In an effort to further streamline its global insurance operations, American International Group Inc.
(AIG - Analyst Report
) has entered into strategic agreements with Fairfax Financial Holdings Limited.
This leading global property and casualty insurer and reinsurer will take on American International’s local commercial and consumer insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey.
American International will also sell to Fairfax renewal rights for the portfolio of local business written by its Central and Eastern European (CEE) operations in Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovakia. Fairfax will also take over AIG’s CEE operating assets and employees.
This agreement will make Fairfax the main strategic multinational network partner serving AIG’s global clients in these countries. Fairfax will however leverage on American International’s expertise, claims handling, and reinsurance capabilities. The total cash consideration for the deal is nearly $240 million.
American International will not be directly involved in this deal but will provide world-class capabilities and outstanding service to its global clients in its key countries via Fairfax.
This agreement is yet another effort made by American International to simplify its business structure by shedding assets.
Last month, sources reported that Ascot Underwriting Holdings Ltd., the Lloyd’s of London insurer tied to American International Group Inc. will be bought by Canada Pension Plan Investment Board. The deal, valued at $1.1 billion, would fetch American International $240 million for its 20% share in business and ownership of a related unit in the deal.
The company has undertaken several divestures in a bid to make the company leaner.
American International, which was a victim of the financial crisis in 2008, and was rescued by the government has generated funds more than $90 billion in funds by selling assets and businesses since then.
The company’s restructuring initiatives gathered steam in recent months after its CEO, Peter Hancock came under attack by the investor Carl Icahn last year November, via a letter in which he created pressure on the former to slim down the massive company by dividing it into three parts – property and casualty, life and mortgage insurance. According to Icahn, these three businesses were so diverse that they together provided little or no synergistic effect. Also, the company’s mammoth size acted as a hindrance in its own path to progress as evident by its underperformance from the past several years.
Though the company has taken numerous divestures since 2008, it could not generate the anticipated returns. The company has therefore taken a series of steps since Nov 2015, after Peter Hancock was threatened to be replaced from his job. In the beginning of 2016, the company announced that it will return $25 billion to its shareholders over two years. In view of this, in August, the company announced that it will sell its mortgage insurance unit United Guaranty Corporation to Arch Capital Group Ltd. (ACGL - Snapshot Report
) for $3.4 billion. Also, last month, the company completed the sale of its Taiwan unit. In May, the company also completed the sale of Advisor Group to investment funds affiliated with Lightyear Capital LLC.
Other steps taken recently to drive up returns from the company include the announcement of a new share buyback plan to authorize the repurchase of additional shares with an aggregate purchase price of up to $3.0 billion. Prior to this, in Feb 2016, it authorized an additional $5 billion in share repurchases. The company also raised its quarterly dividend by 14%.
Moreover, the company formed a new Executive Leadership Team structure comprising 10 heads – all veterans in their respective fields – to work toward attaining the strategic priorities of the company. Several jobs were slashed, including those at senior positions in the company in order save cost.
Currently, AIG carries a Zacks Rank #3 (Hold). Better-placed stocks from the same sector are MGIC Investment Corp. (MTG - Analyst Report
) and Prudential Financial Inc. (PRU - Analyst Report
MGIC Investment with a Zacks Rank # 2 reported third-quarter earnings of 25 cents per share, beating the Zacks Consensus Estimate of 17 cents.
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