Icahn Discloses "Large" AIG Stake, Pens Open Letter Urging Spinoffs

Oct 28 2015 | 12:11pm ET

By Richa Naidu (Reuters) - Activist investor Carl Icahn disclosed a "large stake" in American International Group and urged the company to spin off its life and mortgage insurance units into public companies to shed the U.S. government's "too-big-to-fail" tag.

Icahn's campaign highlights how some large financial companies are being given an incentive to break up as regulators impose costs on them in the wake of the financial crisis.

A global task force, the Financial Stability Board, is due to update next month its list of insurance companies deemed to be "systemically important".

The tag indicates regulatory concerns that a company's failure might imperil the financial system. AIG, the largest commercial insurer in the United States and Canada, was labeled systemically important by a top U.S. regulatory panel in 2013.

Icahn said in an open letter to AIG on Wednesday that the separate companies would be small enough to avoid the designation.

The activist investor also said AIG, led by Peter Hancock, should begin "much needed" cost cuts to better compete.

Icahn, who did not disclose the size of his stake, said several large shareholders, including John Paulson, were frustrated and supported a break-up of AIG.

If the company spins off its life and mortgage insurance businesses, it would still have large commercial and consumer insurance operations.


Icahn's letter included a statement from Paulson, the president of Paulson & Co., which had a 1.1 percent stake in AIG as of June 30.

"AIG is frankly overdue in following in the footsteps of all other major multi-lines in breaking up Life and P&C into separate companies," Paulson said.

The break up, cost cuts and buying back stock could push the company's shares to over $100, he said.

AIG shares rose as much as 4 percent to $63.44 in morning trading. The company has a market value of about $80 billion.

Regulators started looking at the multi-trillion dollar insurance industry following the massive public rescue of AIG during the crisis.

"We have taken important and significant steps to reposition AIG by both simplifying and de-risking the company, and realizing attractive valuations from non-core asset sales," Hancock said in a statement.

AIG is expected to report third-quarter earnings on Nov. 2.

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