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AIG Expands Reach in Growing Pension Risk Transfer Market

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American International Group Inc. (AIG - Free Report) aims to expand its presence in the pension risk transfer market via agreement on the two largest plan termination transactions of 2017.

These transactions, entered into by American General Life Insurance Company, part of AIG’s Life & Retirement business, represented over $1.5 billion in pension plan obligations covering more than 24,000 retirees, beneficiaries, deferred and active members.

Tax reform, repatriation of assets from international operations and improved funded status provides significant opportunity for expansion of the pension risk transfer market.

The company is one of the leaders in the thriving pension risk transfer market given its investment expertise, strong operational capabilities, prudent risk management, disciplined pricing and strong balance sheet.
Pension risk transfer is in demand as corporations are de-risking their pension liabilities in order to lower risk profile and focus on their core business.

Pension obligations pose threats to the company’s equity capital in the event of market disruption. Unfunded pension liabilities are a form of corporate debt, which has to be settled before paying to equity shareholders. Any loss in pension fund causes would inflate the pension fund liability which would erode shareholder’s equity and weigh on capital levels.

These risks have increased the popularity of pension risk transfer agreements which enable corporations to delegate the management of their pension liabilities to an insurer for some fees These agreements thus enable companies to focus on their business growth without worrying about pension liability.

Other big insurers Prudential Financial Inc. (PRU - Free Report) and MetLife Inc. (MET - Free Report) are also eying this growing market. Earlier this month, a unit of MetLife agreed to assume responsibility for about $6 billion in defined benefit pension obligations for 41,000 retirees and beneficiaries in FedEx pension plans.

Also, a unit of Prudential Financial agreed to assume responsibility for about $1.2 billion in pension obligations to 7,500 pensioners from Pension Insurance Corp. PLC of the United Kingdom.

American International revenues have suffered over the years from declining premium due to disciplined underwriting, competitive market conditions and reduction in business due to numerous divestitures taken.

This is evident from declining revenues since 2013 that continued in the first quarter of 2018. Challenges in the property and casualty market, and continued business dispositions will continue to keep the top-line under pressure in the coming quarters.

The stock has declined 15% in a year’s time compared with the industry’s growth of 0.5%.

The company’s new CEO Brian Duperreault is expected to be instrumental in turning around the company by completing ongoing restructuring initiatives and making additional changes.

American International Group carries a Zacks Rank #5 (Strong Sell). A better-ranked stock in the space is Kemper Corporation (KMPR - Free Report) . The stock sports a Zacks Rank #1 (Strong Buy). It beat estimates in each of the four reported quarters, with an average positive surprise of 121.6%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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