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AIG raising more cash to reimburse taxpayers

American International Group will sell its overseas life and health insurance unit for $15.5 billion to MetLife Inc., the insurer said Monday, as it attempts to repay billions in government aid.
/ Source: The Associated Press

American International Group Inc. said Monday that it will sell its American Life Insurance Co. division for $15.5 billion to MetLife Inc. The government-approved deal, AIG's second big asset sale in two weeks, will give the insurer more cash to repay the billions of bailout dollars it still owes the government.

The purchase expands MetLife's presence in Japan and high-growth markets in Europe, the Middle East and Latin America. American Life Insurance, known as Alico, operates in more than 50 countries. MetLife currently offers services in 17 countries.

It also moves AIG closer to repaying taxpayers. As of Dec. 31, the company owed the Treasury and the Federal Reserve Bank of New York nearly $130 billion. AIG's bailout package was originally worth up to $182.5 billion.

On March 1, AIG agreed to sell Asia-based life insurer, AIA Group, to Britain's Prudential PLC for $35.5 billion. The two units, while selling similar products, don't operate in the same markets in Asia.

Investors were pleased with the Alico deal, and bid AIG's shares up 3.6 percent, or $1.02, to $29.10. MetLife shares rose $1.98, or 5.1 percent, to $40.90.

MetLife will pay $6.8 billion in cash for Alico. The rest of the purchase price will be paid in stock and what are called equity units, which are eventually convertible to common stock and preferred securities

AIG will initially hold an 8 percent stake in MetLife. Its stake will reach 14 percent in early 2011 after some MetLife preferred shares are converted into common shares. The stake could reach up to 20 percent, after the insurer receives $3 billion in equity units.

"Rarely does one come across a deal that has such a strong strategic fit," MetLife CEO Robert Henrikson said in an interview with The Associated Press.

Henrikson said MetLife has been in the market for various domestic and overseas acquisitions over the past five years. He said he began discussing a possible Alico deal with AIG in December 2008, three months after the government bailout.

AIG and MetLife are based in New York. Robert H. Benmosche, the former head of MetLife, became AIG's CEO in August. Benmosche wasn't involved in the deal discussions, Henrikson said. All talks were handled by a special committee within AIG, he said.

The Alico deal, while good for MetLife, carries some risk, said Aite Group senior analyst Clark Troy.

"Japan is an aging society and MetLife may face challenges growing revenue," Troy said. "However, MetLife does have the ways and means and experience to make the deal work, as they will be building on one of their stronger franchises."

MetLife currently has a successful variable annuity business in Japan.

MetLife's international business grew significantly in 2005 when the company acquired most of Citigroup's international insurance businesses, adding Japan, Australia and Britain to its portfolio. Before then, MetLife already had operations in South Korea, Chile and in Mexico, where it is the largest life insurer.

Henrikson said he didn't consider a purchase of AIA Group because "it didn't fit MetLife's growth plans."

As the largest recipient of taxpayer bailout dollars, AIG remains under the supervision of Treasury and the New York Fed. All negotiations around Alico and AIA were monitored actively by representatives from Treasury and the New York Fed, officials from both agencies said.

Each agency has participated in every key call and meeting between directors about the deals, and discussed the available options with AIG's executives, according to officials familiar with the process. They spoke on condition of anonymity because they were not authorized to publicly discuss the negotiations.

With the latest sale, AIG will be able to slash its outstanding government debt of $129.3 billion by about $51 billion, or 39 percent, to about $78 billion. The cash portion of the Alico and AIA deals will be used immediately to pay down an investment in AIG by the Federal Reserve Bank of New York. The equity portion of the deals will be sold over time to help further repay that debt.

The government will also be selling shares it holds in AIG to recoup some of its investment.

However, it is not yet clear whether the government will be able to recover all of its investment. It's too early to tell how much the proceeds from any of the stock sales will be.

Before it nearly collapsed during the 2008 financial crisis, AIG was the world's largest insurer. It sold a variety of insurance products around the world and operated a lending and aircraft leasing businesses. It also had a financial products division that sold complex securities called credit default swaps. When the financial crisis sent billions of dollars of mortgages and bonds into default, credit default swaps undermined AIG and forced the government to rescue the company. In return, the government took a nearly 80 percent stake in AIG.

AIG has been working for the past year and a half to sell assets and streamline operations to repay its debt. Since receiving government bailout funds, AIG has 21 unit sales or asset transactions, including the Alico and AIA deals. AIG's next key sale could be Nan Shan, a Taiwanese company, analysts have said.

AIG is also looking at funding needs and exploring options for restructuring its aircraft leasing unit, International Lease Finance Corp., and its consumer and commercial lending business, American General Finance Inc.

It is also conceivable that AIG might consider sales of its American General Life and American General Life and Accident units, Aite Group's Troy said.

The company is expected to keep Chartis, its larger property and casualty insurance company; two additional Japanese life insurers, and a handful of smaller, U.S.-based companies. They are very unlikely to be sold, according to a Treasury official.

Alico has operations either directly or through subsidiaries in Europe, including Britain, Latin America, the Caribbean, the Middle East and Japan. AIA operates primarily in Asia, including China, Singapore, Malaysia, Thailand, Korea, Australia, New Zealand, Vietnam, Indonesia and India.

AIA dates back to 1919, when AIG founder Cornelius Vander Starr started his first insurance company, American Asiatic Underwriters in Shanghai. Two years later, he founded Asia Life Insurance Co., which later became Alico.