AIG is under pressure to rethink its business model after a shareholder called for a break-up of the US insurance giant.

Splitting life and mortgage insurance from the core property and casualty (P&C) business to form three independent franchises will revitalise the company, according to billionaire investor Carl Icahn, who owns a “large stake”.

“It is a no-brainer that the simple act of splitting this company up will greatly enhance shareholder value,” he says in a letter to AIG President and CEO Peter Hancock.

“We believe there is no more need for procrastination, the time to act is now.

“The combination of life insurance and P&C insurance into a single entity offers no net benefit to shareholders (proven by industry low return on equity), a fact that has driven other major multi-line insurers to aggressively focus on a single line of business.”

AIG says it will give investors a strategy update when its third-quarter results are released tomorrow.

“AIG maintains an open dialogue with all our shareholders and welcomes their feedback and ideas,” Mr Hancock said.

“We have taken important and significant steps to reposition AIG by both simplifying and de-risking the company, and realising attractive valuations from non-core asset sales.

“We remain on course and are determined to continue and accelerate these efforts.”

AIG’s net profit of $US1.8 billion ($2.5 billion) in the quarter to June 30 was down 41% on the corresponding period last year.

The insurer needed a huge bailout from the US Government to avert bankruptcy at the height of the 2008 global financial crisis.

Its current size means it will incur more stringent capital requirements from the Federal Reserve as a systemically important financial institution (SIFI).

“We believe all three companies would be small enough to avert the increased capital requirements and regulations associated with non-bank SIFI status,” Mr Icahn says.

“In the face of a changing and potentially punitive regulatory framework, you must realise insurance businesses of AIG’s calibre are more valuable to shareholders if held directly than they are as part of a SIFI conglomerate.”

Mr Icahn, a self-described activist investor since 1980, is no stranger to challenging giant corporations he deems to be underperforming. He has previously taken on Apple, successfully pressuring the technology giant to return money to investors through share buybacks.

“As a leading shareholder activist, [Mr Icahn’s] efforts have unlocked billions of dollars of shareholder and bondholder value and have improved the competitiveness of American companies,” his website carlicahn.com says.