AIG May Sell U.S. Auto Unit to Zurich

By | April 16, 2009

American International Group is close to a deal to sell its U.S. auto insurance business to Swiss insurer Zurich Financial Services for roughly $1.5 billion, a source familiar with the matter said on Wednesday.

A deal could be announced soon, the source said, but added that it had not been finalized and things could still fall apart.

AIG and Zurich have declined to comment on the report.

If a sale does happen, it would be the largest for the insurer since its rescue by the U.S. government in September.

Zurich, Europe’s fourth-largest insurer, has said it was on the lookout for deals that will bolster its North American personal lines and global life insurance businesses.

DZ Bank analyst Werner Eisenmann noted that speculation had previously centered on a purchase price of $2 billion for the AIG unit.

“We therefore see a possibility of the acquisition being made. The transaction would make Zurich the market leader in the automobile market in California.”

DZ Bank’s Eisenmann said Zurich has intensive knowledge of the auto market, although any capital increase needed for the deal would be a negative factor.

The unit being sold includes the 21st Century Insurance business, which AIG took over in 2007 when it bought out the minority stakeholders.

The auto insurance business is part of AIG’s U.S. personal lines unit, which also includes selling products to high net-worth individuals through its AIG Private Client division.

AIG Chief Executive Edward Liddy has previously said that the private client division is not being sold.

Fabrizio Croce, Kepler Capital Markets analyst, said Zurich should not conclude the deal before a new chief executive replaces Jim Shiro, due to step down at the end of the year.

“It is no longer the task of an exiting CEO to make big acquisitions but rather to hand over the company in the most solid way,” he wrote in a client note.

He added that Zurich should be careful not to overpay for the business, “especially as AIG is squeezed as it has no choice … and all its assets should therefore deflate further”.

U.S. taxpayers have taken a roughly 80 percent stake in AIG, once the world’s largest insurer, in exchange for providing up to $180 billion in financial support.

The company is trying to sell off assets in a bid to pay back the government, but it has struggled to find buyers for big-ticket items.

Last week Liddy said AIG had reached agreements to sell 10 businesses, “despite the most challenging market environment in memory.”

These include the sale of HSB Group to German reinsurer Munich Re for $742 million and its Canadian life insurance unit to Bank of Montreal for about C$375 million (US$311 million).

But AIG has no intention of selling its 9.9 percent stake in PICC Property & Casualty, China’s top non-life insurer said on Thursday.

(Additional reporting by Emma Thomasson in Zurich, Editing by Ian Geoghegan, John Stonestreet)

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