Big Names Pondering Purchase of AIG's Life Businesses

Oldwick, N.J. — As American International Group Inc. seeks to resolve its liquidity crisis, some potential buyers are no doubt eyeing the insurance giant's diverse group of life insurance businesses.

E. Stewart Johnson, a portfolio manager with Philo Smith & Co., an insurance mergers and acquisitions investment and advisory firm, says when it comes to AIG's life business, potential buyers would be Canada-based Manulife Financial, and U.S.-based MetLife Inc., Prudential Financial and possibly Hartford Financial. That's because "the exposure that AIG has to the Asian markets is fantastic." All of these companies have operations in Asia, he adds.

European insurance companies can be ruled out at this point, Johnson continues. The European companies "tend to be more geared toward the equity markets, which are obviously in turmoil right now," he said. From a capital standpoint, the U.S. companies are better positioned to make an acquisition.

Among AIG's biggest life and annuity companies in the United States are American General Life Insurance Co., Variable Annuity Life Insurance Co., a unit of American General and part of AIG's retirement-services group; SunAmerica Life Insurance Co., the lead company in its retirement-services group; AIG Annuity Insurance Co. and AIG SunAmerica, both part of its retirement-services group.

The Federal Reserve Bank of New York will take a 79.9% equity stake in the company, according to the reports. The agreement calls for the Fed to extend an emergency $85 billion loan to provide AIG with desperately needed liquidity.

Bijan Moazami, an equity analyst with FBR Capital Markets, Arlington, Va., wrote that FBR's estimated break-up value for the company is well over $150 billion. "That figure would suggest that investors could take back roughly $11 per share over the next two years if all the pieces of the company are sold." he said.

Jeremy Alexander, president and CEO of Beacon Research, Tyler, Texas, says two of AIG's life companies, American General and AIG Annuity, were "crown jewels" for a potential buyer.

AIG Annuity is a top player for sales of fixed annuities and its distribution in the bank channel "is phenomenal," Alexander says.

At year-end 2007, total sales for AIG Annuity were $5.5 billion, he says. In the second quarter of this year, New York Life ranked No. 1, with sales of $2.2 billion, but was followed by AIG Annuity in second place, with $2.09 billion in sales, according to Beacon.

"You buy a name and you buy distribution," and AIG Annuity has that "in spades," Alexander continues. Companies that sell fixed annuities through banks "would love to be in the position that AIG was, up to a few days ago."

Alexander, though, says he thinks both AIG Annuity and American General have "pretty clean" balance sheets. From a stand-alone entity standpoint, they are well-rated and the problems came from the corporate parent, and not from these companies' balance sheets. The companies' exposure to bad mortgages, is "probably pretty minimal," he says.

American Life Insurance is among AIG's largest subsidiaries. The company, however, does business exclusively outside the United States, according to an A.M. Best Co. report. Through its branch offices, agencies, subsidiaries, and affiliates with about 300,000 captive agents worldwide, it provides a comprehensive array of life insurance and asset accumulation products and services world wide.

Through its unique network of contro d and cooperating life insurance companies organized into a worldwide group, American Life is able to provide international firms operating in several countries and currencies relatively similar group insurance benefits for their employees under one administrative program, the report said.

American Life had assets of $101.6 billion at year-end 2007, according to A.M. Best data.

Source: TradingMarkets.com, A.M. Best via Comtex