A leading life, and property and casualty insurer, American International Group (AIG) declared that it will redeem its outstanding 3.65% notes worth $500 million next month, much earlier than the scheduled expiry in 2014. The redemption date as settled by the company is Sep 9, 2013. American International will pay a principal amount of $1,000 and accrued and unpaid interest to the registered note holders on that date.
American International is focusing on deleveraging activities for some time now. The liability management initiatives of American International have helped it reduce debt by $931 million in the second quarter of 2013, reported recently. This included the $750 million 6.45% junior subordinated debenture redemption made by the company on Jun 17, 2013. As a result the debt to capital ratio of the company stood at 0.30x as of Jun 30, 2013, representing an improvement of 3 percentage points from that of 0.33x at year end 2012. The $500 million note redemption is expected to reduce the debt burden of the company further thereby improving its debt to capital ratio going forward.
The note redemption is also expected to reduce the interest expense of the company. In the second quarter of 2013 American International’s interest expense declined 9.9% as a result of its debt reduction initiatives. Also, the redemption of the notes earlier to the scheduled expiry date signals the solid financial position of the company.
The financial strength of the company is also reflected by the regular dividend distribution and share buyback programs. On Aug 1, 2013, American International declared a quarterly dividend of 10 cents per share that is payable on Sep 26, 2013 to shareholders of record as of Sep 12, 2013. On the same date it authorized a $1 billion share repurchase program.
American International currently carries a Zacks Rank #2 (Buy). Among other insurers in the industry, AXA Group (AXAHY), CNO Financial Group Inc. (CNO) and Eastern Insurance Holdings Inc. (EIHI) all carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.
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