A.I.G. Faces Calls To Split Up (NYSE: AIG)

In an open letter to American International Group, billionaire investor Carl C. Icahn called on the company to break itself up into several smaller insurers. Icahn is one of Wall Street’s most prominent activist investors and he reportedly owns a large stake in the company.

The activist investor believes that keeping different types of insurance under the same umbrella is weighing down A.I.G.’s returns. A.I.G. currently sells property insurance, casualty insurance, and life insurance. Icahn also said that the company needs to cut costs to keep itself competitive with other rivals.

Spinning off A.I.G.’s life insurance and mortgage insurance subsidiaries into separate publicly traded companies would help the firm avoid the government’s stricter oversight and regulatory requirements. Other companies have been eager to avoid that status. General Electric is in the process of selling most of its huge lending arm to avoid being placed in that category.

Icahn wrote, “I cannot fathom how you could ignore repeated requests from shareholders to execute a plan that would release billions of dollars of capital, free the company from onerous excess regulation and leave shareholders owning stock in three separate, market-leading insurance franchises.” Other competitors in the industry have chosen to sell or spin off some divisions to bolster their stock price.

Splitting up A.I.G. may not be so easy. The company has resisted previous calls to break up. A.I.G. responded in a statement, “We have taken important and significant steps to reposition A.I.G. by both simplifying and de-risking the company, and realizing attractive valuations from noncore asset sales.”

Seven years ago, A.I.G. was bailed out by the federal government to the tune of billions of dollars. A.I.G. has made several moves to slim down after receiving the government bailout in the fall of 2008. The company has sold a number of businesses, including two life insurance operations in Asia and an aircraft leasing business.

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