AIG Shoots for Expansion Now That ‘Too Big To Fail’ Status Is Going Away

October 1, 2017 by Sonali Basak and Katherine Chiglinsky

Now that American International Group Inc. is no longer too big to fail, it has a goal: Get bigger.

The U.S. freed the New York-based insurer from enhanced regulation, removing the scarlet letter it wore since the 2008 financial crisis. That may allow new Chief Executive Officer Brian Duperreault to pursue the takeovers he’s said he’s wanted to do.

“It’s just one less level of oversight concerning the acquisitions he might pursue,” said Elyse Greenspan, an analyst at Wells Fargo & Co.

The Financial Stability Oversight Council declared that AIG is no longer a systemically important financial institution, or SIFI, ending the threat of tighter capital rules. Duperreault, who has announced his intent to expand through mergers and acquisitions, is the first AIG chief since the crisis with the opportunity to seek out deals, Ryan Tunis, an analyst at Credit Suisse Group AG, said by phone before the announcement.

“AIG has shrunk enough that it’s now time for them to figure out something different to do with capital,” Tunis said. “At this point, there’s an argument to be made for the company improving in a business mix standpoint. The way you improve your mix is adding, not by subtracting.”

Duperreault is poised to expand AIG’s reach after years of contraction since the crisis. The insurer, recipient of a $182.3 billion U.S. rescue, managed to pay back the bailout — and the government booked a profit on the deal. The insurer’s workforce tumbled by around half at the end of last year compared with 2008 as the firm sold nearly $100 billion of assets.

Prudential Financial Inc., which has been expanding steadily since 2008, is now the sole non-bank SIFI. MetLife Inc. won a legal battle in early 2016 that struck down its designation as too big to fail, a move that sent shares climbing 5.4 percent the day it was announced. FSOC has appealed that decision.

Escaping the label was a boon for MetLife investors. Steven Kandarian, the CEO, previously took a more cautious approach to buybacks because of uncertainty about capital rules. After the legal victory, he tripled the amount his company would allow for share repurchases, saying he would buy back $3 billion in stock, MetLife’s largest authorization ever.

AIG had been pursuing buybacks to appease investors including billionaire activist Carl Icahn, who in late 2015 sought a break up of the insurer in order to escape the SIFI label. Duperreault earlier this year advised investors not to count on aggressive share repurchases as the insurer had done in the past because he needed flexibility for priorities including acquisitions — a plan that Icahn blessed, people familiar with his thinking said in June.

Seeking Deals

“We’ve done an enormous amount of share buybacks already,” Duperreault, 70, said after AIG’s annual meeting on June 28. “I’m saying, ‘That’s great, but let’s use the capital intelligently,’ and if it means not buying back shares, because there’s another acquisition I could do, or some other application of that capital, I’m going to do it.”

The CEO said that AIG has “lots of potential” for international growth through deals or organic expansion. The firm is looking for targets that are ” strategically complementary,” he said in a conference call with analysts two months later. That includes transactions in personal lines, life insurance and the U.S. market for small- to middle-sized companies, he said.

Removal of the SIFI label would “certainly facilitate growth,” said Tom Russo, AIG’s former general counsel. Earlier, the Federal Reserve played a significant role in helping AIG overhaul its finance and risk management systems, but the cost has started to outweigh the benefit, he said.

“There’s an incredible amount of regulation from the states and AIG is much smaller than it was at the outset,” Russo said. “By any standard, and objectively speaking, it is simply not systemically important.”