less capital" to shareholders, not more, Mr. Hancock said. AIG offers primarily property-casualty coverage and life insurance, with a much smaller business in mortgage-guaranty.

Messrs. Hancock and Icahn are scheduled to meet Thursday at the investor's office.

"I'm going to wait until I talk to them," Mr. Icahn said. "As long as he called me up and said he wants to come talk to me, before I pass judgment I want to hear his arguments."

Paulson & Co. partner Charles Murphy said in an email after Tuesday's 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.

Paulson has "little confidence in management, strategy and structure," the statement said, and wants to see spinoffs to shareholders of some of AIG's businesses, more divestitures and additional capital returned to shareholders.

Messrs. Icahn and Paulson have argued that by dividing AIG into smaller pieces, the company could escape its federal designation as a systemically important financial institution. The label indicates the government believes a company could pose risks to the broader economy during a crisis. The designation brings with it heightened scrutiny and requirements to hold robust capital buffers against unexpected losses. The Federal Reserve still is writing the rules.

Asked Tuesday about whether uncertainty over the rules is causing AIG to hold excess capital, Mr. Hancock responded, "The answer is definitively no."

"We anticipated this [SIFI] designation before we exited the government's cradle," he said, referring to the government bailout of AIG during the financial crisis.

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(END) Dow Jones Newswires

November 04, 2015 02:47 ET (07:47 GMT)

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