AIG

AIG’s Sale/Spinoff of AIG Life/Annuity. 

Congratulations to AIG on this decision.  For the record, and for others interested in this topic…

In 2008 I was the senior insurance banker at a global bank advising AIG during the financial crisis.  The result was the intervention of the US Treasury and the Federal Reserve Bank, the largest corporate restructuring in history. 

Then in 2015 I was the originator and advisor to the Icahn Companies and Paulson & Co on their AIG initiative.  Unlike other advisory initiatives, hard money was brought in to show commitment.   $4 billion was invested by Icahn/Paulson around the concept of re-focusing AIG. 

The short summary of the hypothesis was that AIG was not “too big to fail”.   In fact, Carl Icahn asked the question: was AIG “too big to succeed”?  This was Icahn’s first large venture into the insurance sector yet this simple question identified a core issue about AIG post-crisis.

Carl Icahn and John Paulson speaking openly about this ‘elephant in the room’ was well-received:  other institutional shareholders quickly responded favorably to support the Icahn / Paulson effort.  In short order, John Paulson and Sam Merksamer (representing Icahn) were appointed to the AIG board and a cooperative/friendly approach was taken to catalyze important strategic restructuring steps.

For the record, this initiative resulted in more or less 80% of the Icahn / Paulson ‘ask’ being carried out:   

·         the United Guaranty mortgage business was sold (presciently, as it turns out, ahead of the 2020 GDP downturn)

·         corporate costs were cut dramatically to more comparable industry levels

·         Brian Duperreault was hired to replace Peter Hancock (who had done a superb job post-crisis in downsizing AIG’s Financial Products book)

·         a new generation of corporate leaders was put in place

·         a massive old years’ liability cover was negotiated by CFO Sid Sankaran with Berkshire Hathaway

·         the residual old year exposures were transferred to what became the Fortitude Re/Carlyle JV

·         the board recognized the need for the CEO to establish succession planning and to impose improved underwriting controls in the P&C business

The spinoff of Life/Annuity was one of several steps we promoted in 2015 to position AIG for the next phase of shareholder value creation following its recovery from the global financial crisis. 

Public disclosures show that the sale/spin off of the US Life/Annuity was rejected then for, among many other reasons, the impact it would have had on the deferred tax asset held by AIG.  AIG also was going through leadership turnover as well as carrying out many of the other steps noted above.

However, the 2017 reduction of the corporate tax rate and the passage of time has minimized the potential negative financial impact of a future sale/spin off, and the new management team has been embedded for sufficient time to reach the decision on Life/Annuity with deliberation.

The sale / spin off announcement effectively completes the slate of ideas proposed by Carl Icahn, Sam Merksamer, and John Paulson, who catalyzed profound changes.  It’s possible to speculate that some of these changes would have been enacted in time anyway.  But it’s indisputable that the ultimately ‘supportive activist’ initiative stimulated quickly – immediately, really – decisions which were due (or even overdue).

AIG therefore has now followed the path of many ‘generalist’ companies – normally underperformers, and named after cities or states, with broadly spread sub-businesses (e.g., in Europe, AGF, GAN, the UK composites, Winterthur, ING and, in the US, previously, Hartford, CNA, and many others) – down a path to create value by focusing on one core business. 

This path has been proven to be successful by numerous US specialty and Life companies:  the long-term stock market valuation of specialized vs generalist strategies shows more than a 2x difference.  

As advisor to AIG in the financial crisis and subsequently as advisor to Icahn/Paulson, it has been an incredible process to see unfold from 2007 to 2020. 

Best wishes to the AIG management team and board as they evolve into a powerful focused company.