AIG - American International Group

[LC]

Well it says two things:

 

1. A change in control will no longer occur if the majority of board members are shareholder-elected.

 

2. It was approved between AIG and its creditors.

 

So i think it suggests two alternatives:

1. Someone is planning to begin a proxy battle

2. Current board members are planning on leaving and they don't want to screw the creditors once they leave.

[alpha asset strategies]

Do you think this is some sort of poison pill to fend off Uncle Carl?

[LC]

Do you think this is some sort of poison pill to fend off Uncle Carl?

How do you figure? Doesn't it seem the opposite?

 

My understanding is that a change in control is a bad thing. This filing ensures that if a majority of boardmembers are shareholder-elected, that is no longer a change in control.

 

[eclecticvalue]

Right, in the case of an activist trying to gain seats on the board. It doesn't trigger a clause where the creditors can start asking for repayments on the debt right away.

 

So LC is right with both of those points. I think Icahn is going to start a proxy battle.

[alpha asset strategies]

I guess I misunderstood the meaning of this credit amendment.  So does this 8-k filing imply that Icahn has substantial support of the existing board to initiate a proxy battle to split AIG up?  If not, why would the existing board approve this amendment?  Or was the amendmend made for another reason?

 

On a related note, what are your thoughts on AIG being split up?  I'd imagine it would probably be a bullish catalyst - at least in the short term.  Do you agree?  Would it be a positive thing long-term.

[eclecticvalue]

I think it was amended in the case if Icahn gets control of the board and then the clause triggered the change of control ;therefore, the company would be in financial trouble quickly by accident. I think it was to mitigate that risk . I don't think it implies they support Icahn.

 

As for the company splitting up, yes it would be a bullish catalyst and the company would be re-rated by wall street analysts. Since it would become a pure P&C company. I wonder if it will trade above book value after split. Also it depends on what happens with the DTA's because management didn't want to split the company because they said it would affect the DTA's.

[alpha asset strategies]

I think it was amended in the case if Icahn gets control of the board and then the clause triggered the change of control ;therefore, the company would be in financial trouble quickly. I think it was to mitigate that risk by accident. I don't think it implies they support Icahn.

 

That makes a lot of sense - thanks for the explanation. 

 

I haven't researched AIG thoroughly, but I have had a cursory interest due to the seeming deep value - ie. large discount to TBV, etc.  I've also wondered if Icahn may make some sort of move after substantially increasing his stake over the past several months.

 

This website absolutely is a wealth of knowledge.

[Moht]

Right, in the case of an activist trying to gain seats on the board. It doesn't trigger a clause where the creditors can start asking for repayments on the debt right away.

 

So LC is right with both of those points. I think Icahn is going to start a proxy battle.

 

Both Icahn and Paulson have representatives on the board.  I highly doubt Icahn would wage a proxy fight right now.  I suspect he's happy with how things are going.  For example, the company bought back $3.5B in Q1:16; they're targeting $25B in returns to shareholders by 2017.  At $3.5B a quarter, the return figure could be as high as $28B -- nearly half the current market cap.

 

That said, P&C and Life together doesn't really make that much sense.  The accounting is weird.  A split wouldn't be the worst idea.  Or even better, a sale of life or P&C.  AIG today is a P&C and Life company trading in-line with Life peers -- not global P&C peers. 

[zippy1]

Q2 out

EW YORK--(BUSINESS WIRE)--

 

American International Group, Inc. (AIG) today reported net income of $1.9 billion, or $1.68 per diluted share, for the second quarter of 2016, compared to $1.8 billion, or $1.32 per diluted share, in the prior-year quarter.

 

After-tax operating income was $1.1 billion, or $0.98 per diluted share, for the second quarter of 2016, compared to $1.9 billion, or $1.39 per diluted share, in the prior-year quarter.

 

“AIG’s second quarter results show strong improvement towards all the goals the Board and I announced in January,” said Peter D. Hancock, AIG President and Chief Executive Officer. “We have executed more quickly and smoothly than expected and our confidence in reaching our 2017 financial targets is high as our earnings become more sustainable.”

