Market reacts positively to Nippon stake in Corebridge Financial

In its continuing effort to disentangle itself from the life insurance business, American International Group (AIG) said it would sell a 20% stake in Corebridge Financial to Japan's largest life insurer, Nippon Life Insurance, for $3.8 billion, or about $31.47 per share.

The market reacted positively to the Nippon deal, pushing AIG shares up 11% immediately after the deal was announced. The stock is up 55% this year and has almost doubled in the past 12 months. Shares are now trading near the 52-week high of around $81 per share.

Corebridge had become a separate company within AIG with an IPO of 20% of the shares in 2022. But the company had said it wanted to reduce its holdings further following years of pressure from activist investors who called for the “too big to fail” insurer to break itself into separate parts. Climate change advocates have also targeted AIG to stop insuring fossil fuel operations.

AIG holds nearly 53% in Corebridge

AIG currently holds a nearly 53% stake in Corebridge and the company has said it is not done unloading most of its position in the life insurer as it focuses almost exclusively on the P&C business.

“We continue to explore all alternatives to reduce our ownership stake in Corebridge,” said AIG CEO Peter Zaffino. “Once Corebridge is deconsolidated from AIG, Life & Retirement's balance sheet and income statement will no longer be included in AIG's consolidated financial statements and our remaining ownership stake will be reported in parent investments with dividends reported in net investment income.”

Zaffino didn’t say what the company will do with the nearly $4 billion in proceeds from the Nippon deal but would likely go to stock buybacks. The Nippon deal is expected to be finalized by the first quarter of 2025.

Nippon, meanwhile, would increase its U.S. market presence with the Corebridge deal, adding to its 15 million policyholders in Japan, Australia, India, Myanmar, China, Thailand, and Indonesia.

“Nippon Life is well known in the financial services industry for its leadership in the Japanese insurance market and is globally recognized for its strong performance and corporate reputation,” Zaffino said. “We are pleased to have Nippon Life become a strategic partner to Corebridge and believe that they will add meaningful value as an investor.”

Meyer Shields, an analyst at Keefe Bruyette & Woods, has followed AIG for years and was bullish on the company’s stock, setting a target price of $87.00 per share. The Nippon deal did nothing to change his outlook.

'Creativity' of the deal is positive, says analyst

“We view both the price and creativity of this deal as positives, avoiding the time and potential price pressure of a secondary offering and/or an exchange,” Shields wrote.  “We expect AIG to keep pursuing other means of selling down its CRBG stake, with the proceeds primarily funding share repurchases.”

KBW maintains an “outperform” rating on AIG stock.

“The deal requires AIG to maintain a 9.9% stake in CRBG (it’s at about 33% pro forma for this deal) for two years after the close, which would just represent an investment that doesn’t preclude deconsolidation,” Shields said.

Earlier this month, AIG released first quarter earnings that beat Wall Street expectations and its board declared a new stock buyback program, boosting its share repurchase authorization to $10 billion.

First quarter adjusted EPS of $1.77, vs. $1.63 in Q1 2023, with adjusted pretax income of $1.94 billion vs. $1.64B a year ago.

"General Insurance had another quarter of impressive Commercial Lines profitability benefiting from continued strong underwriting performance and low levels of catastrophe losses as we continue to manage volatility in our results," said Zaffino.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].