AIG sells Asian life insurance unit to repay bailout debt

Chief executive Robert Benmosche said the deal would ease AIG's debt to taxpayers.
Chief executive Robert Benmosche said the deal would ease AIG's debt to taxpayers. (Scott Eels - Bloomberg News)
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By David Cho
Washington Post Staff Writer
Tuesday, March 2, 2010

American International Group agreed on Monday to offload its prized Asian life insurance business for $35.5 billion, the troubled firm's largest asset sale since it was bailed out by the federal government during the height of the financial crisis.

News that AIG had pulled off one of the largest insurance deals in history cheered Wall Street and Washington, which has dispensed more than half of a $180 billion aid package to AIG.

The firm plans to use the proceeds from the sale to pay down nearly three-fourths of the $48 billion owed to the Federal Reserve. AIG separately received more than $47 billion from the Treasury Department's Troubled Assets Relief Program.

The buyer, British insurer Prudential -- not linked to the U.S. insurance firm Prudential Financial -- agreed to pay $25 billion in cash and $10.5 billion in stock and other securities. Under the deal's structure, the U.S. government will have an interest in Prudential's fortunes through its massive stake in AIG.

The sale generated more for AIG than what some analysts had expected. AIG had been receiving weak bids for the division and was planning to spin it off in an initial public offering on the Hong Kong stock exchange. That process could have taken a long time and produced less money than the deal with Prudential, company and government officials said.

"We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayers," AIG chief executive Robert Benmosche said in a statement.

Shares of AIG soared nearly 10 percent at the opening bell before closing the day up 4 percent, at $25.78. The insurer's stock hit a low of $7 during the financial panic.

Wall Street often views big deals as a vote of confidence in the global economy. And on Monday, the Dow Jones industrial average rose 78.53 points, or 0.8 percent, to 10,403.79, with much of the gain occurring right after the sale was announced. The Standard & Poor's 500-stock index, a broader measure of the market, jumped 1 percent and moved into positive territory for the year.

The sale of the Asian unit, American International Assurance, would generate more money for AIG than the sum from nearly two dozen divisions it has agreed to divest from since fall 2008. AIG is pressing to get a multibillion-dollar deal for another major insurance unit known as American Life Insurance Co., or Alico. Proceeds from that sale would also go to the Fed.

The price AIG fetched for its Asian division affirms a decision by the Fed to give the company more time to sell its assets. Last year, AIG would have had to sell the unit during the recession to meet its debt obligations to the central bank. Instead of cash, the Fed accepted an equity stake in the Asian division as repayment.

The central bank's bailout package to AIG came in two parts: a $23.4 billion line of credit and a $24.5 billion interest in American International Assurance and Alico.

Of the $35.5 billion from Prudential, AIG will use $16 billion to pay back the Fed's interest in American International Assurance. Another $9 billion will be used to reimburse the Fed's line of credit. AIG will eventually be able to sell its $10.5 billion in Prudential stock and securities, which will be used to further repay the Fed's line of credit.

AIG's health has improved steadily since the federal government's bailout, though it is still losing money. Last week, it reported a $8.9 billion loss for the last three months of 2009, bringing its full-year results to a loss of $10.9 billion. In 2008, the firm recorded a $99.3 billion loss.

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