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AIG Prices Sale of 6.4 M Arch Capital Shares Through IPO


American International Group, Inc. AIG recently priced the sale of 6.4 million common shares of Arch Capital Group Ltd ACGL. AIG will get approximately $590 million of gross proceeds with this offering. The shares were issued following AIG’s sale of its mortgage business unit, United Guaranty Corp., to Arch in 2016, which involved the conversion of 0.64 million Convertible Preferred Shares of Arch received by AIG . The transaction, currently subject to customary closing conditions, is expected to close by Jun 14, 2017.

AIG sold off United Guaranty to Arch Capital Group in order to shed its non-core businesses. This step was taken to make its business leaner and focus more on the ones generating higher returns. The mammoth underperforming insurer has been aggressively recalibrating its business after investor Carl Icahn called for its speedy turnaround.

The extreme diversification in the company’s business has posed a hindrance due to lack of synergy and dampened shareholders’ confidence in the stock. Shares of AIG have lost 1.75% year to date compared with the Zacks classified Multi Line Insurance industry’s gain of 4.4%.

Coming back to the present deal, AIG has granted the underwriters a 30-day option to purchase an additional 957,210 common shares of Arch issuable upon conversion of 95,721 additional Convertible Preferred Shares held by it. The company is expected to receive additional proceeds of approximately $89 million if the underwriters exercise their option in full. AIG would also continue to own 542,420 Convertible Preferred Shares following the transaction.

Divesture has been a major strategy of the company to focus on its core operations. In 2016, AIG completed the sale of its Taiwan unit. It also sold Advisor Group to investment funds affiliated with Lightyear Capital LLC.

Moreover, the company also sold sell its Japan life insurance business – AIG Fuji Life Insurance Company, Ltd. (AFLI) – to FWD Group, the insurance arm of Pacific Century Group. Furthermore, AIG has entered into strategic agreements with Fairfax Financial Holdings Limited to offload its commercial and consumer insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey.

We expect the company’s divestments to bear fruit soon and put it back on the growth trajectory once again.

Zacks Rank and Stocks to Consider

AIG presently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the same space can consider stocks like Assurant Inc. AIZ and Loews Corp L. Both the stocks hold a Zacks Rank #2 (Buy).

Assurant delivered positive surprises in three of the last four quarters with an average beat of 6.82%.

Loews delivered positive surprises in each of the last four quarters with an average beat of 25.77%.

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