AIG to cut costs, return $25 bn to shareholders

American International Group Inc (AIG) on Tuesday said it would slash expenses and sell its mortgage-insurance business and, over the next two years, return $25 billion to shareholders.

The US insurance giant, which is under pressure from activist investor Carl Icahn to split into three smaller companies, announced a series of strategic steps to become a "leaner, more profitable and focused insurer."

AIG said it would return at least $25 billion to shareholders over the next two years in share buybacks and dividends.

It returned $12 billion last year. The company said it would also create nine business units within its commercial and consumer segments.

The insurer said it would offer a 19.9-per cent stake in its United Guaranty Corporation to the public in mid-2014 as a first step in spinning off the business.

UGC, which had operating profit of $464 million in the first nine months of 2015, is valued at $3-6 billion by analysts.

AIG also approved the sale of AIG Advisor Group to New York investment fund Lightyear Capital and Canadian pension fund manager PSP Investments. The financial terms of the deal were not disclosed.

The insurer pledged to save $1.6 billion within the next two years in the vast overhaul.

"With these actions, AIG has taken another major step in simplifying our organisation to be a leaner, more profitable insurer, while continuing to return capital to shareholders and improve shareholder returns," Peter Hancock, AIG president and chief executive, said in a statement.

Hancock has been under pressure from Icahn and other activist investors to enhance shareholder value.

In October, Icahn said he had taken a "large stake" in October and called, in an open letter to Hancock, for AIG to be split into three smaller companies to avoid the regulatory burden of being categorized as a financial institution that is "too big to fail".

AIG, which had been taken over by the government to prevent its collapse in the 2008 financial crisis, has recovered its leading role in the US industrial and property insurance market since key international units were hived off and the US Treasury sold its final shares in December 2012.

But since then it has been designated by the Treasury as a "systemically important financial institution," which brings more stringent and costly capital requirements.

Shares of AIG jumped 1.5 per cent to $56.20 Tuesday in morning trade.