AIG American International Group Inc

Some directors feared a potential fight with billionaire if CEO Hancock stayed

By Joann S. Lublin and Leslie Scism 

The person at the center of last week's surprise change atop insurance giant American International Group Inc. wasn't Peter Hancock. It was activist investor Carl Icahn.

The 58-year-old Mr. Hancock agreed to resign as chief executive after several directors met with him Wednesday evening in his AIG office in downtown Manhattan, according to people familiar with the matter. Some directors at the time were worried about the CEO's ability to continue improving the company's results, while several also feared a potential fight with Mr. Icahn.

The huddle followed a private session of the company's independent directors in which they had discussed Mr. Hancock's successes and shortcomings, adding new detail to last week's sudden shake-up at AIG.

That "executive session" occurred after a two-day board meeting, during which Mr. Hancock and his team highlighted accomplishments in trying to bring AIG's results in line with the best of its peers. Mr. Hancock has agreed to stay on until a successor is found.

Last month, AIG posted one of its worst quarterly results since the financial crisis, with major setbacks in the global insurance firm's turnaround plan. The AIG directors feared disruption if they didn't quickly address concerns from Mr. Icahn and some directors about the CEO's ability to complete the turnaround, people familiar with the matter said.

So they pushed for Mr. Hancock to step aside, the people said.

A decision "to stand by [Mr. Hancock] would carry the threat if not the reality of a battle with Carl," said a person familiar with the matter.

Despite the coming change atop AIG, the board remains committed to the current turnaround plan developed by Mr. Hancock and won't consider "breaking up the company," AIG Chairman Douglas Steenland said in taped comments to employees Monday night. He said AIG previously rejected such a breakup plan, which Mr. Icahn proposed in 2015.

In his taped comments Monday night, Mr. Steenland also said directors have begun their search for AIG's next chief executive and likely will pick an outsider. "We are highly focused on the search to bring in the right person to lead the company at this important time," he added. "

Mr. Icahn, who disclosed a stake in AIG in fall 2015, had called for Mr. Hancock's firing before reaching an agreement in early 2016 for a board seat for an Icahn representative. Fellow billionaire investor John Paulson also obtained a board seat.

Waging a campaign against an activist is typically distracting for management. For a financial firm like AIG, such fights can be tricky as managers try to maintain the confidence of ratings companies and customers. The uncertainty of potential change in the company's strategy can slow new business.

The next CEO at AIG will be the firm's seventh since 2005, when a period of turmoil began. In 2008, AIG nearly collapsed and required one of the biggest bailouts of the financial crisis, at nearly $185 billion. AIG fully repaid taxpayers by the end of 2012 by selling almost half of its assets and began to focus on improving results in the remaining businesses.

Mr. Hancock said in a memo to employees last week that he was leaving because, "without wholehearted shareholder support for my continued leadership, a protracted period of uncertainty could undermine" turnaround efforts. Mr. Icahn said last week he supported the board's actions.

Mr. Hancock appeared to be making headway in improving results, but AIG shares fell 9% on the Feb. 14 disclosure of a $3.04 billion fourth-quarter loss and additional bad news the next day: lowered targets for improving two closely watched profit measures.

The results included a $5.6 billion boost to claim reserves. Some of the charge applied to policies sold during the financial crisis, when rival executives have said AIG undercut them on prices to keep revenue flowing.

More alarming to some analysts and investors, the charge also applied to policies sold from 2011 through 2015. Mr. Hancock directed the property-casualty unit from 2011 to 2014 and became CEO in 2014.

At last week's board meeting, Mr. Hancock explained how his team had reduced the risk of additional reserve charges by signing a reinsurance agreement in January with Berkshire Hathaway Inc. In addition, the company has dramatically reduced its exposure to some types of liability insurance sold to U.S. businesses such as trucking firms, while also sharply reducing expenses, among other steps.

Some AIG board members found management's presentation compelling. "Peter and his team were doing a good job," one person said.

Still, the independent directors leaned toward his departure during their executive session, the people said. Such sessions exclude the CEO and other members of management.

Mr. Steenland and several other directors then summarized the sentiments to Mr. Hancock in his 30th-floor corner office overlooking the East River, the people said.

Mr. Hancock told the group he should step down "if he does not have the unwavering full support of the entire board," according to a person familiar with the matter.

As part of the transition process, AIG has hired a executive-search firm to help it look for a new CEO, a person said.

Write to Joann S. Lublin at joann.lublin@wsj.com and Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

March 15, 2017 02:47 ET (06:47 GMT)

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