The Australian arm of the American International Group (AIG), AIG Life, looks set to be sold as part of a broader sale of the Asian insurance operations of the business as it tries to pay down the debt owed to the US Federal Reserve.
AIG has told the market it plans to spin off its American International Assurance (AIA) businesses across Asia, which includes AIA’s Australian operation, known as AIG Life.
American International Assurance Group (Australia) has been trading in Australia as AIG Life since 2004.
AIA is an insurance company based in Hong Kong, and was a wholly owned subsidiary of AIG.
But as a result of the parent company’s woes, AIA will now be placed in a special purpose vehicle, with AIG positioning AIA as an independent operation.
AIG is now heavily in debt to the Federal Reserve Bank of New York as a result of the lifeline offered to the group from the bank.
The plan to place AIA into a special purpose vehicle will allow AIG to reduce its debt and carrying costs, and repay its loan to the Federal Reserve.
AIG intends to contribute the equity of AIA into the vehicles in exchange for preferred and common interest. This will allow the Federal Reserve to receive preferred interests in repayment of a portion of the debt owed to the Reserve Bank as part of the group’s bail out program.
AIA’s president Mark Wilson said the separation of AIA from AIG represents a major step forward for AIA and reinforces its position as a leading company in Asia.
The group said that some of its businesses, including AIA, would continue to review their divesture options, which include a public listing, depending on market conditions.
AIG has now confirmed it has received proposals to acquire all or part of the share capital of AIA.
“These proposals are preliminary and are being reviewed along with AIG’s consideration of a full or partial [initial public offering] of AIA,” Wilson said.
Wilson said AIA will continue to consider “all strategic alternatives for AIA” and will take expressions of interest from capital-rich potential suitors.
Wilson said the AIA business continues to retain and win business and operate profitably, and that policyholders will “continue to be protected by the regulatory safeguards in each of the countries where we operate”.
AIG has just reported a US$62 billion fourth-quarter loss, the largest in US corporate history. For the full year, AIG lost US$99 billion, from a US$9.3 billion profit in 2007.
The US Government said it would offer the insurer a further US$30 billion in exchange for cumulative preferred stock. The government has committed US$162.5 billion to AIG so far.
