American International Group Inc. will sell its advisor group to a private equity firm as part of a sweeping overall by its CEO to boost returns and amid criticism from activist investor Carl Icahn.
The company announced today that it has agreed to sell AIG Advisor Group to investment funds affiliated with Lightyear Capital LLC, a private equity firm specializing in financial services investing, and PSP Investments, one of Canada’s largest pension investment managers. Terms of the deal were not disclosed. The transaction is expected to close in the second quarter of 2016, subject to regulatory approvals.
Valerie Brown, former CEO of Cetera Financial Group, a portfolio company of Lightyear Fund II L.P., will be joining Advisor Group full time at the closing of the transaction and will serve as executive chairman of the board.
“We see enormous opportunity to grow and expand Advisor Group, and we look forward to working with Valerie Brown and Erica McGinnis," said Mark Vassallo, Lightyear's managing partner.
McGinnis is CEO of The Advisor Group, which has more than 5,200 independent advisors and more than 800 full-time employees. It includes four broker-dealers, FSC Securities Corporation, Atlanta, Ga.; Royal Alliance Associates, New York, N.Y.; SagePoint Financial, Phoenix, Ariz.; and Woodbury Financial Services, Oakdale, Minn.
“AIG continues to review its business strategy and take actions to become a more efficient, less complex company, able to respond to our clients’ needs with greater agility,” said Peter Hancock, AIG's president and CEO. He added the plan is for advisor group to continue to distribute AIG products.
AIG also announced $3.6 billion in expenses to fill a reserve shortfall after higher-than-expected claims costs and will exit its mortgage insurer.
Hancock will offer a 19.9 percent stake in the mortgage unit United Guaranty Corp. to the public in a step toward a complete exit of that business, AIG said Tuesday in a statement ahead of the CEO’s presentation to Wall Street. The insurer also is reorganizing into “modular” business segments to create flexibility to sell or take public additional units if they underperform. Hancock vowed to return $25 billion to shareholders over the next two years as he reshapes the company after spending more than $9 billion in 2015 on share buybacks.
“AIG has given activist shareholders some red meat, maybe not as much as they wanted,” David Havens, a debt analyst at Imperial Capital, said in a message. “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.”
Hancock’s company climbed 2.6 percent in early trading to $56.80 at 7:25 a.m. in New York. AIG, which offers both life insurance and property-casualty coverage, trades for about 70 percent of book value, while large P&C carriers such as Chubb Ltd. and Travelers Cos. are valued at more than the metric of assets minus liabilities.
Legacy Portfolio
The CEO also announced the creation a “legacy” portfolio of assets that he will sell or wind down. Hancock designated Charlie Shamieh, who oversaw life, health and disability operations, as legacy CEO.
The reserve shortfall highlights weaknesses even at units that Icahn envisions as the core of a scaled-back company. The fourth-quarter pretax cost to fill the gap includes $1.3 billion tied to policies from 2004 and earlier, with the remaining $2.3 billion covering the period of 2005 through 2014. Most of the expenses were tied to casualty coverage, where it can take many years before claims are fully paid. Insurers periodically review whether they have enough money set aside for such expenses, and the cost of strengthening reserves drains earnings.