By Leslie Scism and Lisa Beilfuss 

American International Group Inc. will sell its broker-dealer network, conduct a partial spinoff of its mortgage-insurance unit and more aggressively cut costs, Chief Executive Peter Hancock said in a strategy update Tuesday, as pressure from investor Carl Icahn grows.

AIG also said it plans to return at least $25 billion over the next two years to shareholders in the form of share buybacks and dividends, funded by divestitures, operating performance and other things.

The board also approved a plan to reorganize AIG into nine separate business units, and the company said that "if they don't adequately contribute to financial targets," AIG "could consider" the divestiture of even its core property-casualty unit.

In announcing the moves, the insurance giant is heeding many investors' calls for more asset dispositions but isn't following activists' game plan for an immediate breakup. "After careful consideration, AIG believes that a full breakup in the near term would detract from, not enhance, shareholder value," said Douglas Steenland, nonexecutive chairman, adding that Mr. Hancock has the board's "full support."

Separately, AIG announced that it would strengthen its loss reserves in its property-casual business by $3.6 billion, representing about 6% of AIG's total property-casual net reserves.

The company will sell its Advisor Group to private-equity firm Lightyear Capital LLC and Canadian pension manager PSP Investments. The sale of the broker-dealer network, for which financial terms weren't disclosed, is expected in the second quarter.

AIG also plans to execute a 19.9% spinoff of United Guaranty Corporation, in what it called a first step toward full separation. The insurer increased its expense-reduction target to $1.6 billion within two years, up from an earlier plan to shave costs by $1 billion to $1.5 billion by 2017.

"With these actions, AIG has taken another major step in simplifying our organization to be a leaner, more profitable insurer," Mr. Hancock said.

AIG nearly collapsed into bankruptcy court in 2008 amid the worsening global liquidity crunch, and to pay back its nearly $185 billion government bailout, it sold over 50 businesses and other assets, generating more than $90 billion in proceeds, according to its figures.

When the crisis hit, AIG was a globe-straddling financial-services behemoth with an airline-leasing unit and a large financial-products unit, among other non-insurance businesses. In selling assets, it scaled back mostly to world-wide sales of property-casualty insurance, both to businesses and consumers, and a U.S.-focused life-insurance and retirement-services business.

Lately, AIG has been under mounting pressure to improve results. Mr. Icahn, who last year called AIG "too big to succeed," in November disclosed a stake of more than 42 million AIG shares, translating to $2.61 billion and roughly 3% of the company.

Together with fellow billionaire John Paulson, Mr. Icahn has called for AIG to pursue a split into three separate companies, arguing that each of those companies would be small enough to avert the "systemically important financial institution," or SIFI, designation, which carries heightened scrutiny and requirements to hold robust capital buffers against losses. He said in an open letter to AIG's board last week that he wouldn't be satisfied with "small-scale asset sales and incremental cost-cutting."

The board Chairman Mr. Steenland said "being a nonbank SIFI is not currently a binding constraint on return of capital." He said a "lack of diversification benefits would reduce capital available for distribution, and there would be a loss of tax benefits."

Write to Leslie Scism at leslie.scism@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

 

(END) Dow Jones Newswires

January 26, 2016 07:20 ET (12:20 GMT)

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