Insurer to sell life, retirement units in U.S., abroad to repay loan
Posted on Saturday, October 4, 2008
American International Group Inc., the insurer forced to peddle businesses to repay an $ 85 billion government loan, will sell its life insurance and retirement operations in the U. S., Europe, Latin America and Japan.
AIG, once the world’s largest insurer, will refashion itself into a global property and casualty company with a stake in an overseas unit that sells life policies in China, Korea and India, Chief Executive Officer Edward Liddy said Friday in a conference call.
AIG may also sell its planeleasing unit, consumer finance division, U. S. auto insurer, a reinsurance business and asset manager, he said.
“We won’t exactly be the AIG of old, but we’ll have a very secure position,” Liddy said during the call. “This is going to be a formidable company that emerges from this.”
Selling life insurance operations is a reversal for Liddy, who previously said keeping that business was a priority. The firm has already borrowed about $ 61 billion on its credit line, two weeks after agreeing to the U. S. rescue that gives the government a majority stake.
The money went toward costs tied to credit-default swaps and securities lending and for cash needed because commercial paper markets froze, he said.
Liddy said he prefers “brandname” buyers of “large slices” of AIG to hasten transactions and benefit customers and employees. Blackstone Group LP and JPMorgan Chase & Co., both based in New York, are coordi- nating the sales, AIG said.
Liddy will also try to “monetize” assets in AIG’s swaps portfolio. The derivatives, which provide protection for debt investors, plunged in value as the securities they guaranteed declined, saddling AIG with more than $ 25 billion in write-downs.
“He’s trying to refocus AIG to be a true insurance company,” said Rob Haines, a debt analyst at CreditSights Inc. “The question is, with current market conditions, will there be reasonable bids ? If he doesn’t generate enough cash to pay off the loan, then everything comes tumbling down.”
AIG wants to keep a majority stake “if at all possible” in its AIA life insurance division, Liddy said. That business operates in fast-growing countries including China, Singapore, Malaysia, Thailand, Korea, Vietnam, Indonesia and India. AIG, founded in Shanghai in 1919, previously projected annual earnings growth from life insurance of more than 20 percent in developing markets.
“The businesses we are retaining could not be re-created today,” Liddy said.
AIG fell 14 cents, or 3. 5 percent, to close at $ 3. 86 in New York Stock Exchange composite trading.
The company’s U. S. life insurance and retirement business was assembled by former CEO Maurice “Hank” Greenberg through acquisitions of SunAmerica Inc. in 1998 and American General in 2001. The other life business for sale, AIG’s ALICO unit, operates in parts of Europe, Latin America, the Caribbean, the Middle East and Japan.
Liddy, the former Allstate Corp. CEO appointed by the government to run AIG, has to reassure clients and employees of the insurer’s long-term prospects while showing investors and the Treasury he can sell units to pay back debt. Liddy helped oversee the spinoffs of Allstate, Discover Financial Services, real estate broker Coldwell Banker Corp. and securities brokerage Dean Witter when he was at retailer Sears Roebuck & Co.
AIG almost collapsed last month from credit downgrades and write-downs tied to the U. S. housing slump. The insurer posted about $ 18. 5 billion in net losses over three quarters, and its stock plunged more than 90 percent this year.
AIG’s property and casualty units insure planes, shipping, factories and luxury homes and protect commercial property owners against terrorist attacks.
The company also owns a home lender, reinsurer Transatlantic Holdings Inc., and International Lease Finance Corp., the largest lessor of planes to airlines. AIG got 4. 3 percent of its revenue last year from airline leasing. Second-quarter operating income from the unit rose 85 percent to $ 352 million as the company expanded its fleet and charged more to rent planes.
Analysts said competitors may want to buy units that remained profitable as AIG was overwhelmed by losses at units that originate, insure and invest in home loans. Billionaire Warren Buffett told CNBC Sept. 24 that his Berkshire Hathaway Inc. may consider buying some AIG businesses, without naming which ones. AIG operates in more than 100 countries.
The $ 1 trillion-asset company has about $ 48. 7 billion in hard-to-value holdings, and had 116, 000 employees as of Dec. 31, compared with 97, 000 two years earlier. In addition to selling life insurance and protecting property, AIG owns or manages about $ 25. 7 billion of real estate including residential, industrial and retail properties. The company had private equity and hedge fund holdings of about $ 30 billion as of June 30. Information in this article was contributed by Erik Holm, Telma Marotto and Zachary R. Mider of Bloomberg News.
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