AIG in Talks to Sell Lloyd's Insurance Operations to Canada Pension Fund
August 23 2016 - 2:00PM
Dow Jones News
American International Group Inc. is in early discussions to
sell insurance operations connected with Lloyd's of London to
Canada's biggest pension fund, according to people familiar with
the matter.
Canada Pension Plan Investment Board is in talks to acquire
AIG's business at Lloyd's of London, and a related reinsurance
company based in Bermuda, the people said.
The talks are part of the New York insurer's efforts to improve
its results by narrowing its focus and returning more than $25
billion in capital to shareholders. An acquisition would mark the
Canadian fund's latest move to establish itself as a significant
player in the global insurance industry.
A transaction, if completed, could fetch the insurance
conglomerate hundreds of millions of dollars in proceeds, the
people said.
The two sides, though, may fail to reach a final pact, these
people said.
The pension fund's first high-profile insurance deal came in
2014 through the $1.8 billion acquisition of U.S. life insurer
Wilton Re Limited Holdings. Last year, CPPIB acquired almost a 10%
stake in Bermuda-based Enstar Group Ltd. Enstar acquires and
manages insurance and reinsurance companies, and its holdings
include operations at Lloyd's of London.
AIG is minority owner of Ascot Underwriting Holdings Ltd., which
manages a Lloyd's syndicate for which AIG provides the capital. The
syndicate provides insurance to cover marine hulls and cargo, and
fine art; and protects against shipping liabilities, political
risks, and terrorism, among other specialties.
Ascot has operations in Asia and Houston, which could further
extend the reach of the Canadian fund's insurance operations.
The possible deal highlights the Canadian fund's focus on using
its investments to gain meaningful scale in industries identified
as priorities. As manager of 287.3 billion Canadian dollars ($221.9
billion) in pension assets, the Canadian fund needs to achieve that
goal to help influence returns.
At the same time, CPPIB is attracted to the insurance business
because the recurring cash flows that the industry generates match
up well with the fund's long-term pension liabilities.
AIG has been under pressure to improve performance since last
fall, when activist investors Carl Icahn and John Paulson publicly
called on the company to break itself into parts. The billionaires
contended such a breakup would help AIG avoid onerous capital
requirements as a "systemically important financial institution."
AIG got the federal label after its near-collapse in 2008 and
subsequent government bailout, since fully repaid.
AIG rejected that plan as ill-advised for shareholders. In
January, CEO Peter Hancock detailed a strategy to return at least
$25 billion to shareholders through 2017, mostly through buybacks,
as it gradually disposes of noncore businesses and takes other
steps to improve its profit margins.
Earlier this month, the insurer agreed to sell its
mortgage-guarantee unit for about $3.4 billion to Bermuda-based
insurer and reinsurer Arch Capital Group Ltd. as part of that
effort.
From January through early August, AIG returned $7.9 billion in
capital to shareholders through dividends and share buybacks.
Write to Ben Dummett at ben.dummett@wsj.com and Leslie Scism at
leslie.scism@wsj.com
(END) Dow Jones Newswires
August 23, 2016 13:45 ET (17:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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