Icahn Says $3.6 Billion AIG Charge Shows Hancock's Inexperience

  • Hancock `does not possess the skill' needed, Icahn says
  • Investor wants to name board members, seeks split of insurer

Carl Icahn, the activist investor who is seeking to reshape leadership at American International Group Inc. and break up the company, said the reserve shortfall that forced the insurer to take a $3.6 billion charge highlights the weakness of Chief Executive Officer Peter Hancock.

“His lack of experience points to the indisputable fact that he does not possess the skill to turn AIG around,” Icahn said in e-mailed comments late Monday of Hancock, a former J.P. Morgan & Co. banker who became the insurer’s CEO in late 2014. “It is the board’s duty to hold an underperforming CEO accountable, rather than continue to march to his drum beat.”

Hancock’s strategy presentation to investors last week, which was designed as a counter to Icahn’s breakup push, was marred by the disclosure of the $3.6 billion in new expenses tied to higher-than-expected costs on policies that the company sold in prior years. While analysts agree that many of the insurer’s shortcomings are tied to a decade of chaos before Hancock became CEO, the reserve charge was different. That’s because some of the insurance policies linked to the reserve shortfall were written when Hancock ran the property-and-casualty unit for more than three years starting in 2011.

“The reserve increases just announced proves again that Peter has done a poor job running P&C,” Icahn said.

CEO’s Confidence

The activist said earlier Monday that he’s assembling a slate of directors to shake up the New York-based company and plans to propose a list of possible board members by the end of next week. Hancock has said he agrees that AIG should shrink, but that selling units too quickly would jeopardize tax assets and fail to get the best possible prices. The CEO has also said an investment in technology will improve insurance underwriting.

“In hindsight, maybe we could’ve done more” to cut back on domestic casualty business, Hancock, 57, said in a Jan. 26 interview, after updating investors on the firm’s strategy through a webcast. “I’m very confident that we’re learning the right lessons from the emerging pattern of claims that has led to this reserve adjustment.”

AIG management is right in its view that a quick breakup is not in shareholders’ best interest, Charles Sebaski, an analyst at BMO Capital Markets, said in a note Monday. Still, the company may have been overly optimistic during its presentation in predicting that improved underwriting will help fund $25 billion in shareholder returns over two years, he wrote.

Expectation Trap

“We believe that AIG has over-promised in an attempt to placate investors while a very high-profile, activist shareholder continues to call for the total breakup of the company,” Sebaski said. “We see these latest goals as an expectation trap that the stock will be hard-pressed to get away from.”

AIG has declined 9.2 percent this year through Monday in New York trading. A spokesman for the insurer referred Tuesday to Chairman Doug Steenland’s comment a day earlier that “our board of directors and management are fully aligned behind the strategy outlined on Jan. 26.”

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