AIG American International Group Inc

By Leslie Scism 

American International Group Inc. is adding two new board seats as it averts a proxy fight by billionaire activist Carl Icahn, the company said Thursday.

Mr. Icahn had been pushing for a three-way breakup of the company, in a move opposed by AIG management as not in shareholders' best interest. AIG said it is expanding its board to 16 seats from 14, adding a position for a managing director of Icahn Capital LP as well as John Paulson, the billionaire hedge-fund investor who also last year became an AIG shareholder and has advocated a breakup.

The announcement came as AIG released fourth-quarter results. The global insurer posted a $1.84 billion fourth-quarter loss on a previously announced strengthening of claims reserves while increasing its common-stock dividend and buyback program.

AIG Chief Executive Peter Hancock committed on Jan. 26 to a wide-ranging set of initiatives to improve financial results, including returning at least $25 billion of capital to shareholders over the next two years, as an alternative to the dramatic split envisioned by the billionaire investor.

AIG said Thursday that its board approved a 14% increase in the quarterly dividend to 32 cents a share. That brings the annual payout to about $1.53 billion, based on the company's share count as of Dec. 31.

In addition, the board approved new share repurchases of $5 billion, on top of $800 million in an allocation that remains from last year.

From Jan. 1 through Feb. 11, AIG had bought back $2.5 billion of shares, so with the higher dividend and full use of the buyback allocations, the company is on track to return nearly $10 billion this year with the measures in place. The company said it returned $11.7 billion in capital in 2015, between buybacks and dividends.

In the wake of AIG's strategy update last month, the importance of the fourth-quarter earnings has receded. At that time, Mr. Hancock surprised investors with the announcement of a plan to strengthen reserves by $3.6 billion before taxes, or about 6% of AIG's total net loss reserves. The increase applies to a wide range of policies sold over many years, from more than a decade ago through 2014.

Mr. Hancock also promised improvement in profit metrics over the next two years, through more-aggressive cost cutting and exiting some business-insurance segments.The fourth-quarter results include $222 million, before tax, of restructuring charges.

The reserve strengthening and restructuring charge created a fourth-quarter loss of $1.84 billion, or $1.50 a share, compared with net income of $655 million, or 46 cents a share, in the year-earlier quarter.

Results also were hurt by lower net investment income, as low interest rates have persisted on the high-quality bonds AIG favors, and the slice of the investment portfolio allocated to hedge funds also produced lower returns, the company said.

The company posted a fourth-quarter operating loss of $1.3 billion, or $1.10 a share, compared with operating income of $1.4 billion, or 97 cents a share, in the year-earlier quarter.

In the insurance industry, analysts focus on operating results because they exclude realized gains and losses on insurers' big investment portfolios. Analysts were expecting AIG to post an operating loss of 93 cents a share. Some of the gap stemmed from worse-than-expected results in the company's business of selling car and home insurance.

Mr. Icahn hasadvocated breaking apart AIG's three main insurance businesses--life, property-cans-casualty and mortgage--a move he said would help AIG escape new federal regulations and boost shareholder returns. Mr. Hancock has maintained the benefits of being a conglomerate far outweigh the regulatory burdens, though he wants to narrow AIG's focus through selected divestitures.

Last month, the company announced a planned initial public offering of up to 20% of its mortgage-insurance unit and the sale of a financial-advisory business. In the fourth-quarter earnings release, it said it sold $2.1 billion of assets during the period, including some shares of a Chinese insurer.

AIG was the recipient of one of the biggest U.S.- government bailouts during the financial crisis. To repay the nearly $185 billion rescue package, it sold dozens of businesses and shrank by about half, to just over $500 billion in assets. As the government exited the scenes, the spotlight turned to AIG's high costs and below-average profit margins.

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

(END) Dow Jones Newswires

February 11, 2016 16:48 ET (21:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.