AIG may choose sale vs. IPO for life and retirement business

American International Group Inc. has received several approaches for its life and retirement business and may opt to sell a minority stake in the business rather than offload the stake through an initial public offering, its incoming CEO said Wednesday while discussing the insurer’s fourth-quarter 2020 results.

Part of the funds raised from a sale would be used to repurchase shares and possibly for future acquisitions, said Peter Zaffino, the insurer’s president and global chief operating officer, who will be taking over the top job from CEO Brian Duperreault on March 1.

AIG saw significant rate increases across all commercial lines, except workers compensation, in the fourth quarter and expects to grow premiums in 2021, Mr. Zaffino said. The insurer posted a loss for the fourth quarter and the full year, largely due to derivative losses and the sale of a unit. AIG first announced it was considering a sale or initial public offering of up to 19.9% of it life and retirement business in November.

Since then, it has been approached by several unnamed organizations interested in buying the stake, Mr. Zaffino said. “A sale of a minority stake could be an attractive option for AIG, its shareholders and other stakeholders. We are carefully weighing the merits of this path compared with a minority IPO,” he said.

Factors under consideration include the financial benefit to AIG, regulatory and rating agency implications and the long-term prospects for the life and retirement business, Mr. Zaffino said. Part of the proceeds will be used for share repurchases and “while it is not currently a priority, over time we may consider inorganic growth opportunities,” he said.

AIG reported a loss of $60 million in the fourth quarter, compared with a $922 million profit in the year-earlier period, primarily due to $1.2 billion of capital losses related to derivatives. For the full year, AIG reported a $6 billion loss, compared with a $3.3 billion profit in 2019, largely driven by an after-tax loss related to its sale of Fortitude Group Holdings LLC, a run-off reinsurer, last June.

Adjusted pre-tax income for its general insurance business in the fourth quarter was $809 million, up 4% compared with the prior-year quarter, and its life and retirement business reported adjusted income of $1.03 billion, up 19.7%. Net written premium fell 5% to $5.56 billion in the fourth quarter, largely due to reduced premium in its personal lines business because of increased reinsurance purchasing. AIG’s North America commercial lines business reported $1.99 billion in fourth-quarter net premium written, a 10% increase.

AIG’s combined ratio worsened to 102.8%, compared with 99.8% in the 2019 fourth quarter. Underwriting losses included $545 million in catastrophe losses, including $367 million of non-COVID-19 catastrophe losses, largely due to storm losses. Commercial premium growth followed continued increases in rates in the fourth quarter.

Average rate increases for commercial business were 15%, and average North America commercial rate increases were 21%, compared with 14% in the prior-year quarter, Mr. Zaffino said. The North America increases were driven by excess casualty, which saw rate increases of 45%; directors and officers liability, up 35%; retail property and wholesale property, up about 30%;  and excess and surplus lines casualty rates, up 25%, he said.

“As we look into 2021, we expect to see rate increases to continue, we expect to see these rate increases to be above loss costs, we expect that these rate increases will be balanced across our global portfolio and across multiple lines of business,” Mr. Zaffino said. AIG also restructured its reinsurance program during the fourth-quarter renewals, reducing the amount of aggregate property limit it purchased, cutting its per occurrence catastrophe points for most regions in North America and adding a layer of casualty protection, Mr. Zaffino said.

The earnings call marked Mr. Duperreault’s last as CEO since he returned to lead a turnaround effort at the insurer in 2017. AIG announced last week that Mr. Duperreault, who will become executive chairman next month, will step down as an officer of the company at year-end.

Mr. Duperreault said that he and Mr. Zaffino have tackled many of the “pervasive and fundamental problems” at AIG over the past three and a half years.  The executives revamped the insurer’s leadership, initiated underwriting reviews of its business, began an expense reduction program and restructured AIG’s reinsurance program, among other things.

“While there is still work to be done, I have every confidence that AIG stakeholders will continue to reap the benefit of the hard work that is taking place across the organization,” Mr. Duperreault said.

Source: Business Insurance