By Ben Dummett and Leslie Scism 

American International Group Inc. is in early discussions to sell insurance operations connected with Lloyd's of London to Canada's biggest pension fund, according to people familiar with the matter.

Canada Pension Plan Investment Board is in talks to acquire AIG's business at Lloyd's of London, and a related reinsurance company based in Bermuda, the people said.

The talks are part of the New York insurer's efforts to improve its results by narrowing its focus and returning more than $25 billion in capital to shareholders. An acquisition would mark the Canadian fund's latest move to establish itself as a significant player in the global insurance industry.

A transaction, if completed, could fetch the insurance conglomerate hundreds of millions of dollars in proceeds, the people said.

The two sides, though, may fail to reach a final pact, these people said.

The pension fund's first high-profile insurance deal came in 2014 through the $1.8 billion acquisition of U.S. life insurer Wilton Re Limited Holdings. Last year, CPPIB acquired almost a 10% stake in Bermuda-based Enstar Group Ltd. Enstar acquires and manages insurance and reinsurance companies, and its holdings include operations at Lloyd's of London.

AIG is minority owner of Ascot Underwriting Holdings Ltd., which manages a Lloyd's syndicate for which AIG provides the capital.

Ascot has operations in Asia and Houston, which could further extend the reach of the Canadian fund's insurance operations.

The possible deal highlights the Canadian fund's focus on using its investments to gain meaningful scale in industries identified as priorities. As manager of 287.3 billion Canadian dollars ($221.9 billion) in pension assets, the Canadian fund needs to achieve that goal to help influence returns.

At the same time, CPPIB is attracted to the insurance business because the recurring cash flows that the industry generates match up well with the fund's long-term pension liabilities.

AIG has been under pressure to improve performance since last fall, when activist investors Carl Icahn and John Paulson publicly called on the company to break itself into parts. The billionaires contended such a breakup would help AIG avoid onerous capital requirements as a "systemically important financial institution." AIG got the federal label after its near-collapse in 2008 and subsequent government bailout, since fully repaid.

AIG rejected that plan as ill-advised for shareholders. In January, CEO Peter Hancock detailed a strategy to return at least $25 billion to shareholders through 2017, mostly through buybacks, as it gradually disposes of noncore businesses and takes other steps to improve its profit margins.

Earlier this month, the insurer agreed to sell its mortgage-guarantee unit for about $3.4 billion to Bermuda-based insurer and reinsurer Arch Capital Group Ltd. as part of that effort.

From January through early August, AIG returned $7.9 billion in capital to shareholders through dividends and share buybacks.

Write to Ben Dummett at ben.dummett@wsj.com and Leslie Scism at leslie.scism@wsj.com

 

(END) Dow Jones Newswires

August 23, 2016 13:16 ET (17:16 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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