 

Year-over-year comparisons of net income and after-tax operating income were impacted by an adverse change in net loss reserve discount on workers’ compensation reserves of $455 million after tax, or $0.36 per diluted share. Year-over-year comparisons of net income and after-tax operating income also were impacted by a decline in earnings from market sensitive assets of $631 million after tax, or $0.44 per diluted share. This decline reflects the strong returns on market sensitive assets in the second quarter of 2015, as well as the impact of sales of assets as part of the plan to return capital to shareholders. The year-over-year comparison for net income was also favorably impacted by an increase in net realized capital gains of $576 million after tax, or $0.52 per diluted share.

 

Second Quarter Operating Highlights

 

ROE expansion - Return on Equity (ROE) was 8.6%, up from 6.8% in the prior-year quarter. Normalized ROE improved to 8.8% from 6.7% in the prior-year quarter. Both metrics benefited from operating margin improvement and a lower capital base from the active return of capital to shareholders.

 

Continued Commercial underwriting improvements - While higher catastrophe losses and the use of a lower discount rate for reserves contributed 11.6 points to the Commercial Property Casualty loss ratio of 75.0, our strategic actions improved the Accident Year Loss ratio, as adjusted, by 4.2 points from the prior-year quarter to 62.4, which is a 3.8 point improvement from the full year of 2015.

 

Consumer expense discipline - Strategic actions to reduce expenses in Consumer, particularly in Personal Insurance, drove improved operating margins. The Personal Insurance expense ratio declined by 7.0 points to 40.0 from the prior-year quarter.

 

Ongoing firm-wide focus on efficiency – For the first six months of 2016, general operating and other expenses declined 7% from the prior year. General operating expenses, operating basis, excluding the impact of foreign exchange, declined 11% from the prior year. The improvement was largely driven by lower employee-related expenses, benefits rationalization and professional fee declines.

 

Legacy actions underway - AIG continued to move forward on its action plan for managing its Legacy portfolio, a key contributor to AIG’s capital return target. Monetizations of Legacy assets totaled $4.3 billion over the last three quarters consistent with our continuing strategy to focus capital on core operations while optimizing the value realized from the transfer or sale of assets and liabilities.

 

Book value per share growth - Benefiting from the impact of lower interest rates on AOCI, earnings growth and accretive share repurchases, book value per share of $83.08 grew 6% during the quarter. Book value per share, excluding AOCI and DTA, including dividend growth grew 5% to $61.78, during the quarter.

 

Second Quarter Capital & Other Highlights

 

Total capital returned to shareholders was $3.2 billion and included $2.8 billion of repurchases of AIG Common Stock, $90 million of warrant repurchases and $350 million in shareholder dividends. From the end of the second quarter through August 2, 2016, AIG repurchased an additional $698 million of AIG Common Stock resulting in a total year to date capital return of $7.9 billion.

 

On August 2, 2016, the Board of Directors authorized the repurchase of additional shares of AIG Common Stock with an aggregate purchase price of up to $3.0 billion, which increased AIG’s remaining share repurchase authorization on such date to approximately $4.0 billion. On August 2, 2016, AIG’s Board of Directors declared a quarterly dividend of $0.32 per share. AIG Parent liquidity was $6.7 billion at June 30, 2016.

http://finance.yahoo.com/news/aig-reports-second-quarter-2016-201700994.html

[zippy1]

Add more buy back

American International Group, Inc. (AIG) today announced the following actions taken by its Board of Directors:

 

Authorized the repurchase of additional shares of AIG Common Stock with an aggregate purchase price of up to $3.0 billion. During the six-month period ended June 30, 2016, AIG repurchased approximately $6.2 billion of AIG Common Stock and $263 million in warrants to purchase shares of AIG Common Stock (the “Warrants”), pursuant to prior authorizations from the Board of Directors. AIG repurchased an additional approximately $698 million of AIG Common Stock through August 2, 2016. AIG’s aggregate remaining share repurchase authorization, inclusive of today’s announced $3.0 billion authorization, is approximately $4.0 billion. Repurchases may be made from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or automatic repurchase transactions, or otherwise (including through the purchase of warrants).

