AIG Will Still Be Third-Largest U.S. Life Insurer After Sale of Asian Operations

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March 8, 2010 Monday 04:25 PM EST

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AIG Will Still Be Third-Largest U.S. Life Insurer After Sale of Asian Operations

Meg Green

NEW YORK

While American International Group Inc. prepares to sell its two major life insurance operations in Asia for $50.7 billion, the company will retain a strong presence in the U.S. domestic life and retirement marketplace, and will keep its seat as the third-largest U.S. life insurer by capital and surplus.

"The divestiture of Alico and AIA will change AIG's insurance profile," said Marc Steinberg, senior financial analyst at A.M. Best Co. "AIG's life insurance operations will maintain the same footprint in the U.S. as it moves from a global player to one focused primarily on the domestic life and retirement services markets."

However, "AIG will no longer enjoy the breadth of diversity previously included as part of the global scale of its life segment. Ultimately, AIG will become a more streamlined property/casualty and U.S. life and retirement services organization, which is expected to remain competitive with its similarly rated peers," Steinberg said.

AIG announced plans on March 8 to sell American Life Insurance Co. to MetLife Inc. for about $15.5 billion. This followed the March 1 announcement that AIG would sell its AIA Group Ltd. to Prudential plc in a deal valued at about $35.5 billion. Proceeds from the sales will be used to pay back federal money loaned to AIG to prevent it from failing in the fall of 2008.

AIG Life Group includes about 15 companies, including American Life Insurance Co. and affiliated companies, which specialize in domestic life insurance, and SunAmerica Life Insurance Co., and its affiliated companies -- including the former AIG Annuity Insurance Co., now renamed Western National Life Insurance Co. -- which specialize in retirement services.

After the sales of Alico and AIA, "AIG will still be one of the largest insurance companies in the world, with the largest property/casualty insurance organization and the third-largest life, annuity and retirement savings business," Robert H. Benmosche, president and chief executive officer of AIG, said during a town hall in London earlier this month.

Even after the sales, AIG will remain the third-largest U.S. life writer by nine-month capital and surplus, the latest figures available, according to A.M. Best Co.

While AIG will be a smaller company than it was in 2008, "AIG has to be smaller for two reasons," Benmosche said. "First, the only way AIG can pay back debt is to sell part of the organization. Secondly, AIG must be a more focused organization, an organization that is not too big to fail."

However, AIG has scrapped plans it originally announced a year ago, under then CEO Ed Liddy, to raise additional funds by securitizing part of its life insurance book.

In the company's 10-K filed with the U.S. Securities and Exchange Commission on Feb. 26, AIG said the "combination of strategic asset sales and reviving businesses will generate sufficient funds to repay the taxpayer, mooting the need to pursue the previously contemplated life insurance securitization."

AIG has been selling assets to repay the federal government, which offered up to $182 billion to bailout AIG in the fall of 2008, when the company nearly fell into bankruptcy because of collateral payments tied to credit default swap contracts (BestWire, June 8, 2009).

Last week, the company announced plans to sell the remaining 9.2 million shares of Transatlantic Holdings (NYSE: TRH) owned by American Home Assurance Co., an AIG subsidiary (BestWire, March 5, 2010). In June, AIG (NYSE: AIG) announced its closing of a $1.14 billion secondary offering of 29.9 million shares of Transatlantic Holdings (BestWire, June 10, 2009). Before the offering, AIG and AHAC, held a total of 39 million shares, or about 59%, of Transatlantic.

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent).

Shares of AIG were trading at $29.13 a share on the afternoon of March 8, up 3.77% from the previous close.

(By Meg Green, senior associate editor, BestWeek: [email protected])

March 9, 2010

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