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AIG’s Restructuring Costs Consistent amid Strategic Transactions

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Feb. 23 2017, Updated 10:37 a.m. ET

Restructuring spending

In 4Q16, American International Group (AIG) spent $206.0 million on restructuring initiatives that target inefficiencies and expense reduction. That was a fall of 7.0% on a year-over-year basis. The company’s total operating expenses fell 9.6% to $2.5 billion, mainly due to lower acquisition costs and other general expenses.

Operating margins

AIG expects annual savings of ~$500.0 million, consisting mainly of employee severance, restructuring initiatives, and improvement of its technology platforms.

Strategic transactions

In 2016, AIG announced more than ten transactions that are expected to generate $10.0 billion of liquidity. Major transactions include the sale of United Guaranty to Arch Capital Group, which was completed on December 31, 2016. The company also manages its legacy portfolio, which enables it to have higher capital returns.

In 2016, AIG realized a total of $3.9 billion toward legacy assets, which was in line with its strategy of liquidating non-core assets and focusing on core operations. In 4Q16, AIG’s sponsored fund completed the sale of commercial real estate in South Korea for $2.5 billion, resulting in a pretax gain of $1.1 billion. The company also completed the sale of its 100.0% stake in United Guaranty. In 3Q16, it sold a 95.3% stake in NSM Insurance Group.

AIG saw its book value expand ~1.0% during the past year. In comparison, book value expansion was 5.0% for Allstate (ALL) and MetLife (MET), followed by 8.0% for Chubb (CB). You can get exposure to insurance companies by investing in ETFs such as the Vanguard Dividend Appreciation ETF (VIG).

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