Global financial group AIG is in talks to sell its insurance operations connected with Lloyd’s of London to Canada’s biggest pension fund, according to insider reports.
The discussions with Canada Pension Plan Investment Board (CPPIB) also involve the acquisition of a related reinsurer based in Bermuda.
The New York-based AIG is currently making efforts to improve its results by narrowing its focus, and returning over US$25bn in capital to its shareholders. On the other hand, an acquisition will be another stepping stone for CPPIB’s move to become a significant global insurance industry player.
CPPIB’s first major insurance acquisition was in 2014, with the purchase of US life insurer Wilton Re Limited Holdings for US$1.8bn. In 2015, CPPIB bought an almost 10% stake in Bermuda-based Enstar Group Ltd, which acquires and manages insurance and reinsurance companies. Enstar’s holdings include operations at Lloyd’s of London.
AIG is a minority owner of Ascot Underwriting Holdings, which manages a Lloyd’s syndicate covering marine, fine art, political risks, and terrorism. Ascot has operations in Asia and Houston, potentially giving CPPIB access to these markets if the deal pushes through.
Activist investors Carl Icahn and John Paulson have publicly called on AIG to break itself up in order to avoid onerous capital requirements as a “systemically important financial institution.” AIG was labeled as such after its near-collapse in the 2008 financial crisis and subsequent government bailout, which has been fully repaid.
AIG has rejected the call to break up, but CEO Peter Hancock proposed a strategy to return at least US$25bn to shareholders, mostly through dividends and buybacks, as AIG disposes of its non-core businesses to improve profit margins.
Recently, AIG has sold its mortgage-guarantee unit to Bermuda-based Arch Capital Group, netting US$3.4bn. Since January, the group has returned around US$7.9bn in capital to its shareholders.
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