Insurer American International Group Inc. said Thursday it will sell its car insurance unit, 21st Century Insurance, to Zurich Financial Services Group for $1.9 billion.
New York-based AIG is in the process of selling off a number of business units to help repay $182.5 billion in financial support from the government that it has received since September. The transaction is the largest divestiture by AIG since then.
Under terms of the agreement, Zurich's Los Angeles-based insurer Farmers Group will pay $1.5 billion in cash and $400 million in subordinated, euro-dominated capital notes backed by Zurich Insurance Company, AIG said. Farmers will also assume 21st Century's outstanding debt of $100 million.
To increase the capital at Farmers, Zurich is expected to raise $1.1 billion in a stock offering to institutional investors.
21st Century, based in Wilmington, Del., includes the former AIG Direct business and Agency Auto business. The company operates in 49 states and Washington, D.C. In 2008, 21st Century reported total premiums of $3.6 billion, including $2.7 billion in direct sales and $900 million through independent agents.
The transaction excludes AIG's Private Client Group, which provides property and casualty insurance to high net worth individuals.
Zurich has been seeking to grow its U.S. auto insurance business because it is a stable one that can balance out other, more volatile business lines, according to Zurich Chief Executive James Schiro.
"This acquisition ... illustrates how financial discipline can position us to capitalize on market opportunities even in these challenging times, provided they meet our strategic objectives and financial hurdle rates," Schiro said.
He said it has long been a strategic goal of Farmers to expand its U.S. personal lines.
"It reduces the overall volatility of our portfolio of businesses, while continuing our focus on profitable growth through customer, product and distribution excellence," he said.
While Farmers Group already has an extensive network of agents, 21st Century focuses on selling direct to consumers via telephone and the Internet.
After the announcement, Fitch Ratings revised its ratings watch on the insurer financial strength ratings of AIG's subsidiaries to "Negative" from "Evolving." The ratings agency had placed the AIG subsidiaries' ratings on "Rating Watch Evolving" on Sept. 17, after details surrounding the U.S. government's initial phase of financial assistance to AIG were announced.
Meanwhile, AIG said Thursday it completed the sale of its wealth management arm AIG Private Bank Ltd. to Aabar Investments PJSC of Abu Dhabi.
Under terms of the agreement, the United Arab Emirates-based investment company paid about $253 million, and assumed about $55 million of intra-company loans outstanding to AIG Private Bank.
The deal, which was announced in December, is the fourth transaction AIG has closed in the past three weeks and one of 10 asset sale agreements it has reached in the past few months.
AIG Chairman and Chief Executive Edward Liddy said in a statement that AIG is "moving forward with discussions for several other transactions."
AIG is also trying to sell off other units, including International Lease Finance Corp., its aircraft leasing business. But the strategy of selling off assets has been hurt by the difficult economic conditions.
Liddy said in a statement that AIG is very pleased to reach a deal, "especially in this market environment."