Investors fear AIG’s lack of plan
• A new CEO could threaten firm’s turnaround strategy
For nearly two months, American International Group has planned to replace its CEO, but a successor has yet to be named, creating a void that has fuelled investor concern.
For nearly two months, American International Group (AIG) has planned to replace its CEO, but a successor has yet to be named, creating a void that has fuelled investor concern about the insurance company’s future.
AIG was to report its firstquarter earnings on Wednesday and analysts and investors said they wanted to know more about AIG’s succession plans. CEO Peter Hancock announced on March 9 that he would depart once the board found a replacement, citing a lack of confidence among directors and investors.
But AIG has said little about the board’s progress since then.
Chairman Douglas Steenland has said the board remains committed to the turnaround effort, but analysts are doubtful over whether a new CE would carry out Hancock’s strategy.
“We need to know,” said Sandler O’Neill analyst Paul Newsome of the upcoming CEO pick. “The lack of a CEO puts the strategy for the company completely in play. There’s a very large chance that with a different CEO, you are going to have a change in the strategy, despite what the board says.”
Hancock’s resignation plans were announced shortly after AIG reported an unexpectedly wide loss on February 14, saying the company had underestimated for years the claims it would have to pay for a variety of insurance products.
Wall Street is forecasting brighter AIG results. Analysts expect $1.1bn in quarterly profit, or $1.08 per share, on average, according to Thomson Reuters data, a 37% increase from the year-ago period.
“The bad fourth quarter sets them up to a better start for this year,” said Andrew Kohl, a portfolio manager at Alpine Wood Capital, who owns about 4,000 AIG shares in the financial services fund he oversees.
Kohl, who had sold some AIG stock in January as the insurer’s financial difficulties mounted, started to wade back in after media reports that Brian Duperreault, the head of Hamilton Insurance Group, was among those being considered as the new CEO.
An AIG spokesman said the company did not comment on speculation or rumour.
Several of AIG’s largest investors, including Capital Research Global Investors, The Vanguard Group and State Street Global Advisors, would not comment for this article. But some, including funds overseen by American Funds, T Rowe Price, American Beacon and Invesco, have been buying AIG shares in recent weeks, according to data provided by Lipper.
Even so, as of Monday’s close, the stock was down 2.9% since Hancock announced his departure. Year to date, shares are down 5.7% compared with a 6.7% rise in the S&P 500 index.
Hancock’s troubles began in 2015, when billionaire activists Carl Icahn and John Paulson began building stakes and later acquired board seats.
Icahn, who is AIG’s fourthlargest investor, wanted the insurer to split into three parts. Instead, Hancock embarked on a two-year turnaround plan that involved cutting costs and selling off chunks of the company, intending to return $25bn to shareholders.
Hancock achieved $14.3bn of that goal from the start of 2016 through February 14.
Experts have said it would be tough to find someone capable who would want Hancock’s job, given the company’s recent performance, its demanding board and financial difficulties in the broader insurance sector.
Even though rising interest rates were helping insurers’ profits, extreme weather claims, lower premiums and weak sales could all weigh on results in the near-term, analysts said.
Despite the issues, investors said they expected AIG to improve its bottom line quickly.
“You can’t predict the weather,” said Kohl, “but you can control other aspects of business.”