AIG sells off auto unit for $1.9 billion

Zurich Financial Services Group announced yesterday that its subsidiary Farmers Group, Inc. has entered into an agreement under which it will acquire 100 per cent of AIG's US Personal Auto Group, positioning the Farmers Exchanges as the third largest traditional direct writer of insurance in the US and the third largest US personal lines insurer overall1.

As part of the transaction, Farmers Group, Inc. will immediately sell the portion of the acquired business that is comprised of regulated insurance businesses to the Farmers Exchanges, which Zurich manages but does not own. The transaction is expected to be immediately accretive to Zurich's earnings per share.

Zurich will initially purchase AIG's US Personal Auto Group for approximately $1.9 billion and will immediately sell the regulated insurance entities to the Farmers Exchanges for approximately $1.4 billion in cash, resulting in a net contribution of approximately $0.5 billion. Of these $0.5 billion, $0.4 billion will be contributed in the form of a deeply subordinated debt instrument.

AIG CEO Edward Liddy is working to dismantle most of AIG, once the world's biggest insurer, to help repay parts of a $182.5 billion government bailout. AIG has been in intermittent talks with Zurich over the auto unit, one of the most resilient parts of its insurance holdings, since last year. The company has announced deals worth $2.4 billion so far.

On Thursday, AIG said 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. (See: AIG offloads private banking arm for $254 million)

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. (See: Munich Re to buy AIG unit for a bargain price of $742 million /  Chinese consortium in talks to buy AIG's Asian assets)