Liddy: Some Core AIG Insurance Units Not for Sale

NEW YORK, Sep 23, 2008 (A. M. Best via COMTEX) -- AIG | Quote | Chart | News | PowerRating -- While American International Group Inc. prepares to auction off assets in order to pay back the $85 billion loan it received from the government, its new chief executive is also promising to protect and leave undisturbed long-treasured parts of the insurance giant.

This includes key AIG's operations in Asia, which CEO Edward Liddy described as "unassailable? during a television appearance on CNBC. ?That piece of our business is sacrosanct,? he said.

Liddy said he expects to complete within seven to 10 days a list all of the AIG (NYSE: AIG | Quote | Chart | News | PowerRating) assets that would be put up for sale. He did not say which subsidiaries were being considered, but said that following the transactions, AIG would look a lot like it did prior to 1998-99, when it had ?less reliance on the financial services side.?

According to a senior executive in the AIG Property-Casualty Group, the list of likely assets does not include core insurance assets, insurance analytics provider Advisen wrote in a briefing. Rather, the speculation is that the first properties on the block will be AIG?s profitable aircraft leasing arm, its stake in reinsurer Transatlantic Holdings, and its consumer lending and variable annuities businesses.

However, due to the magnitude of its liabilities, Advisen said it believes AIG would have to sell some of the insurance subsidiaries. This would likely be those AIG insurance subsidiaries that are ?autonomous and which serve well-defined sectors" such as Hartford Steam Boiler Inspection & Insurance Co.; 21st Century Insurance Co.; and Audubon Insurance Co.

?Other AIG insurance units are deeply entwined through interlocking business models and inter-company pooling arrangements that would have to be disentangled before selling the companies as discreet entities,? Advisen?s David Bradford wrote in the briefing.

For instance, the National Union Inter-Company Pool consists of nine companies including flagship commercial lines carriers National Union and American Home. ?These companies represent the core of AIG?s presence in the property and casualty market and are unlikely to be sold except under extremely dire circumstances,? Bradford wrote.

Most experts agree that AIG?s insurance operations are insulated from the losses in the company?s other segments, such as AIG Financial Products. Those losses, related to the unit?s investments in credit-default swaps, brought AIG to the verge of bankruptcy recently before the government came to the rescue.

The company is hoping the loan from the federal government will assuage the concerns of nervous policyholders and avert a wholesale exodus of its insurance customers.

Liddy, in the television appearance, said some wholesale brokers stopped selling AIG policies for a short period but have now resumed. He insisted that the policies are safe and that the insurance entities that have written these contracts are well-capitalized.

Whatever happens, Advisen said the most significant impact of the AIG crisis would result from a sale of AIG insurance entities to companies with different business models and risk appetites, according to Bradford.

?AIG has been an engine for product innovation, and was sometimes seemingly fearless in its willingness to assume risk. If AIG?s insurance operations were acquired by more conservative companies, insurance buyers would stand to lose the far-reaching benefits of the company?s innovations in the management and financing of risk, as well as the integrated delivery of global insurance solutions,? he wrote.

The current Best's Financial Strength Rating of A (Excellent) of AIG's insurance units is under review with negative implications.

AIG stock was trading at $5.39 a share near noon on Sept. 23, up 14.19% from the previous close.

(By David Dankwa, senior associate editor, BestWeek: David.Dankwa@ambest.com)

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index