ACQUI-HUH

Citigroup analysts think Google’s parent company should buy AIG

Obsession
Future of Finance
Obsession
Future of Finance

AIG is an insurance company. Alphabet is the parent company of internet search giant Google. While there don’t seem to be many synergies on the surface, analysts at Citigroup think Alphabet should partner with an investment bank to buy AIG and turn it into an “insurance FinTech laboratory.”

In an investor note circulated today (Feb. 16), the analysts acknowledged the proposal is “audacious” and that it’s a “very low probability event.” Still, they insisted it was a promising idea. It very well could be—the insurer’s massive trove of data could make it appealing to Alphabet. Meanwhile, AIG, which has been battling with activist investors (paywall), could benefit from the shield of a parent company. The proposal also highlights overlaps between tech and finance, beyond just payments.

Among the trends Citi analysts based the proposal on:

  • The rise of “modular finance.” Whereas financial institutions have traditionally sold a whole suite of products to customers, modular finance—a term coined by consulting firm Oliver Wyman—describes how technology is assembling complex offerings on the fly, “forcing finance firms to be best of breed for each product.”
  • A lack of significant disruption in insurance. Tech companies have largely stayed away from insurance because it’s highly regulated, “interconnected, and hard to automate.”

Citi thinks a Google-AIG innovation lab could take address these and more. While Google gets an experienced insurance team and decades of data, AIG gets a parent company that’s already betting heavily on moonshots (and losing quite a bit of money doing so).

Of course, Google shareholders won’t be happy acquiring a volatile insurance giant—not to mention the regulatory headaches that would come with it. That’s where the investment bank partnership comes in: Google would take control of “data and strategic development”and the investment bank could get new businesses to securitize.

Most of this sounds nice for AIG, whose CEO, coincidentally, had some very nice things to say about Alphabet’s corporate structure recently. As Bloomberg notes, Peter Hancock last month likened his company to Alphabet when he announced AIG would create nine “modules” to improve accountability and add transparency for investors.

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