AIG American International Group Inc

By Leslie Scism 

American International Group Inc. plans to offer shares of its mortgage insurance unit to the public while retaining a large majority interest in the business, according to a person familiar with the matter, a move that signals the insurance conglomerate likely won't satisfy investors who are calling for the company to break into three parts.

Separately, AIG is finalizing a deal to sell its network of broker-dealers, people familiar with the matter said.

The deals are part of a broader effort to slim down, an effort that began when the insurer nearly collapsed into bankruptcy proceedings before receiving one of the biggest bailouts of the financial crisis, since fully repaid. Recently, AIG has come under increasing pressure to take more drastic steps to improve results. Activist Carl Icahn and fellow billionaire investor John Paulson have called for the company to break into three parts.

AIG Chief Executive Peter Hancock has said that while he understands many investors' desire for urgent action to boost the company's overall financial results, a breakup isn't in shareholders' best interests.

Analysts expect the mortgage insurance unit, one of AIG's fastest-growing businesses over the past couple of years, to be valued at between about $5 billion and $7 billion. The broker-dealer sale would total hundreds of millions of dollars, analysts say. AIG has a market value of about $70 billion.

While AIG has been aggressively buying back its shares with the cash it is generating from operations and asset sales, its profitability lags behind big rivals like Travelers Cos.

Mr. Hancock is set to update investors on the company's strategy in a session Tuesday morning, and the two possible divestitures are expected to be discussed.

By maintaining a majority stake in the mortgage insurance unit, AIG can continue to book some of its earnings. At the same time, executives believe the transaction will show the company's commitment to cutting back to core operations, one of the people familiar with the matter said.

AIG's primary focus is property-casualty insurance sold to businesses globally, and life insurance and retirement services sold mostly in the U.S. Before the crisis, it was a leading seller of life insurance in Asia, among many other far-flung operations.

Private-equity firm Lightyear Capital is a buyer in the broker-dealer sale, according to the people familiar with the matter. It wasn't clear if other buyers are involved.

A Lightyear Capital spokesman declined to comment Friday.

AIG's broker-dealer network is known as AIG Advisor Group, with more than 5,000 financial advisers. They work through four different firms: SagePoint Financial, FSC Securities Corp., Woodbury Financial and Royal Alliance.

In a memo to employees in November, AIG said it had "received several inquiries" from potential acquirers about the Advisor Group.

An AIG spokesman said Friday that the company "continues to take steps to narrow its focus, improve its financial performance, and return capital to shareholders," and that it will disclose more on Tuesday.

At Tuesday's strategy update, many analysts are anticipating that Mr. Hancock will announce more aggressive cost-cutting than the company has under an existing plan. The existing plan calls for the company to take out a total of $1 billion to $1.5 billion in costs by 2017, which amounts to about 3% to 5% a year of net general operating expenses, over three years.

AIG's possible divestiture of the mortgage insurance unit was reported by The Wall Street Journal in October. Reuters reported earlier Friday on the decision to proceed with a partial divestiture.

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

January 22, 2016 19:12 ET (00:12 GMT)

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