Recently, Carl Icahn’s call on American International Group (NYSE:AIG) to break itself into three smaller companies has made headlines. Mr. Icahn believes that AIG, once considered to be too big to fail, is now too big to be successful. In addition, Mr. Icahn has also called on the company to cut some of its costs, which may be difficult for AIG to do.

Carl Icahn’s Call for AIG to Split Up

Mr. Icahn wrote an open letter to AIG calling for the company to split apart into separate companies, with one handling the life insurance line, one handling the mortgage insurance line, and the company retaining its property and casualty insurance. Mr. Icahn contends that dividing the company into three smaller ones would help all three avoid designation as a Systemically Important Financial Institution, or SIFI, which comes with increased regulation and oversight by the Federal Reserve. Mr. Icahn believes that doing so would help the company’s share price to rise from its current value of around $60 per share to over $100 per share.

Comparison With Prudential

AIG was designated as a SIFI in Sept. 2013 along with Prudential Financial (NYSE:PRU). Neither company filed an appeal of that decision. With more than $104 billion in shareholder equity and presence in more than 100 countries, AIG is one of the biggest insurers in the world. As the company has continued with its tri-line insurance product offerings, competitors like Prudential have instead shed additional lines, including its former home, health and auto insurance lines, to focus on life insurance alone. Today, PRU is trading at more than $83 per share on average, significantly higher than AIG.

(NASDAQ.com)

Recommendation: Take Profits In AIG

AIG has already cut costs and doesn’t have much more it could cut. It also appears to be unlikely that the company will take Mr. Icahn’s advice and split apart anytime in the near future. Investors may be better served to invest in a company offering monoline insurance, such as Prudential, instead of AIG.