New AIG Unit Would Be World's Largest Property/Casualty Insurer
05 March 2009 - 10:05AM
Dow Jones News
AIG Inc.'s (AIG) plan to form a new holding company for
virtually all of its property/casualty insurance business seeks to
free those businesses from problems in the legacy company. The new
company, executives said in a phone call to clients, would on its
own rank as the world's largest property/casualty company.
AIG announced the restructuring Monday, and said it will name a
board of directors and management team for AIU Holdings Inc. which
will "assist AIG in preparing for the potential sale of a minority
stake in the business, which ultimately may include a public
offering of shares, depending on market conditions," AIG's Monday
press release said.
The news attracted little attention in light of AIG's revamped
bailout by the federal government, announced at the same time. But
the restructuring of AIG's commercial-insurance business could also
have far-reaching consequences for the company. One industry
participant who took part in a client conference call on the
restructuring said the change seeks to free the company from AIG's
debt and bad investments, and help retain key employees and
customers.
"No one will leave now," said Andrew Barile, an insurance
consultant in Rancho Santa Fe, Calif. "This will create a bonanza
for employees. If you get in at the beginning, you get shares at
the book value of that company."
AIG didn't immediately return a phone call asking for details on
the plan.
Barile said the purpose of the call, which was sponsored by
insurance broker Aon Corp. (AOC) for 1,000 of AIG's largest global
insurance clients, was to reassure customers that the new unit's
capital structure wouldn't be tied to AIG, and that the new unit
would be in a stronger capital position than most competitors which
were trying to lure away customers.
According to Barile, AIU Holdings executives John Doyle and
Nicolas Walsh said, as a standalone, the new entity would have
recorded $45 billion in 2008 revenue, which would rank it 54th
among Fortune 500 companies and would make it the largest
property/casualty insurer in the world.
Its policyholder surplus, a regulatory calculation of the
capital an insurer holds above what it needs to pay off on claims,
was $26 billion, higher than any of its competitors.
The new unit would consist of AIG's U.S. and international
commercial-insurance businesses, and some of its personal-lines
businesses, including its private client group, Barile said
executives disclosed during the call.
Eventually, the new unit would raise capital through a public
share offering or by raising private capital, though the new unit
doesn't currently need capital and carries no debt of its own.
The separate structure could free AIG's worldwide
commercial-insurance operations from the spreading worry over
growing losses in AIG's other business units. If the new entity
were sold or spun off in an initial public offering, current AIG
shareholders will be eligible to share in the profits.
Terms of the spinoff were left vague, as was much of AIG's
restructuring, which also involves placing its life-insurance
businesses into a special-purpose vehicle which it will own jointly
with the Federal Reserve Bank of New York, in return for around a
$26 billion reduction in the amount AIG owes the U.S.
Shares of AIG were unchanged at 43 cents in heavy trading
Wednesday, after falling more than 70% so far this year and more
than 99% in the last 12 months.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com