By Sweta Singh and Suzanne Barlyn
(Reuters) - American International Group Inc said on Thursday Chief Executive Peter Hancock will step down after the insurer's widening losses stung investors, including billionaire Carl Icahn.
Hancock had faced questions about his ability to carry out a two-year turnaround plan that targets returning $25 billion to shareholders after AIG reported an unexpectedly large quarterly loss, mainly due to a $5.6 billion reserve charge to cover possible future claims.
AIG board members were frustrated by the fourth-quarter results, which included the second surprise charge in a row, people familiar with the matter said.
Icahn has argued that the largest U.S. commercial insurer should break in three in part to shed its "too big to fail" designation. AIG is one of the few insurers labeled by the U.S. government as being a significantly important financial institution (SIFI), which makes it subject to tougher capital requirements and supervision.
In January, AIG announced a deal to pay $9.8 billion to National Indemnity Co, a unit of Berkshire Hathaway Inc to cover most of AIG's U.S. commercial long-tail exposures, or liabilities for claims that take a long time to be settled, for accidents that occurred in 2015 and prior.
While that deal curbed the insurer's risk exposure, it also triggered the surprise charge that vexed AIG's board.
Hancock, who has been at the helm for more than two years, will remain CEO until a successor is named, the company said in a statement.
Tensions between Hancock and Icahn began to mount after the CEO rebuffed the activist investor's proposals, which also included extensive cost cutting. Icahn had threatened a proxy fight.
"We fully support the actions taken today by the board of AIG," Icahn tweeted on Thursday.
Ichan is AIG's fourth-largest investor with a 4.7 percent stake in the company. Samuel Merksamer, who represents Icahn on AIG's board and several others, exited the activist investor's firm in December. Merksamer, however, continues to serve as Ichan's representative.
Hancock said in a statement on Thursday that he could not continue in his role without "wholehearted shareholder support."
AIG's shares were up 0.9 percent at $64 in early trading.
Hancock is AIG's fifth chief executive since Maurice "Hank" Greenberg was ousted in 2005. Of those, Robert Benmosche, who took charge in 2009, ran the company for the longest stint, until Hancock took over in 2014.
Bowing to pressure from Icahn and hedge fund manager John Paulson, AIG unveiled its turnaround plan last year, but those efforts fell short.
Under Hancock's tenure, AIG completed or announced 17 deals to reduce assets collectively valued at over $13 billion. But even so, its shares are trading at 83 percent of book value and the company's net loss widened to $3.04 billion in the fourth quarter from $1.84 billion a year earlier.
Hancock had said the so-called SIFI designation targeted by Icahn was not a big concern.
(Reporting by Sweta Singh in Bengaluru and Suzanne Barlyn in New York; Additional reporting by Michael Flaherty in New York and Nikhil Subba in Bengaluru; Editing by Saumyadeb Chakrabarty and Meredith Mazzilli)
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