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AIG Arm to Acquire Ellipse, Business Expansion on Track

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In an effort to expand business in the U.K., AIG Life Ltd. (AIGLL), a unit of American International Group Inc. (AIG - Free Report) , has announced that it will acquire of Ellipse, a specialist provider of group life risk protection in the UK, from Munich Re.

The deal, likely to see the light of day by the first quarter of 2019, will enable AIGLL to better manage group risk schemes for companies of all sizes with the help of Ellipse’s group protection capabilities, which includes life, critical illness and income protection products. Also, the acquiring company’s technology-enabled business model will ease processing.

The transaction strengthens AIG’s position in Life & Retirement businesses and is highly complementary to AIG’s existing UK Individual Protection offering. With Ellipse, the company will be able to gain traction from the growing group insurance market of the U.K.

AIG has chosen Ellipse, driven by its superior operating performance, evident from strong growth in 2009, which made it the 6th largest UK group life provider based on its new business volumes, registered in 2017.

The financial size of the transaction was left undisclosed but the deal will be funded by cash.

Earlier dring the year AIG announced to acquire Validus Holdings, Ltd., a leading provider of reinsurance, primary insurance and asset management services. This transaction would strengthen its global General Insurance business by expanding the company’s current product portfolio through additional distribution channels as well as advancing the tools available to enhance underwriting.

AIG had been struggling with weak business growth and has been suffering revenue declines since 2013, which persisted during the first quarter of 2018 as well. The company languished under its own weight with numerous business operations creating little or no synergy. This bearish scenario  dented the company’s profitability. Management therefore took to massive amount of divestitures, selling a number of consolidating businesses to slash costs.

The stock has lost 12.4%, wider than the industry’s decline of 2.6%.

 

The company’s CEO Brian Duperreault, appointed last year, has made a significant shift in its capital utilization strategy with a view to turn the stock around and achieve greater profitability. Management now expects to utilize capital for possible buyouts in the international markets, boosting the company’s personal and life lines segments plus investing in the domestic middle market as opposed to its hitherto usage of capital resource for share repurchases.  We will thus be little surprised to hear about more deals from the company going forward.

Hence, a lower amount of share buyback will somewhat be less accretive to the company’s bottom line.

AIG carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the same space are Cigna Corp. (CI - Free Report) , MetLife, Inc. (MET - Free Report) and Loews Corp. (L - Free Report) , each carrying a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cigna has witnessed a 2.7% upward revision in current-year earnings to $13.24 over the past 60 days.

MetLife beat earnings estimates in each of the last four reported quarters with an average positive surprise of 9.96%.

Loews surpassed earnings estimates in three of the trailing four reported quarters with an average beat of 557.35%.

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