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AIG's Divestiture of Fortitude Re to Streamline Its Business
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American International Group, Inc. (AIG - Free Report) completed the divestiture of a majority stake in its legacy specialist run-off company, Fortitude Group Holdings, LLC (Fortitude RE). The two companies, which have acquired the majority stake of Fortitude Re, are The Carlyle Group (CG - Free Report) and T&D Holdings.
Notably, in 2018, Fortitude Re was introduced as a reinsurance platform by AIG in collaboration with Carlyle. In the same year, Carlyle completed the buyout of a 19.9% stake in Fortitude Re. Further, AIG unveiled its plans to divest a 76.6% stake in Fortitude Re to Carlyle and T&D last year in November, which materialized now.
Per the purchase agreement, AIG received a purchase price of $1.8 billion and also received additional consideration, thereby, receiving sale proceeds of $2.2 billion. Post the transaction closure, Carlyle is entitled to hold a 71.5% stake in Fortitude Re, which even consists of a 19.9% stake acquired by it in November 2018. The Japanese insurer, namely T&D, will hold a 25% stake and the balance 3.5% will be held by AIG.
Notably, Fortitude Re had reserves of nearly $30 billion against life and retirement policies, and an additional $4 billion against the general insurance run-off business. We believe by selling Fortitude Re, AIG will let go of its legacy liability related to the insurance portfolio, which includes run-off management solutions for long-dated, complex risk policies. These were non-core businesses for AIG, with lower return and high-risk characteristics, which could potentially harm the company’s performance, going forward. A reduction of legacy liability will also improve its risk-adjusted capital ratio.
However, shares of this Zacks Rank #3 (Hold) insurer have lost 38% in a year compared with the industry’s decline of 20.7%.
Nevertheless, AIG has undertaken constant efforts to focus on its core insurance operations, and restructure businesses aimed at enhancing capital allocation and operating leverage. Not only divestitures, the company has also been in a bid to enhance its product capabilities on the back of acquisitions. The buyout of Ellipse rendered strength to AIG’s Life & Retirement business, based on which it rolled out a diverse range of product solutions.
Moreover, last month, the company collaborated with Annexus to launch an index annuity solution — X5 Advantage. The new solution will provide a steady and lifetime source of income for retirees and offer enough scope for increasing their income. Further, we believe that the company’s cost-cutting initiatives will provide an extra cushion to its operating margins in the days ahead.
Allstate and Amerisafe beat estimates in each of the trailing four quarters, the average positive surprise being 18.45% and 50.67%, respectively.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
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AIG's Divestiture of Fortitude Re to Streamline Its Business
American International Group, Inc. (AIG - Free Report) completed the divestiture of a majority stake in its legacy specialist run-off company, Fortitude Group Holdings, LLC (Fortitude RE). The two companies, which have acquired the majority stake of Fortitude Re, are The Carlyle Group (CG - Free Report) and T&D Holdings.
Notably, in 2018, Fortitude Re was introduced as a reinsurance platform by AIG in collaboration with Carlyle. In the same year, Carlyle completed the buyout of a 19.9% stake in Fortitude Re. Further, AIG unveiled its plans to divest a 76.6% stake in Fortitude Re to Carlyle and T&D last year in November, which materialized now.
Per the purchase agreement, AIG received a purchase price of $1.8 billion and also received additional consideration, thereby, receiving sale proceeds of $2.2 billion. Post the transaction closure, Carlyle is entitled to hold a 71.5% stake in Fortitude Re, which even consists of a 19.9% stake acquired by it in November 2018. The Japanese insurer, namely T&D, will hold a 25% stake and the balance 3.5% will be held by AIG.
Notably, Fortitude Re had reserves of nearly $30 billion against life and retirement policies, and an additional $4 billion against the general insurance run-off business. We believe by selling Fortitude Re, AIG will let go of its legacy liability related to the insurance portfolio, which includes run-off management solutions for long-dated, complex risk policies. These were non-core businesses for AIG, with lower return and high-risk characteristics, which could potentially harm the company’s performance, going forward. A reduction of legacy liability will also improve its risk-adjusted capital ratio.
However, shares of this Zacks Rank #3 (Hold) insurer have lost 38% in a year compared with the industry’s decline of 20.7%.
Nevertheless, AIG has undertaken constant efforts to focus on its core insurance operations, and restructure businesses aimed at enhancing capital allocation and operating leverage. Not only divestitures, the company has also been in a bid to enhance its product capabilities on the back of acquisitions. The buyout of Ellipse rendered strength to AIG’s Life & Retirement business, based on which it rolled out a diverse range of product solutions.
Moreover, last month, the company collaborated with Annexus to launch an index annuity solution — X5 Advantage. The new solution will provide a steady and lifetime source of income for retirees and offer enough scope for increasing their income. Further, we believe that the company’s cost-cutting initiatives will provide an extra cushion to its operating margins in the days ahead.
Stocks to Consider
Some better-ranked stocks in the insurance space are The Allstate Corporation (ALL - Free Report) and Amerisafe, Inc. (AMSF - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Allstate and Amerisafe beat estimates in each of the trailing four quarters, the average positive surprise being 18.45% and 50.67%, respectively.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>