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AIG weighs private sale, IPO for life insurance business

Peter Zaffino

American International Group Inc. will likely spin off its life and retirement business via an initial public offering or a staggered private sale, its incoming CEO Peter Zaffino said Friday.

The separation of the property/casualty business and the life and retirement business will be completed without a need to raise additional capital for either unit, but AIG will restructure the debt for the units, Mr. Zaffino said.

The property/casualty business was hit by catastrophe losses in the third quarter, including losses from COVID-19, but the unit is expected to show improvements amid a continued hardening market, he said on a third-quarter results conference call with analysts.

“We currently contemplate either an IPO or private sale of up to 19.9% of life and retirement followed by one or more dispositions of our remaining ownership interest over time,” Mr. Zaffino said.

By selling only 19.9% initially AIG would preserve some foreign tax credits it currently benefits from, he said

The life and retirement unit will be sold as a whole rather than sold in pieces because “a significant strength of the business is the breadth of its platform and diversified product portfolio and distribution network,” he said.

AIG announced last week that it would separate its property/casualty and life business and that Mr. Zaffino, who is currently president of the company, would take over from Brian Duperreault as CEO in March 2021.  

The decision to spin off the life and retirement division came four years after activist investor Carl Icahn called for the breakup of the insurer, which the then-management resisted.

At the time, AIG benefited from a deferred tax asset related to offsetting current earnings against past losses. The benefit of the offset has diminished since 2016, and AIG will be able to use the remaining $6.6 billion in deferred tax assets before they expire, Mr. Zaffino said.

Mr. Zaffino said AIG had reviewed its composite structure over the past several months and concluded that separating the businesses would provide more value to shareholders than maintaining the company’s existing structure.

Given improvements in operations of AIG over the past three years, neither the general insurance division, which houses its property/casualty business, nor the life and retirement division will need additional capital to complete the separation, he said.

“This is especially true in general insurance where the capital base is stronger than it’s been in many years,” Mr. Zaffino said.

The separation process will involve raising new debt for the life and retirement division and restructuring debt for the parent company, but both will have “appropriate” levels of leverage for their ratings, he said.

Meanwhile, AIG reported $281 million in net income for the third quarter, a 56.6% decline compared with the same period in 2019.

The insurer was hit by $790 million in catastrophe losses in the quarter, including $185 million in COVID-19-related losses, which largely affected its travel and contingency insurance units and its reinsurance business, Mr. Zaffino said.

AIG’s general insurance business, which has been the subject of turnaround efforts including cutting unprofitable lines and increased reinsurance purchasing for the past three years, reported net written premium of $5.92 billion in the third quarter, down 11% from the same period last year.

AIG reported a combined ratio of 107.2% for the 2020 third quarter, compared with 103.7% in the 2019 quarter. Excluding catastrophes, the accident year combined ratio improved to 93.3% in the quarter, compared with 95.9% last year.

Commercial rates continue to increase, Mr. Zaffino said. AIG expects to report an accident year combined ratio excluding catastrophes of below 90% by the end of 2022, he said.