If the Farmers Insurance Group of Cos., a subsidiary of Zurich Financial Services Group, seeks to become an even larger insurance behemoth, it is well on its way with the acquisition of American International Group’s (AIG) Personal Auto Group, which includes 21st Century Insurance Co. Pending regulatory approvals, the acquisition is expected to close no later than Q3 2009.

Subject to post closing adjustments, the acquisition deal is priced at $1.9 billion. Under the agreement, 21st Century Insurance Group, the wholly owned subsidiaries comprising AIG’s U.S. personal auto insurance business, will be sold to Farmers Group Inc. Farmers reports that it will sell the underlying insurance entities to the Farmers Exchanges, which Farmers Group Inc. manages, but does not own.

According to analysts, the deal will position Farmers as the third-largest personal lines insurer in the United States, and promote its Farmers Exchanges as the largest auto insurer in several states, including California.

21st Century, considered the third-largest traditional “direct” writer of insurance in the United States, includes the former AIG Direct business and Agency Auto business, and operates in 49 states and Washington, D.C. The insurer has more than 2.4 million customers and insures more than 4 million vehicles across the country.

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