Recently, leading insurer,
American International Group Inc.
) declared that it will scrap the interest rate swap deal with a
global alternative asset manager,
Brookfield Asset Management Inc.
) to resolve a dispute in the agreement. In exchange it will
receive $905 million from Brookfield Asset Management.
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As per sources, Brookfield Asset Management had filed a lawsuit
in 2009 against American International claiming that the latter's
financial collapse in Sep 2008 had brought about default
provisions in two 25 year rate swaps executed by Brookfield in
1990. On the other hand, against the allegation, American
International Group stated that this lawsuit was an attempt on
part of Brookfield Asset Management to get rid of the payout to
The swap agreement was part of the remaining derivatives
portfolio of American International's Financial Products.
American International has been trying to reduce risks associated
with the lawsuits filed against it for quite some time now. Amid
the ongoing economic volatility, termination of the interest rate
swap agreement is expected to help the company to reduce risk to
As of Jun 30, 2013, Brookfield had a liability of approximately
$1.4 billion and was subject to litigation in the United States
District Court for the Southern District of New York. The
termination of the agreement will dismiss this lawsuit against
the company thereby retaining investor confidence.
In addition to reducing risks, American International is also
focused in reducing its debt burden and enhancing financial
flexibility. Earlier this month, American International declared
that it will redeem its outstanding 3.65% notes worth $500
million next month, much earlier than the scheduled expiry in
2014. The liability management initiatives taken up by American
International have also helped it reduce debt by $931 million in
the second quarter of 2013, reported this month.
American International currently carries a Zacks Rank #2 (Buy).
Among other insurers in the industry,
) carries a favorable Zacks Rank #1 (Strong Buy) while
CNO Financial Group Inc.
) carries a Zacks rank #2 (Buy).