- Hancock says actively looking for ways to free up capital
- Annuity business has lower growth amid low interest rates
American International Group Inc. Chief Executive Officer Peter Hancock, who is simplifying the insurer through asset sales, said the shrinking of the life unit doesn’t need to involve drastic moves.
“We are actively looking at ways to reduce the amount of capital tied up in these old legacy portfolios,” Hancock said Wednesday in a Bloomberg Television interview. “It’s really a shift in emphasis of the life business rather than any aggressive exits.”
Hancock has been reshaping AIG under pressure from John Paulson and Carl Icahn, the activist investors who initially asked the CEO to separate the life business from property-casualty operations and then won board representation. Icahn has pushed the company to improve margins and divest assets to escape the too-big-to-fail designation by the U.S. government.
Pretax operating income at the life business jumped 23 percent to $184 million in the three months ended June 30, on lower claims costs for death benefits and reduced expenses for staffing, the New York-based firm said Tuesday. While low interest rates pressured the sale of annuities, “our new business grew quite nicely in the life business,” Hancock said.
That helped the company post its first profitable period in four quarters and beat analysts’ estimates. Hancock also announced a $3 billion share repurchase plan Tuesday. AIG climbed 7.1 percent to $57.98 at 11:44 a.m. in New York, the biggest gain since February and the largest increase in the S&P 500 Index.
Hancock outlined a goal in January to return $25 billion to shareholders over two years and has been freeing up capital by divesting units, entering reinsurance agreements and shifting out of volatile investments like hedge funds.
Sales of so-called legacy assets generated $4.3 billion in the past three quarters, AIG said. Funds affiliated with Lightyear Capital and PSP Investments bought AIG’s Advisor Group this year, and the company said Tuesday that the sale of shares in China’s PICC Property & Casualty Co. generated a pretax gain of $928 million in the second quarter.
Life insurers invest policyholder funds mostly in bonds, and AIG said Wednesday that low yields could squeeze income in future periods, especially at the life business. Central bankers have suppressed interest rates to stoke economic growth.
MetLife Inc., the largest U.S. life insurer, identified low rates as one of the top risks to the company, along with its designation as a systemically important financial institution. The firm won a legal proceeding to remove the government’s risk tag, while Prudential Financial Inc. and AIG remain SIFIs.
MetLife climbed 2.9 percent and Prudential advanced 2.4 percent. Both are scheduled to report second-quarter results Wednesday after the market closes.