AIG to return $25 bn to shareholders, slash costs

US insurer AIG, under pressure from activist investor Carl Icahn, said Tuesday it would return $25 billion to shareholders, slash costs and sell its mortgage business.

Pushed in recent months by Icahn to split into three smaller companies, American International Group 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.

And it will offer a 19.9 percent 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 organization 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 percent to $56.20 Tuesday in morning trade.