AUTO INSURANCE ARTICLE
AIG Sells US Auto Division to Zurich for $2bn
By: coppeneur
Nick Hasell
American International Group (AIG) has agreed to sell its US car insurance business to Zurich Financial Services for $1.9 billion in the largest disposal by the troubled insurer since its rescue by the US Government last year.
The deal will create the third largest US personal lines insurer and has raised expectations that AIG, which has so far sold 12 businesses for a cumulative $4 billion, will make further progress in off-loading other big-ticket assets it has put on the block to pay back the US taxpayer.
“We are very pleased to reach agreement on a $2 billion transaction, especially in this market environment”, said Edward Liddy, AIG’s chairman and chief executive officer. “In addition, we are moving forward with discussions for several other transactions.”
The business being sold to Zurich’s Farmers Group comprises 21st Century Insurance Group, the former AIG Direct and Agency Auto businesses. Last year, 21st Century reported total premiums of $3.6 billion, $2.7 billion of which came through direct sales.
Zurich, the fourth-largest European insurer, is paying $1.5 billion in cash and $400 million in notes, and will also assume 21st Century’s outstanding debt of $100 million.
The company has launched a $1.1 billion share issue to fund the transaction and plans to immediately sell the regulated insurance entities for $1.4 billion in cash to Farmers Exchanges, which it manages but does not own.
The deal adds about 1.5 million direct auto customers and an estimated 500,000 new customers per year to Farmers’ personal lines operations. It also broadens its geographic base, particularly in the eastern United States.
The US Government has taken an 80 per cent stake in AIG, once the world’s largest insurer, in exchange for providing up to $180 billion in financial support.
Other disposals by AIG since last September include Unibanco AIG Seguros, its Brasilian joint venture, sold to Unibanco for $820 million, and Hartford Steam, bought by Germany’s Munich Re for $739 million.