Declared a quarterly dividend of $0.32 per share on AIG Common Stock, par value $2.50 per share. The dividend is payable on September 29, 2016, to stockholders of record at the close of business on September 15, 2016.

“We are pleased to increase AIG’s share repurchase authorization by $3.0 billion and declare a quarterly dividend,” said Douglas M. Steenland, Chairman of the Board of Directors of AIG. “AIG made a commitment to return $25 billion of capital to shareholders over 2016 and 2017, and has returned $7.9 billion through August 2nd, 2016 (including share and warrant repurchases, and dividends paid). This quarter’s capital actions demonstrate that AIG Management and the Board continue to be focused on achieving the company’s strategic objectives.”

 

This dividend will result in an adjustment to the exercise price of the outstanding Warrants (CUSIP number 026874156) and an adjustment to the number of shares of AIG Common Stock receivable upon Warrant exercise. The exact adjustments, determined by a formula set forth in the Warrant Agreement, will become calculable on or around September 12, 2016, the day prior to the ex-dividend date. Once the adjustments are determined, AIG will announce the actual adjustment to the Warrant exercise price and shares receivable. Further information on the Warrants and the adjustments is available in the Investor Relations section of AIG’s website.

http://finance.yahoo.com/news/aig-board-directors-authorizes-repurchase-201700107.html

[orthopa]

Im sure most have moved on. I must be one of the last fools still holding some warrants.

 

Another large reserve adjustment. I beginning to think that its impossible to quantify these going forward making it very to be invested in. Maybe its just short term disappointment but Im seriously considering lowering my exposure. Granted Icahn and Paulson are involved but if my count is right they have taken nearly 13B in reserve loss adjustments over the last 7 years.

 

ROE continues to be dismal.

 

This looks like this maybe purely a just a huge buyback story of shares in an under performing black box.

 

Thoughts?

[racemize]

I'm still in, and yes it was a messy quarter.  The thing is, even at 6% book value growth and eventually increasing ROE (e.g., in 2020), it is easy to have very high returns with AiG-warrants.  Eventually, the reserves have to stop.  I think the changes in what they are writing look pretty good.

[Foreign Tuffett]

I'm still in, and yes it was a messy quarter.  The thing is, even at 6% book value growth and eventually increasing ROE (e.g., in 2020), it is easy to have very high returns with AiG-warrants.  Eventually, the reserves have to stop.  I think the changes in what they are writing look pretty good.

 

I'm still in the warrants as well, and for basically the same reasons that you outline.

[MYDemaray]

This is going to make me a serious candidate for @bagholderquotes but seems like as long as they are buying back shares, it's advantageous to simultaneously hit earnings with prior loss year reserves...at least to those of us who have a long investment horizon.

[orthopa]

This is going to make me a serious candidate for @bagholderquotes but seems like as long as they are buying back shares, it's advantageous to simultaneously hit earnings with prior loss year reserves...at least to those of us who have a long investment horizon.

 

I think the only silver lining here is the buyback pace.  I just wonder myself how much loss reserves will ultimately eat into over time and what the markets perception is of true value as the warrants approach expiration.

 

This thinking as well as the possibility of some sort of economic downturn has moved me to halve my holdings in warrants. It was ~15% of portfolio so probably a little rich anyway.  It will remain to be seen if it was a wise move or not building up some cash at this point 7-8 years into a recovery isnt the dumbest thing.

[Sunrider]

I may have gotten my math wrong but the sagacious cost of leverage calc today would indicate 5% till expiry, so 1.3%/year... seems very cheap?

 

Am I missing something?

 

 

 

This is going to make me a serious candidate for @bagholderquotes but seems like as long as they are buying back shares, it's advantageous to simultaneously hit earnings with prior loss year reserves...at least to those of us who have a long investment horizon.

 

I think the only silver lining here is the buyback pace.  I just wonder myself how much loss reserves will ultimately eat into over time and what the markets perception is of true value as the warrants approach expiration.

