The different revenue prospects for the life insurance and real estate / accident sector, long-term trends in the insurance industry and the dilution of various tax benefits probably played a role in American International Group Inc.'s decision announced on Monday. analysts say.
The surprise announcement of the proposed separation of the insurer's life and pension and general insurance business was accompanied by a separate and long-awaited announcement that Peter Zaffino would take over from Brian Duperreault as CEO of AIG, enters into force on March 1, 2021
The decision to separate the life industry in an as yet indefinite way comes five years after AIG's management at the time opposed activist investor Carl Icahn's attempt to force the company to be divided into three units. [1
"However, the real estate / accident operation seems to be in pace to drive a larger share of the revenue because they have done a lot to repair the weakness, so perhaps they better position them to take advantage of the deferred tax asset," Kligerman said.
"The size of the tax benefit has decreased significantly," said J Paul Newsome Jr., Chicago-based stock research manager at Piper Sandler & Co.
Still, the announcement seems early, "said Meyer Shields, Baltimore-based CEO of Keefe, Bruyette & Woods Inc.
less and less reason to be dependent on a life insurance business that no other major US carrier really has, but we thought they would have wanted to work their way through more of the deferred tax asset and strengthened more insurance improvement in terms of its impact on risk capital, he says.
AIG has experienced significant problems dating back to the financial crisis and had reported several years of heavy losses. or otherwise disappointing results. However, the current management has introduced significant changes over the past three years, says Shields.
In income interviews, AIG's management has described how the insurer has reinsured a large part of its business book, restructured its reinsurance. program and made many staff changes.
"One of the things about property / accident insurance is that the benefits of repair work take a very long time to emerge, but I think we are approaching that point," said Shields
The changed outlook for the life and property / accident sectors may also have driven the decision, he said, noting that real estate / accident insurance companies see interest rates rise among a hardening market. while very low interest rates and increased exposure to stock market pressure dampen life insurers' income.
Investors currently see real estate / accident insurance companies better than life insurers due to the hardening market, and it is a company that can be re-priced, Kligerman said.
If investors want to invest in the benefits of real estate / accident pricing through AIG, they can do so directly if the business is separate, Mr. Shield sa.
In addition, the company may feel that shares in the real estate / accident operations can trade as high as the 11 or 12 times profit that some of its peers trade against compared to the 7.3 times profit that the entire company is expected to trade in 2021, said Kligerman .
"We think they feel they could gain more value for shareholders in the real estate / accident industry if it were independent," he said.
And public announcement of the intended separation could pull out interested buyers, Kligerman said.
While diversification of multiline insurance companies can be helpful because the profitable side of a business can support other areas difficult s erodes, it can also create "a moral dilemma", Newsome said .
“It is very easy to assume that one side of the business will compensate for what you do wrong on the other side of the business, and you can take risks that you should not because you think you can get away with it. , he said, noting that independent real estate / accident insurance companies and independent life insurance companies usually work better from an investor's perspective than those with combined operations.  In addition, real estate / accident and life companies are "very different companies", and it is difficult to find senior executives who can handle both sectors equally, he said.
There is also little transition between life insurance and property / accident Kligerman said.
"Many years ago, AIG talked about cross-selling, but it has not really appeared in any significant way."
Many other former large multiline insurance companies, such as Travelers Cos Inc., Cigna Corp. and Aetna In c., divided their various units several years ago, the analysts stated.
the appointment of Mr. Zaffino to succeed Mr Duperreault as CEO was not surprising given that he has played a key role in the restructuring of AIG's real estate / accident operations, he was appointed president of AIG earlier this year, and his overall profile has been raised, Newsome said.
Mr. Zaffino was well known to investors when he was at Marsh LLC, where he previously worked with Mr. Duperreault, and during his time at AIG, Shields said.
"Investors are very familiar with him and I feel very comfortable
AIG's shares traded higher amid a declining market on Tuesday. Catalog