Icahn, analysts welcome resignation of AIG chiefReprints
Activist investor Carl Icahn and analysts welcomed the proposed resignation of AIG President and CEO Peter Hancock on Thursday.
But one analyst warned that AIG will likely need to make further reserve charges after a new CEO is appointed.
In a tweet, Mr. Icahn said: “We fully support the actions taken today by the board of AIG.”
In late 2015, Mr. Icahn, who is one of the largest shareholders of AIG, called for a breakup of the insurer, saying it was “too big to succeed,” a play on AIG’s designation as a “too-big-to-fail” systemically important financial institution, or SIFI.
Mr. Icahn quieted his criticism after he won representation on AIG’s board, the insurer slashed its management ranks and proposed a turnaround plan that included shrinking its U.S. casualty book and selling certain units — but falling short of a full breakup.
Mr. Hancock’s resignation, which came less than a month after AIG posted a $3.04 billion loss for the fourth-quarter of 2016, was also well-received by analysts.
In a note on Thursday, analysts at Keefe, Bruyette & Woods Inc. said: “We view this as a significant positive. We agree with several elements of the current strategy, but Mr. Hancock’s past — as head of (property/casualty) — and current underperformance makes it difficult to see how AIG could demand employee accountability.”
The note said that there are few executives with the skills to turn around AIG, but added that “several successful turnarounds within (the property/casualty sector) over the last decade or so suggest that it’s achievable, notwithstanding the considerable difficulty,” citing turnarounds at Aon P.L.C., CNA Financial Corp, Marsh & McLennan Cos. Inc. and XL Group Ltd.
Analysts at Credit Suisse Securities (USA) L.L.C. also welcomed the move.
In a note they said: "It had become abundantly clear to us from dialogue with investors ... that the overwhelming majority of investors felt change was absolutely needed at the top of the organization."
The next CEO will likely come from an underwriting background, the analysts said.
According to the note, candidates for the job will likely by attracted by the fact that AIG’s businesses — other than its core property/casualty units — have “been on a good path over the past few years”; the $20 billion retroactive reinsurance contract recently purchased from Berkshire Hathaway Inc. will protect the company from past-year reserve problems; and “the fact that AIG is far simpler on the (property/casualty) side today than it was several years ago, with a large portion of the problematic (property/casualty) lines remediated or exited.”
The new CEO, however, will likely make further charges, which could hit first-half results for 2017, the note said.
“We now greatly discount the idea that the fourth-quarter charge and increase in (loss estimates) was a 'kitchen sink' event following Peter Hancock’s resignation. New charges are likely to come with a new CEO,” the Credit Suisse note said.