 

This thinking as well as the possibility of some sort of economic downturn has moved me to halve my holdings in warrants. It was ~15% of portfolio so probably a little rich anyway.  It will remain to be seen if it was a wise move or not building up some cash at this point 7-8 years into a recovery isnt the dumbest thing.

[fareastwarriors]

AIG to Sell Fuji Life in Japan to Li’s Pacific Century

http://www.bloomberg.com/news/articles/2016-11-14/aig-to-sell-fuji-life-insurer-in-japan-to-li-s-pacific-century

[fareastwarriors]

AIG to Sell Fuji Life in Japan to Li’s Pacific Century

http://www.bloomberg.com/news/articles/2016-11-14/aig-to-sell-fuji-life-insurer-in-japan-to-li-s-pacific-century

 

 

AIG Shrinks Itself Carefully

Big insurer makes steady progress selling off nonperforming business units

http://www.wsj.com/articles/aig-shrinks-itself-carefully-1479496601

[fareastwarriors]

AIG to Pay Berkshire $9.8 Billion in Insurance Transfer Deal

 

https://www.bloomberg.com/news/articles/2017-01-20/aig-to-pay-berkshire-9-8-billion-in-commercial-risk-transfer

[Liberty]

AIG down over 9% right now. Haven't looked at earnings yet, so not sure what displeased Mr. Market.

[racemize]

huge reserve increase along with the ADC.  Market doesn't believe the reserve additions will ever stop.

[no_free_lunch]

According to this there is concern that AIG might have to cease capital return and possibly raise equity.

 

AIG sized its previously announced 4Q loss reserve charge: $5.6bn pre-tax. This charge was significant and much larger than our estimate of around $3bn. If A.M Best affirms its financial strength rating of AIG of ‘A’, we believe it would remove a negative overhang on AIG shares. If, however, AIG were downgraded by A.M. Best (to A-), we think it could result in slowing or ceasing share buybacks to conserve capital. In a more pessimistic scenario, AIG could require a dilutive capital raise or exit of business units. Separately, S&P said [last night] it would take no immediate rating action on AIG.

 

http://blogs.barrons.com/stockstowatchtoday/2017/02/15/aig-what-just-happened/

[RichardGibbons]

This reminds me of how, probably eight years ago, Prem Watsa said something like, "there's a large player who's writing a bunch of unprofitable insurance".

 

It makes me wonder whether it's actually a viable (albeit unethical) business strategy--when you need money, write unprofitable, under-reserved business to generate cash flow. It would result in ongoing reserve increases for years, but would provide you with the time and liquidity you need to get on a sounder footing.

[gfp]

I'm wondering if anyone here can shed some light on this question I have - If John Paulson is a member of the AIG board of directors, and a reporting insider as a director of the company, how is it that he (Paulson & Co.) was able to sell shares in AIG during the 4th quarter without filing a Form 4 with the SEC at that time?  As a director, he was no-doubt briefed on the reserve charge and other material non-public information - yet somehow it appears that he did not have a reporting requirement on stock sales?

 

Can anyone explain how that is allowed to happen?  Seems strange but since I haven't read of any big dust-up about it, it must be somehow legal?

[Tim Eriksen]

I'm wondering if anyone here can shed some light on this question I have - If John Paulson is a member of the AIG board of directors, and a reporting insider as a director of the company, how is it that he (Paulson & Co.) was able to sell shares in AIG during the 4th quarter without filing a Form 4 with the SEC at that time?  As a director, he was no-doubt briefed on the reserve charge and other material non-public information - yet somehow it appears that he did not have a reporting requirement on stock sales?

 

Can anyone explain how that is allowed to happen?  Seems strange but since I haven't read of any big dust-up about it, it must be somehow legal?

 

There are two issues.  One is selling on MNPI whether or not the sale is disclosed.  We don't know when he learned of the information and when sales took place.  Second is proper disclosure.  At minimum, not reporting the ownership of (and any changes in) shares in entities he controls is aggressive and pushing the boundaries.  I think it is improper.  Solitron is tiny and we wouldn't do it that way.