The head of American International Group Inc. said management and the board have "carefully reviewed" the idea of breaking up the insurer on many occasions and concluded that such a move "did not make financial sense." The comments from AIG Chief Peter Hancock, made in a conference call with analysts and investors Tuesday, were his first since activist investor Carl Icahn last week sent a letter urging the company to split into three pieces. Mr. Icahn has argued that splitting apart would reduce the company's regulatory burden. On Tuesday, Mr. Hancock said that assumption wasn't true. The "assumed outcome" under Mr. Icahn's proposal is the ability to return more capital to shareholders, but ratings firms like the stability and diversification of a combined company, Mr. Hancock said. Due to ratings-agency concerns, smaller companies would likely return "less capital, not more," he said. Mr. Hancock said AIG sees a "tremendous benefit" in having a combined life and property-casualty operation, and that a split would be a "distraction" from the company's cost-cutting initiatives. He said AIG's management would meet with Mr. Icahn to share its conclusions. Mr. Icahn and hedge-fund billionaire John Paulson have argued that by dividing AIG into smaller pieces, AIG could escape its federal designation as a systemically important financial institution. The label indicates the government believes the companies could pose risks to the broader economy during a crisis. The designation brings with it heightened scrutiny and requirements to hold robust capital buffers against unexpected losses. Asked Tuesday whether the company's SIFI designation is causing the firm to hold more capital, Mr. Hancock said the answer is "definitively no." "We anticipated this [SIFI] designation before we exited the government's cradle," he says, referencing the government bailout of AIG during the financial crisis. The company already did "massive" divestitures, he said. Unlike other SIFIs that are de-levering now, "we got that done by the end of 2011." AIG shares are down 3% premarket to $61.80.
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