(Bloomberg) – The clock is ticking for Peter Hancock.
The American International Group Inc. chief executive officer has posted three straight quarterly losses and will probably report Tuesday that profit in the three months ended June 30 fell 32 percent, according to analysts surveyed by Bloomberg.
Hancock has presided over a 12 percent stock slump this year through Tuesday, hurting investors including activist billionaires Carl Icahn and John Paulson, even as the CEO shrunk his leadership team, exited unprofitable hedge fund bets and announced a plan to return $25 billion to shareholders over two years. The insurer has struggled with higher-than-expected costs on policies from prior years and near record-low interest rates that pressure investment income.
His job is “enormously at risk,” Meyer Shields, an analyst at Keefe, Bruyette & Woods, said in an interview, adding that Hancock may have until the end of the year to prove his plan is working. “There are a lot of high-profile investors that think AIG could be more profitable than it is,” Shields said. “A fair complaint is that AIG is underperforming [relative to] its peers.”
Hancock won improved relations with the activists when AIG agreed in February to add Paulson and a representative from Icahn’s firm to the insurer’s board. Icahn dismissed the idea that Hancock’s job is at risk and said his firm has had amicable talks with the CEO.
“Since the settlement, there’s been no thought about replacing Peter Hancock,” Icahn said Monday by phone. “We’ve had friendly discussions, concerning the company, about the acceleration of sales of legacy positions.”
Activists have increasingly preferred to work behind the scenes to improve results, especially when they have board representation, said Steve Balet, head of corporate governance and activist engagement at FTI Consulting.
“If earnings don’t improve, and the management’s current plan is not working, the activists will gain more and more credibility and influence on the board,” Balet said.
One thing that would help Hancock’s standing is to reduce the ratio of claims costs per premium dollar, said Michelle Giordano, an analyst at Neuberger Berman. Jon Diat, a spokesman for New York-based AIG, declined to comment.
When Icahn disclosed an AIG stake in October, and said “the time to act is now,” he made it sound simple to boost the share price: Break AIG into three companies, one offering property-casualty coverage, another selling life insurance and a third backing mortgages. This would also help AIG exit its status as a systemically important financial institution, a designation that regulators apply to large companies deemed in need of tighter regulation, Icahn said at the time.
MetLife Inc., the largest U.S. life insurer, offers evidence that Icahn’s initial vision isn’t guaranteed to win over Wall Street, at least when the yield on 10-year Treasuries is less than 2 percent. MetLife in January announced a plan to separate a U.S. retail unit, then won a court ruling months later overturning its SIFI tag. The company’s stock is still down 10 percent since Dec. 31.
Hancock has said Federal Reserve oversight isn’t much of a burden and that splitting the company could erode the value of tax assets. He did announce in January a deal to sell a broker-deal network and said he’d separate AIG’s mortgage insurer as part of a divestiture plan to free up as much as $7 billion. That builds on moves he made before Icahn’s involvement, such as selling a stake in aircraft lessor AerCap Holdings NV while parting with businesses in Central America.