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Duperreault looks to reset AIG’s course: Analysis

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A longer time frame to improve results and a shift in capital management should be in the cards at American International Group Inc. under the leadership of industry veteran Brian Duperreault, Credit Suisse Securities (USA) L.L.C. said Wednesday.

While previous management was under near-term pressure to show results — in particular, to quickly lower the insurer’s loss ratio — Mr. Duperreault and his team will have a longer view, Credit Suisse said in a research report, “AIG: M&A Scenario Analysis Supportive of Shift in Capital Return Focus.”

“The new management team has a three-year time horizon for positive change with little incentive early on to reaffirm the previous loss ratio improvement story or even speak to it,” the New York-based analysts said in the report.

Capital deployment priorities may also have shifted away from the company’s share buyback program to potential acquisitions, the report said.

“Mr. Duperreault’s strategy-related comments so far have been clear about a directional change in strategy away from buyback but less clear about order of magnitude and timing,” Credit Suisse said.

At AIG’s recent annual shareholders meeting in New York, Mr. Duperreault commented that he saw value in AIG’s multiline structure and that the company would grow both organically and by potential acquisition.

“He has not formally backed away from the $25 billion capital return goal established by previous management; however, he has signaled that AIG will pivot back to being a growth company and that capital management going forward will reflect a balanced mix of (mergers and acquisitions) and buyback. This strategy is seemingly at odds with the AIG story just months ago where it seemed that the sole path to value creation was becoming a smaller company and returning as much capital through share repurchase as possible,” the Credit Suisse report said.

Credit Suisse estimated that AIG could have as much as $26 billion available for mergers and acquisitions in the next the years. Several established domestic and international companies might be attractive targets, the report said.

The bank also appeared to approve of Mr. Duperreault’s change in emphasis.

“In our view, the shift away from the ‘mega buyback’ strategy at this time makes sense,” the report said. “M&A gives management an avenue to acquire and invest in talent and we think this management team has the credibility to execute a successful integration.”

Deals that would diversity AIG’s business into the U.S. small and middle-market sector or into attractive international markets could benefit AIG, the report said.