The insurance giant American International Group on Tuesday announced a series of changes designed to streamline its sprawling operations, but it stopped short of acceding to demands that it break up.
The company said it would spin off 19.9 percent of United Guaranty, its mortgage guaranty business; sell its financial advisory business; and create nine distinct operating units in its commercial and consumer divisions. The moves are intended to shore up financial performance and give AIG the flexibility to separate or sell businesses down the road.
While the company is not ruling out more radical changes, "now is not the time to be shortsighted and simply react to the demands of those who challenge us," AIG's president and chief executive, Peter Hancock, said in a memorandum to employees on Tuesday.
"The creation of more nimble stand-alone business units that can grow within AIG or be spun out or sold allows us to do what is in our shareholders' best interests," Hancock said in a statement announcing the changes.
The company will start an initial public offering for United Guaranty by midyear with the eventual goal of full separation. It is selling AIG Advisory Group, with 5,200 independent advisers and 800 employees, for an undisclosed amount to Lightyear Capital and the Canadian pension investment manager PSP Investments.
In addition, it is moving some underperforming older assets into a new legacy business to be run by Charlie Shamieh, who leads the life, health, and disability insurance business.
AIG also announced a $25 billion stock buyback and dividend plan for shareholders over two years and the addition of $3.6 billion before taxes to its loss reserves.
The plan might not be enough to satisfy the demands of increasingly impatient shareholders.
The announcement comes three months after the activist investor Carl C. Icahn made public his campaign to split AIG into three separate companies and shake off the designation that it is too big to fail.
Icahn has since publicized two more letters to AIG and says large shareholders, including the hedge fund manager John Paulson, agree with splitting it into three.
Shares of AIG fell 1.7 percent in trading Monday and are down about 8 percent since the day before Icahn publicized his first letter to the company in late October.
More than seven years ago, the sprawling company had to be rescued by the federal government with billions of dollars of crisis-era bailout funds. Since then, the insurer has resisted calls to break itself apart, though it has tried to slim down, including the sale of Asian life insurance units and its aircraft leasing business.
Investors, including Icahn and Paulson, complained that AIG's management was taking too long and needed to make more radical changes. The critics say AIG's vast array of businesses have a lower value held together in one company than they would apart.
Icahn said the company could unlock this value for shareholders by spinning off its life insurance and mortgage insurance operations. That would allow AIG to focus on its property and casualty insurance business, through which it sells products to corporations around the globe.
AIG has 65,000 employees in businesses spread across corporate and personal insurance products. Through the third quarter, it had operating revenue of $43.4 billion, some 41 percent of which came from its commercial property and casualty division.
The mortgage guaranty business, by contrast, contributed just 2 percent of operating revenue last year through September, according to a November investor presentation. Life insurance and personal insurance contributed 31 percent.
Management said Tuesday it would aim to cut $1.6 billion in expenses by the end of 2017 by making better use of office space and technology, minimizing the use of external consultants, and winding down or selling lower-profit businesses.
Last year, AIG cut 20 percent of its senior management positions, froze its pension plan, and said it intended to make further reductions in management numbers this year.
The pressure has intensified since AIG management set the date for presenting its strategic vision for the future of the company. Last week, Icahn publicized a letter he wrote to AIG's board of directors saying that he would not be satisfied if those plans focused merely on incremental cost-cutting.
AIG has been designated a systemically important financial institution, or SIFI, by federal regulators. Another insurance company in that category, MetLife Inc., announced plans earlier this month to separate its life insurance operations in the United States. That move was largely intended to get rid of the SIFI designation for the US life operations so it could more adequately compete with rival firms. And General Electric is selling off GE Capital to shed that label as well.
Analysts have sounded cautious about the potential for major changes.
Josh Stirling, an analyst with Sanford C. Bernstein & Co., said the loss of shareholder support was driven by AIG's failure to make progress increasing the margins in the property and casualty business. To win back shareholder support, the company would have to set forth plans to divest approximately one-quarter to one-third of its assets during the next couple of years, he said.
If management falls short of making the types of changes shareholders have been pressing, "it'll be hard for investors to evaluate whether it's because the company is making excuses for a lack of vision, or whether, given the hand they've been dealt, it's just the best anyone can do," Stirling said.