Big shake-up at AIG as it breaks up insurance business and replaces CEO

Insurer aims for greater shareholder value but S&P puts group’s ratings on CreditWatch negative.

Insurance giant American International Group (AIG) has revealed plans to separate its life & retirement (L&R) business following a “comprehensive review” of its structure.

The review examined the company’s current composite structure, covering strategic, operational, capital and tax implications.

Following a recommendation to split the group from the executive management, the board decided to separate the L&R business. 

AIG said the move will establish two independent market leading companies, and will simplify its corporate structure. The company hopes this will unlock “significant value” for shareholders and other stakeholders. 

As part of the changes, the group also announced Peter Zaffino will be its new chief executive officer (CEO), as of March 2021. In another senior level change, current CEO Brian Duperreault, will become executive chairman. 

As part of the leadership transitions, Zaffino will take up the post of CEO at AIG in addition to his role as president of the company. He will also serve as a director, with immediate effect.

Douglas Steenland, currently the independent chairman of the board, will move to take up the role of lead independent director from March 1, 2021.

Duperreault said: “Over the last three years, we have taken significant action to de-risk AIG and position the company for profitable growth, including fortifying general insurance, diversifying L&R, significantly strengthening AIG’s capital and liquidity position, and building a world-class team.

“This foundational work has positioned AIG to pursue a separation of L&R enabling both companies to prosper as standalone entities.

“I want to thank the AIG directors for their continued support and congratulate Peter on his well-deserved election as the next chief executive officer of AIG,” he added. “Peter has been instrumental in the significant turnaround and transformation at AIG and his vision, determination and pursuit of excellence will help ensure the company’s future success.”

“I look forward to leading AIG’s next phase on our journey.”

Peter Zaffino, AIG

Zaffino said: “Across AIG, we have made significant progress executing on our strategy to deliver value for our clients, distribution partners, shareholders and other stakeholders.

“Our businesses can be further strengthened by separating L&R from AIG, which we believe will enable each entity to achieve a more appropriate and sustainable valuation.”

He added: “I am honoured to succeed Brian as chief executive officer of AIG and want to thank him and the AIG board of directors for this opportunity. I look forward to leading AIG’s next phase on our journey to becoming a top performing company.”

Ratings actions

Following news of the AIG break-up, S&P Global Ratings placed the group’s ratings on CreditWatch negative. The ratings agency also put the insurer’s property & casualty (P&C) entities on CreditWatch with negative implications, and its rated L&R entities on CreditWatch with developing implications.

S&P said the rating actions reflected its changing view on the strategic importance of the L&R group and the benefit its diversified earnings stream has provided to AIG. The agency said that historically the L&R earnings have enhanced the group credit profile by providing AIG with the earnings and capital resources.

As a result of the planned divestiture, S&P said it will have to reassess AIG’s group credit profile excluding L&R, and establish a standalone credit profile for the L&R operations.

The ratings agency highlighted uncertainty around future expense structure, underwriting performance and the capital structure of AIG’s P&C operations, as well as “below average relative to peers” operating results of general insurance business as reasons for the downgrade.

“We anticipate the company to generate underwriting losses and premium declines in 2020 despite hardening of rates,” S&P said.

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Image: Shutterstock / Gencho Petkov

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