AIG Will Keep P/C, Foreign Companies, Sell Most Life and Other Businesses, CEO Says

NEW YORK, Oct 03, 2008 (A. M. Best via COMTEX) -- AIG | Quote | Chart | News | PowerRating -- American International Group Inc. will focus on its U.S. property/casualty operations and its overseas general insurance businesses, and keep a majority stake in its key foreign life insurance operations, but will seek to sell its many other operations, said Chairman and Chief Executive Officer Edward M. Liddy.

"Everything else, that doesn't fit under that definition, we consider for sale," Liddy said.

The asset sale will generate revenue to repay the $85 billion emergency loan AIG (NYSE: AIG | Quote | Chart | News | PowerRating) received from the Federal Reserve Bank of New York on Sept. 16 and stabilize the company's finances, Liddy said during a call with equity analysts.

"The company is exploring divestiture opportunities for its remaining high-quality businesses and assets, and the proceeds from any divestitures will be used to repay the Federal Reserve loan and to address our capital structure going forward," said Liddy. "Our goal is to emerge from this process in a timely fashion as a smaller but more nimble company that is solidly profitable and has attractive, long-term growth prospects."

AIG's worldwide property/casualty businesses generated approximately $40 billion in revenues in 2007, Liddy said. "This is going to be a formidable company that emerges," he said.

Liddy said AIG will sell all of its personal lines business except for Private Client Group, part of its personal lines pool, which provides insurance and risk management services to high-net-worth individuals. He also said it hoped to sell only a minority stake in its key foreign life insurer, American Life Insurance Co.

AIG will maintain a "deliberate and disciplined approach" in divesting itself of subsidiaries, and will use "considerable judgment and flexibility in the process," Liddy said.

"We clearly want to maximize the value," he said. "This is not a fire sale. The presence of that federal loan gives us the opportunity to do this in orderly way, and we're going to take that opportunity."

Liddy said he expected to enter into sales agreements "more quickly than people think," and said the company has been contacted by "literally dozens and dozens and dozens" of would-be purchasers.

Liddy said AIG will seek large sales of entire operations, using as an example the desire to sell all of its U.S. life insurance operations in one transaction. This will attract bigger and "more stable" companies to bid, he said, which should reassure policyholders and shareholders.

"The preference is to sell it all as one unit," he said. "We have a preference to have larger transactions because they can be done with some speed, and will attract larger buyers. ? I think people will be putting preemptive bids on the table."

Among AIG's biggest life and annuity companies in the United States are American General Life Insurance Co., Variable Annuity Life Insurance Co., or VALIC, a unit of American General and part of AIG's retirement-services group; SunAmerica Life Insurance Co., the lead company in its retirement-services group; AIG Annuity Insurance Co. and AIG SunAmerica, both part of its retirement-services group.

SunAmerica Life and American General are "premiere life insurance properties," said Steven Schwartz, an analyst who cover life insurance companies with Raymond James & Associates in Chicago. SunAmerica is one of the leaders in sales of variable annuities and is strong in the independent broker dealer/registered representative channel, Schwartz said.

Canada's Sun Life "might be very interested" in the Sun America business, particularly because Sun Life recently brought some executives over from Philadelphia-based Lincoln National Corp., Schwartz said. Lincoln National is a major player in the variable annuity market, he said.

Canada-based Manulife Financial, and U.S.-based MetLife Inc. and Prudential Financial also could be potential buyers of AIG's domestic life insurance companies, Schwartz said

Liddy said the company has stopped any new business at AIG Financial Products, the unit behind the credit default swap problems that left the giant insurer teetering on the edge of bankruptcy.

"The FP situation has caused us a lot of pain, a lot of pain," he said. "We do intend to wind down that operation."

AIG said its global coordinators for the divestiture program are The Blackstone Group and J.P. Morgan.

The sale of assets will repay the loan from the Federal Reserve Bank of New York, and address AIG's capital structure. AIG said it had drawn $61 billion on the Fed credit facility as of Sept. 30.

Liddy, former chairman and CEO of Allstate Corp., was named to lead AIG earlier this month. He replaced Robert Willumstad, who was named chief executive in June (BestWire, Sept. 18, 2008).

The federal loan creates a 24-month secured revolving credit facility. The loan will accrue interest at 850 basis points above the three-month London Interbank Offered Rate, is collateralized against the assets of AIG's primary nonregulated subsidiaries and the stock of its regulated subsidiaries. Current AIG shareholders will see their equity diluted 79.9% by the issuance of warrants to the federal government, which also retains the right to veto dividend payments (BestWire, Sept. 17, 2008).

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

After Liddy's announcement, shares of AIG rebounded to $4.49 during mid-morning trading, up 12.50% from the previous close.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)

(Senior Associate Editor Fran Matso Lysiak contributed to this article.)

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