Insurance rivals stand to reap the benefits from the woes of American International Group Inc (AIG), snapping up assets AIG is forced to sell, while gaining greater pricing power as AIG is forced to withdraw from businesses around the globe. (See: $85-billion bailout for AIG)

UK insurer Prudential, Continental European giants Munich Re, Allianz, Swiss Re and Zurich Re, and Japanese and Australian insurers are all likely to register their interest, according to analysts. Insurance units are expected to go under the hammer, but AIG could also offload its aircraft-leasing business and fund management division.

"The first consequence we see is that it should be a positive for the P&C (property and casualty) industry," said JPMorgan analysts in a research note. "This effectively represents a withdrawal of capacity (or capital) from the marketplace ... Pricing in the P&C market is driven by capital - the less capital, the less pressure there is for prices to fall."

The likely withdrawal of billions of dollars of AIG capital from the sector will put a brake on the slide in prices in the commercial insurance market, where premiums had been expected to fall by up to 20 per cent due to intense competition.

AIG has long been a dominant player in corporate insurance, with an 11 per cent share in the US market, as well as for other big-ticket risks such as the aviation industry, which is looking at the current situation with bated breath. GE and Warren Buffett's Berkshire Hathaway are considered potential bidders for this part of AIG's business. (See: AIG's woes sends tremors down the aviation industry's spine)

Now, intermediaries predict that although AIG will continue underwriting, it is likely to lose business clients. Among lines of business, insurers providing specialised commercial coverage, such as directors' and officers' liability, could pick up business as AIG scales back participation, said Goldman Sachs analyst Tom Cholnoky, in a note Tuesday.

He named Ace, Travelers Cos Inc and XL Capital Ltd among the biggest and likely beneficiaries. However, reinsurers could be worse off, seeing less business if AIG's gross premium volumes decline, Cholnoky added.

Many of AIG's chief competitors would likely highlight their own credit ratings and financial stability as a major selling point in an effort to attract business that was belonged to AIG, Citigroup analyst Joshua Shanker said in a note Tuesday.

AIG's rescue from bankruptcy calls for the US Federal Reserve to lend it up to $85 billion for two years in exchange for a 79.9-per cent equity stake. The Fed had asked banks to arrange a $75 billion rescue package for the insurer but was forced to step in after talks failed to produce a private-sector solution.

The loan, secured on AIG's $1.1 trillion of assets, was made to protect the interests of US taxpayers, the central bank said.

AIG will pay interest at a steep 8.5 percentage points above the three-month London Interbank Offered Rate (LIBOR), equal to about 11.4 percent. That gives AIG a big incentive to embark on a massive asset sale program to pay back the loan quickly.

Insurance rivals are set to jostle to pick up attractive parts of the AIG empire, including profitable aircraft leasing arm International Lease Finance Corp (ILFC). AIG's stake in reinsurer Transatlantic Re, its market-leading operations in Central and Eastern Europe and Asia would also be enticing, analysts say.

Munich Re has registered its interest in picking up AIG assets, but it is likely to face stiff competition, with Japan's well-capitalised and acquisitive insurers like Tokio Marine Holdings and Nippon Life Insurance, and Australia's QBE also seen as potential bidders.

Munich Re chief executive Nikolaus von Bomhard said earlier this week that he would be interested in buying parts of AIG. Von Bomhard said the price would have to be right but added that Munich Re could be interested in AIG's insurance operations in Eastern Europe as well as its industrial insurance business. He ruled out a bid for Transatlantic Re but analysts believe Swiss Re could be interested.

They are also of the opinion that Canadian life insurance company Manulife Financial Corp, the biggest in North America by market value, might consider acquiring AIG's US variable annuity business. Manulife executives have said they would like to enter the Japanese and Chinese wealth-management markets.

However, AIG Financial Products, the subsidiary at the centre of the group's problems, will be more difficult to offload. The division was responsible for selling many of the insurance products on mortgage-backed securities that led to AIG's problems and remains heavily exposed to further losses.