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What AIG Is Suggesting as an Alternative to Icahn’s Proposal

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Restructuring

American International Group (AIG) has announced that it will spend $500 million on restructuring initiatives for organizational simplification, operational efficiency, and business rationalization. The company’s fourth quarter results included $222 million in pre-tax restructuring, of which $123 million related to previously announced actions. The initiatives also aim to present a strong alternative to Icahn’s proposal of splitting AIG into three businesses to generate higher shareholder value.

The initiatives are expected to generate annualized savings of approximately $400 million–$500 million when fully implemented. Of the total savings, $300 million will be in employee severance and one-time termination benefits, concentrated mainly on senior levels of management.

The company is expected to save another $100 million in costs associated with the modernization of its information technology platforms. The balance savings will be related to costs associated with the consolidation of legal entities and exiting business with lower returns.

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Strategic actions

AIG announced the sale of AIG Advisor Group in January 2016, which is expected to close in 2Q16. The company has announced an IPO of up to 19.9% of United Guaranty, subject to regulatory approvals, as a first step towards a full separation. It also announced an agreement to sell operations in four Central American countries during the fourth quarter.

In 4Q, AIG has monetized $2.1 billion of legacy assets including 184 million ordinary H shares of PICC Property & Casualty Company Limited in order to boost its capital position.

AIG also grew its book value per share by ~13% during the past year. Compared to this, book value growth per share was ~6% for ACE (ACE) and Allstate (ALL), and ~8% for Chubb (CB) in the past year.

Bailout funds

Insurance players (XLF) with bets in mortgage-backed derivatives faced huge losses after the 2007 crisis, resulting in higher risks of bankruptcy. Following the financial crisis, the US government gave AIG $182 billion in bailout aid, as the company suffered huge losses on mortgage-related derivatives bets.

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