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Tuesday, 27 September 2016

AIG reports $1.8bn loss as break-up activist wins board power

US insurer in another dramatic day of developments 

AIG’s results fell to a $1.8bn loss in the fourth quarter of last year, as investors plotting a break up of the insurer won seats on the board.

The fourth quarter losses were a far cry from the $655m profit it made in same period last year. 

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AIG was stung badly after having to bolster reserves by $3bn, leading to a fourth quarter combined operating ratio of 161.5% compared with 103.5%. 

The problems were caused by the general insurance arm, which reported a $2.33bn loss compared with a $935m profit in the same period last year. 

It also emerged that: 

  • Activist investor and billionaire Carl Icahn had two allies nominated to the AIG board: hedge fund manager John Paulson and Icahn Capital managing director Samuel Merksamer. Icahn wants to split up the insurer and hand money back to shareholders.
  • The share price crashed 3.57% as investors fretted over the worse than expected results.
  • AIG has been reducing its European book considerably. Net premiums at the Europe, Middle East and Asia division were down from $1.6bn in the first quarter of last year to $923m in the fourth quarter of last year.

Despite the challenges, however, AIG managed to avoid falling into the red for the full year. The insurer posted $2.1bn net income profit for the year, down from $7.5bn. 

A positive note for AIG is that Icahn, Merksamer and Paulson, with their new board power, have agreed not to wage a proxy fight against the insurer, which would have put further pressure on management. 

AIG chief executive Peter Hancock has promised to return $25bn to shareholders, create a leaner firm via staff cuts and bolster profit metrics over the next two years.

The insurer plans an IPO of its mortgage business and sale of financial advisory firm. 

Hancock said earlier that he is “moving forward with a sense of urgency” to put the strategy into place.

 

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