New York and London partner Tom Dawson was quoted in an American Banker article titled, “Why AIG Is Defying Calls to Break Up – For Now.” The article discussed American International Group’s announcement that it plans to split off some of its mortgage insurance business but not to dispose of other business units, as well as the implications of this decision.
Certain “activist” investors are encouraging AIG to break into three separate companies in order to remove its SIFI status, which would enhance shareholder value.
Tom said that MetLife’s decision to spin off a unit may not signal that other large insurers will also seek to pare themselves down and that AIG’s plan may or may not quell calls for more radical action from investors. In background discussions with the reporter Tom noted that last year’s fashion was that “small” Bermuda property catastrophe reinsurers needed to combine and diversify in order to compete in difficult market conditions. This year’s fashion is for diversified businesses like AIG to sharpen their business focus and for larger insurers like MetLife simply to shrink. Tom questioned whether such shrinking will in fact improve returns due to assumed lower capital requirements, noting that within the next few years both SIFIs and smaller, less risky IAIGs (Internationally Active Insurance Groups) will be subject to higher capital standards. In terms of handling an additional layer of regulation at the Federal level, insurers like MetLife and AIG have many skilled “government relations” executives and outside advisers and while there is additional expense, he doubted that this amounted to a material factor.
“The timing may be not right to do it now from [AIG] management’s perspective,” said Tom. “As a purely personal observation, I don’t see the motivation to do it at this point, given the conditions in the industry, both in the capital markets and investment markets, as well as the insurance markets.”