Morning Briefing: AIG schmoozes shareholders with $25BN sweetener

AIG schmoozes shareholders with $25BN sweetener... JPMorgan in $1BN toxic loans payout to Ambac... Everest appoints Thygeson CAO... Sumitomo given green light for Symetra takeover...

Insurance News


by Richard Brown

AIG schmoozes shareholders with $25BN sweetener
Shareholders in beleaguered American International Group Inc. are to enjoy a $25 billion bonanza over the next two years thanks to asset sales partly spurred by criticism from outspoken activist Carl Icahn.

AIG CEO Peter Hancock told an analyst and investor conference yesterday (26 Jan.) he plans to divest company assets, such as almost 20 percent of $3.5 billion mortgage insurer United Guaranty Corp prior to a total sale of the unit. 

Hancock also unveiled a new, ‘modular’ structure to the business, designed to create flexibility to sell or float additional holdings if they underperform or draw attractive bids. The core operating portfolio will have nine modules and account for about $56 billion in equity. They include U.S. commercial coverage, European commercial, U.S. retirement and the Japan division.

Profits from operating units and tax benefits will yield up to $10 billion of the total divestiture, while proceeds from the sell-offs will add as much as $7 billion more. AIG said that reinsurance deals, could add an extra $4 billion or more and cutting debt would provide even more cash.

Hancock’s shareholder schmooze follows a total of about $12 billion in 2015, which included buybacks and dividends.

David Havens, analyst at Imperial Capital, was reported by Bloomberg as calling the $25 billion capital return “eye-catching to say the least”. “They are navigating a middle ground that preserves most of AIG as it is now, but offers the flexibility to spin off or sell units in the future.”

AIG is also curbing its hedge fund bets to free up more cash to return to shareholders. The insurer generated an annualized yield from hedge funds of just 2.36 percent in the first nine months of last year from a total allocation of $11 billion. AIG’s overall investment portfolio is valued at more than $340 billion. 

Last October, Icahn began pressuring Hancock to split AIG into three separate companies in a bid to shrink and prevent it being categorised a systemically important financial institution, which can lead to tighter capital rules from the Federal Reserve.

AIG founder Maurice ‘Hank’ Greenberg commented Hancock was right to resist Icahn’s breakup demands, but had yet to prove that he’s the right person to lead AIG. 

JPMorgan in $1BN toxic loans payout to Ambac
JPMorgan Chase & Co. is to make a $995 million settlement to New York-based Ambac Financial Group Inc. over claims the latter was duped into insuring mortgage bonds backed by dodgy loans.

The deal could unleash much larger settlements between the bank and institutional investors triggered by the 2008-9 global financial crisis. An Ambac unit was the world’s second-biggest bond insurer in 2008 when cascading defaults on mortgages overwhelmed it with claims. 

Terms of the agreement include Ambac ceasing objections to a $4.5 billion pact over suspect home loans between JPMorgan and other investors including BlackRock Inc. and Pacific Investment Management Co. 

Ambac said Tuesday in a statement that the bank will pay $995 million to end two lawsuits the New York-based insurer filed in New York state court in 2011 and 2012 over the quality of loans underlying mortgage bonds sold by Bear Stearns & Co. JPMorgan bought Bear Stearns in 2008.

JPMorgan said the move ends Ambac’s attempts to recover past and future payments of principal and interest on about $3.3 billion of 11 mortgage- backed security trusts sponsored by EMC Mortgage LLC, a unit of Bear Stearns. 

Ambac still has lawsuits pending against Bank of America Corp. over losses almost triple the size of the JPMorgan ones.
Everest appoints Thygeson CAO
Bill Thygeson has joined Everest Insurance as Chief Administration Officer, reporting directly to Jonathan Zaffino, President. Thygeson will focus on technology and its impact on business processes for underwriting and claims in addition to other administrative functions.

Thygeson brings over 20 years’ U.S. and international experience in business development, operating management, strategic planning, and transformational leadership to the role.

Most recently, he served as Chief Operating Officer for Hamilton Insurance, where he oversaw the implementation of its U.S. insurance platform. Prior to Hamilton, he spent a decade working for AIG in similar functions.
Sumitomo given green light for Symetra takeover
Regulators in Japan and the US have approved Sumitomo Life Insurance Co.’s takeover of Bellevue, Washington-based Symetra Financial Corp. The acquisition is set to complete on Feb. 1 when each Symetra common share will be convertible into $32.00 cash, as a term of the deal. 

Symetra provides employee benefits, annuities and life insurance through a national network of benefit consultants, financial institutions and independent agents and advisors. Sumitomo Life is a leading life insurer in Japan with multi-channel, multi-product life insurance businesses. It holds $229 billion in assets, approximately 6.8 million customers and 42,000 employees.
Chubb posts yo-yo numbers 
Newly-acquired Chubb has posted Q4 and full year results - including legacy ACE’s numbers - showing income of $780 million and $3.2 billion respectively. Full-year per share operating income dipped to $9.76 versus $9.79 in 2014, while return on equity stood at 11.1% and 11.5% for the periods under consideration.  
The figures from the world’s largest publically-traded property and casualty insurer reveal global P&C net written premiums down two percent for the quarter, but up 1.2 percent for the year. Net investment income generated $2.2 billion for the year, down 2.6% with full-year operating cash flow of $3.9 billion.
ACE’s $29.5 billion takeover of Warren, New Jersey-headquartered Chubb completed earlier this month.

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