American International Group's Inc.'s agreement to sell its last major noncore business stands to benefit the company by allowing it to concentrate on its insurance operations.
AIG announced earlier this month that it reached an agreement to sell its International Lease Finance Corp. aircraft leasing business to AerCap Holdings N.V. in a cash and stock deal. It could be worth about $5.4 billion when the sale is finalized, likely in the second quarter of 2014.
The transaction marks the end of AIG's sale of major assets, which began shortly after the federal government provided more than $180 billion in financial assistance to the company to prevent its collapse in 2008.
Among other assets previously sold to repay the government and bolster the company were: China-based insurer AIA Group Ltd.; Taiwan-based Nan Shan Insurance; personal automobile insurance company 21st Century Insurance; and AIG's Tokyo headquarters.
With the planned sale of the aircraft leasing business and the repayment of federal taxpayer assistance completed, AIG now is poised to compete more effectively in the insurance marketplace, industry experts and insurance buyers say.
“It's ... ultimately a major step to getting to the ultimate goal of becoming a much more easy to understand insurance company,” said Paul Newsome, managing director and senior insurance analyst at investment banking firm Sandler O'Neill & Partners L.P. in Chicago.
During the past five years, AIG did lose some senior executives, perhaps none more key than Peter Eastwood, who had been president and CEO of AIG Property/Casualty-The Americas. He resigned earlier this year to join Warren Buffett's Berkshire Hathaway Inc. to build its specialty insurance business, which is quickly becoming an AIG archrival.
“They've lost a ton of talent, though,” said William Montanez, director of risk management at Ace Hardware Corp. in Oak Brook, Ill. “They've lost a lot of good people, but I still think they've got a pretty good core of talented and creative people.”
Focusing solely on the insurance business should benefit AIG, Mr. Montanez said. “In the long run, I think it will be to their benefit and the benefit of the insurance industry to be focused and not distracted by noncore businesses,” he said.
John Ward, CEO of Cincinnatus Partners L.L.C. in Loveland, Ohio, said AIG CEO Robert Benmosche has done an “admirable job in guiding the company through this transition.”
Mr. Benmosche plans to stay at AIG's helm until at least 2015, a company spokesman said in an email to Business Insurance. Regarding AIG's CEO succession plan, Meyer Shields, Baltimore-based managing director of equity research, property/casualty insurance for Keefe, Bruyette & Woods Inc., said: “I guess the obvious successor is probably Peter Hancock,” referring to the current chief executive of AIG Property Casualty.
Meanwhile, “they're done with company reorganization, and now it's all about executing on the insurance businesses,” Mr. Shields said.
Gloria Vogel, a senior vice president at Drexel Hamilton L.L.C. in New York, said the ILFC aircraft business “sort of clears the decks of all of the stuff they had to get rid of.” However, since AIG said it would retain a 46% stake in the combined entity with AerCap, “It's not a complete exit until they actually sell their shares in the combined company,” she said.
Of the planned transaction with AerCap, Mr. Ward said: “The deal itself I wouldn't call particularly lucrative for AIG, but it's a big accomplishment in the sense that it's the final large noncore divestiture.”
“And I think AIG is well-positioned going forward to being a great franchise,” he said. “They've taken this transition period over the past four or five years to make some improvements to the property/casualty business. And while the current results are average at best, and in many ways are underperforming the industry, I think the outlook is very positive for AIG.”
James Auden, managing director of insurance for Fitch Ratings Inc. in Chicago, said, “They've made plenty of steps to get back to the core business, and this is the last big piece.”
He said AIG's life operations are “doing fairly well,” and that the company has taken steps to improve its property/casualty insurance business, including using more predicative modeling in its underwriting. Those improvements are “starting to bear fruit,” Mr. Auden said.
Ms. Vogel said the aircraft leasing business is capital-intensive and involves “a lot of debt.”
“Getting this off the books frees up their capital flexibility,” she said.