AIG and Berkshire: Analyst Sees Perfect Fit -- WSJ
13 March 2017 - 6:02PM
Dow Jones News
By Nicole Friedman and Leslie Scism
Warren Buffett is the key to fixing America's seemingly
unfixable insurance giant. So say Keefe, Bruyette & Woods
analysts, who argued in a note that Mr. Buffett's Berkshire
Hathaway Inc. should buy American International Group Inc.
While the two massive companies do compete in some markets,
Berkshire is a larger presence in reinsurance and personal auto
insurance and AIG focuses on commercial insurance.
"We see a strong case for Berkshire Hathaway buying AIG," KBW's
Meyer Shields, Christopher Campbell and Anthony To write. "AIG
could be significantly more stable and more valuable under a
Berkshire Hathaway ownership scenario than on its own."
AIG declined to comment, and Berkshire didn't respond to a
request for comment.
AIG Chief Executive Peter Hancock announced his resignation
Wednesday, and the company is seeking its seventh CEO since 2005.
Mr. Hancock will stay until the board names a successor. Just a few
years removed from an $185 billion government bailout, AIG is
struggling to meet financial-performance targets set in January
2016 as activist investors called for a breakup of the company and
other moves to bring its profit margins in line with peers.
Berkshire has already taken on responsibility for some of AIG's
potential future costs through a reinsurance deal the two companies
signed in January. At the time, Mr. Buffett praised AIG and Mr.
Hancock. Mr. Buffett and Mr. Hancock had lunch in New York the day
before the deal was announced.
"I had lunch with Peter yesterday, have known him a long time
and particularly admire what Peter has accomplished at AIG," Mr.
Buffett said in an email to the Journal on Jan. 20.
KBW suggests that AIG could be housed within Berkshire Hathaway
Specialty Insurance, Berkshire's commercial insurance arm run by
Peter Eastwood, who worked at AIG for more than 20 years.
"Morale should immediately improve, and that matters," the
analysts write. AIG employees who fear layoffs are more likely to
leave or make bad underwriting decisions, they say.
KBW estimates that combined, the two companies would hold about
8% of the U.S. commercial insurance market.
Berkshire held about $86 billion in cash at year-end and has
said it won't let its cash reserves drop below $20 billion. AIG's
market capitalization stands at around $62 billion. The biggest
impediment to a deal could be that AIG is designated as
"systemically important," which could put Berkshire under new
regulatory scrutiny, KBW says.
(END) Dow Jones Newswires
March 13, 2017 02:47 ET (06:47 GMT)
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