Today, Carl Icahn issued a release, in which he stated that John Paulson of Paulson & Co had received Board seats in AIG. Carl Icahn himself was unable to go on board of the insurance giant: Today we reached an agreement with AIG whereby one of our analysts will join the board of directors at the upcoming annual meeting in May. I myself declined to go on the board because of my involvement in so many other companies at this time. AIG also entered into a separate agreement with Paulson & Co. Inc. pursuant to which President John Paulson will join the board at the same time. The markets have not reacted to this news yet (the stock is in the red with the rest of the market - down 3.7% today). Perhaps, the main reason is that the release was issued after the market close. In addition to that, the company's latest quarterly earnings also came after 4 PM: (Source: Seeking Alpha) As evident from the above, AIG finished the quarter in the red with falling profitability and trading below its book value (the stock currently trades at $51 per share vs. its book value of almost $73 per share). Frankly speaking, AIG is not a black sheep: many of its competitors have also underperformed the broader market. Check out the 52-week chart below: (Source: Bloomberg) As you can see, the stock is marginally in the red over the one-year period. This is a mediocre performance, coupled with a relatively low dividend yield of 2.2% (if you annualize the recent dividend hike, the yield becomes 2.5%). Hence, Carl Icahn have proposed that the following changes have to be made to make the company into a profitable and a valuable business: 1.Commit to streamline operations and focus on transforming the company into a competitive, pure play P&C insurer by committing to sell, spin, or otherwise separate non-core operations to de-conglomerate and apply to de-SIFI. 2.Commit to fixing the P&C franchise so that it can generate competitive, double digit return on equity (ROE) through improved underwriting and cost reductions, even if it means bringing in outside talent. 3.Commit to providing additional disclosure so all stakeholders can measure progress along the path outlined above over the next several quarters. 4.Abandon credit default spreads levels as a metric in the long-term incentive plan (we believe this incentive is one reason management is resisting a de-conglomeration as it may negatively impact their bonuses) and instead adopt ROE.The above plan seems reasonable but here is the question: what is AIG already doing to solve these problems? Did Carl Icahn really come up with something drastically new or his role as a role member will be a role of an enforcer? To answer these questions, let us look at the latest presentation dedicated to strategic actions AIG's management is going to implement. This presentation was published on January 26, 2016, while Carl Icahn wrote the letter to AIG a week earlier, on January 19, 2016. This means that this presentation is likely a response to Carl Icahn's challenging words. (Source: Presentation On Strategic Actions to Maximize Shareholder Value) AIG is planning to divest $5B - $7B worth of assets in the next two years. This is in line with Icahn's first proposition. Regarding his second point: (Source: Presentation On Strategic Actions to Maximize Shareholder Value) It seems that AIG already has a plan to optimize the key metrics in its P&C business. As for the double-digit ROE, achieving this ratio will be aided by the generous share buybacks AIG plans to undertake (a $5B reserve as per the latest press release - see above). The current ROE is below 5% (calculated using GAAP metrics). Hence, AIG has a way to go to improve these metrics. And in the short-term we are unlikely to see a boost in ROE, as AIG's management suggests: (Source: Presentation On Strategic Actions to Maximize Shareholder Value) On the fourth point, AIG split its reporting into operating and legacy portfolio to better evaluate and monitor changes in ROE: Notice how ROE numbers are different from my calculations because they adapt non-GAAP metrics. It seems that Icahn's main role here is to monitor the progress of the transition plan and to ensure that the additional financial disclosure gets integrated into the future reports (his third point). This means that Icahn's role here is essentially policing AIG's management and guiding it through the change. AIG's stock is trading below its book value which is both a sign of the company's undervaluation and also a red flag (i.e. good businesses do not get valued below the book value of their assets). If AIG can really become a leaner company with transparent operations and goals, its stock can really climb in the next few years. Playing options on it is not wise in this case as the proposed structural changes will take several years. However, what you can do, if you plan to buy the stock, is sell OTM call options to partially subsidize your effective buying price. It is unlikely that AIG will shoot through the stratosphere in the short-term.