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?The problem of credit availability is global,? said Donald Light, a senior analyst who follows AIG for Celent. ?That?s a factor. Except for a handful of companies that dip into their own coffers, it?s possible that any deal gets hung up on credit market issues.?
Two federal loan facilities were created to keep the giant insurer, battered by billions in derivatives losses, from bankruptcy. AIG (NYSE: AIG | Quote | Chart | News | PowerRating) has agreed to sell off parts of its trillion-dollar treasure trove of insurance and noninsurance businesses, many so highly valued that industry insiders consider their availability on the market as a kind of once-in-a lifetime opportunity.
The only deal announced so far is a small one, with Global Infrastructure Partners acquiring AIG's 50% interest in London City Airport. Terms of the acquisition were not released (BestWire, Oct. 1, 2008).
New York Insurance Superintendent Eric Dinallo, who has been involved with the ongoing negotiations and government efforts to keep AIG afloat, said the sudden freezing of commercial credit last month led to AIG?s rapidly growing cash crisis.
?The markets have turned completely against them, and us,? he told the Association of Professional Insurance Women on Oct. 28. ?You can?t even finance the most basic acquisitions. Everyone is hoarding cash.?
Even when capital to support a major deal is available, it?s at a very steep price, said Robert Pettinicchi, executive vice president and chief lending officer for Farmington, Conn.-based InsurBanc, which focuses on the insurance industry.
?It?s access to capital, and what it costs to borrow,? said Pettinicchi. ?I don?t think it?s an insurance-related thing ? it?s all around the board. If someone is trying to fund something, place something, in the market, it just couldn?t be more expensive.?
AIG?s three life insurance units in Japan, Alico, AIG Edison Life Insurance and AIG Star Life Insurance, have stirred interest, with Aflac on record as expressing interest in Alico. Canada's Manulife Financial and Alabama-based Protective Life Corp. may be interested in scooping up some of AIG's domestic life insurance businesses (BestWire, Oct. 8, 2008). Likewise, there has been considerable local speculation about potential buyers of Philippine American Life and General Insurance Co., AIG?s Philippine life insurance subsidiary (BestWire, Oct. 20, 2008).
The price of credit is not the only issue, said Light ? so is the price of AIG?s assets.
?The inherent valuation of any asset depends on your view of the future, and everybody?s crystal ball is a little foggy right now,? he said.
Said an AIG spokesman, "We are continuing to move forward aggressively with our plans to permanently resolve AIG's liquidity problems, and repay the federal loans."
AIG Chief Executive Officer Edward Liddy has said repeatedly he does not want to conduct a fire sale of valuable units. He said the company will focus on its U.S. property/casualty operations and overseas general insurance businesses, and keep a majority stake in its key foreign life insurance operations.
AIG and the Federal Reserve Board reached an agreement on Sept. 16 to provide a two-year, $85 billion loan facility through the Federal Reserve Bank of New York for which the federal government received warrants redeemable for a 79.9% equity stake in the company. On Oct. 8, a $37.8 billion liquidity facility was announced, in which AIG "loaned" the New York bank investment-grade, fixed-income securities in exchange for the cash. An agreement to allow AIG to access $20.9 billion in commercial paper through the Federal Reserve was finalized Oct. 30 (BestWire, Oct. 31, 2008).
The current Best's Financial Strength Rating of A (Excellent) for most of AIG's insurance units is under review with negative implications.
(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)
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