AIG has announced it will pursue a separation of its life and retirement business from the rest of the company to focus on property-casualty insurance.
AIG shares jumped 6.6% to $33.33 on news of the move, which, according to The Wall Street Journal, “would be the latest dramatic change at a company” that “was a financial-services behemoth with globe-straddling operations” before it collapsed in 2008 during the financial crisis.
The insurance giant also said it had named Peter Zaffino, its current president, to succeed Brian Duperreault as CEO.
Zaffino “has been a key lieutenant” to Duperreault and “has been widely viewed as heir apparent inside and outside the company,” the WSJ said. “The two have worked on a turnaround of the property-casualty unit,” which had delivered poor results for years.
The life and retirement business accounted for 34% of AIG’s $49 billion in 2019 adjusted revenue — compared to 64% for its general insurance business — and 63% of its adjusted pretax income.
In 2015 and 2016, AIG rejected pressure from shareholder activists Carl Icahn and John Paulson for a separation of the unit as a way to boost shareholder returns. But the WSJ reported that it is now “facing a tougher outlook due to a plunge in U.S. Treasury yields earlier this year, following a decade of already low rates, as Covid-19 spread worldwide.”
“Low interest rates hurt life insurers in part because they depend on interest income on big bond portfolios for a substantial portion of their profits,” the Journal added. “Many industry executives expect rates to stay at ultra-low levels and continue posing challenges to life insurers for years.”
As part of his turnaround strategy, Duperreault has focused on sharpening underwriting, doing more with worthwhile customers, investing in technology, restoring talent and cutting costs.
“Our businesses can be further strengthened by separating life & retirement from AIG, which we believe will enable each entity to achieve a more appropriate and sustainable valuation,” Zaffino said in a news release.
The incoming CEO joined AIG as global chief operating officer in 2017.