American International Group Inc. (AIG), the bailed-out insurer, is prepared for more oversight as the Federal Reserve moves to regulate non-bank financial firms, the head of the company’s property-casualty division said.
“We’ve done more to de-lever our balance sheet and become Fed-ready, because we expect to be regulated by the Fed, than I think almost any other large insurance company,” said Peter Hancock, 53, chief executive officer of AIG’s Chartis operation, at a conference today held by Goldman Sachs Group Inc. in New York. The insurer has the necessary controls and risk-profile “to manage unexpected events,” he said.
Regulators are weighing proposals that would help decide which non-bank financial firms are systemically important and require Fed oversight, as they implement aspects of the Dodd- Frank legislation. The New York-based insurer said in regulatory filings, including one in February, that additional regulation from the law could “materially and adversely affect AIG’s businesses” and hurt cash flows and credit ratings.
The Fed helped rescue AIG in 2008, after bets on the housing market squeezed liquidity. The insurer’s bailout swelled to $182.3 billion. AIG repaid the remaining $21 billion on its Fed credit line in January and has a stake in Fed-controlled vehicles that took over mortgage-related assets after the bailout. The U.S. Treasury Department, which invested more than $40 billion in the insurer, holds 77 percent of the company’s shares and is seeking to wind down the stake.
“Today, this company doesn’t owe the government anything,” Hancock said. “There is no recourse debt to the government left.”
AIG CEO Robert Benmosche, 67, said last month in a conference call that the insurer doesn’t know whether the Fed will be its regulator and is operating as if that will be the case. The company has done stress testing to see what may happen under certain adverse scenarios, he said on a conference call Nov. 4.
AIG gained 40 cents to $24.46 in New York today and has dropped almost 50 percent this year. Mark Herr, a spokesman for the insurer, declined to comment, as did Jack Gutt of the Federal Reserve Bank of New York.
MetLife Inc., the largest U.S. life insurer, is seeking to sell its deposit-gathering business to avoid tighter regulation that comes with bank status. The Fed rejected MetLife’s plan to raise its dividend (MET) and resume share buybacks, the insurer said in October.
AIG said last month it may buy back as much as $1 billion in shares. Hancock said the insurer plans to build $25 billion to $30 billion in capital at the holding company over the next five years, mostly in dividends from subsidiaries.
Pretax income at Chartis fell 72 percent to $910 million in the first nine months of this year as the company faced claims from natural disasters including the Japan earthquake and Hurricane Irene in the U.S. AIG gets about half its pretax income from the division, Hancock said today.
Chartis is targeting nations including China, India and Mexico for growth, Hancock said.
“We are not banking on any one country,” he said. “We’ve really got a tremendously diverse portfolio of businesses and geographies in which we can exploit our comparative advantage.”
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