With yesterday’s announcement that AIG is pressing forward with the creation of AIU Holdings, the move to separate the ongoing insurance operations from the rest of the AIG businesses is well on the way.
As I noted over a month ago, the AIU Holdings entity will likely be offered in an IPO, or at least a substantial minority share will be sold to the public. This just makes sense, as it allows AIG to sell a very big, profitable, solid operating unit for the best possible price.
Last year the component pieces of AIUH accounted for about $38 billion in total revenue, provided a broad range of property and casualty insurance, and operated in most countries around the world.
The separation of AIUH from related companies (e.g. International Lease Finance, United Guarantee) is taking a bit longer than the Feds or AIG board would like, but the time is needed to extricate AIU Holdings from its closely related sister companies, thereby reducing the concern about potential future liabilities thereby making the new entity more attractive to potential entities. While ILFC is a potentially very attractive asset and will likely sell for close to $10 billion, United Guaranty is a mortgage insurer...and has to be split off to allay fears among potential buyers about the real estate industry.
The announcement followed last week’s $1.9 billion sale of AIG’s auto insurance business to Farmers, a subsidiary of Zurich Insurance. The disposition of other assets is not moving very quickly – in general their value is decreasing due to decline in revenues as policyholders move to what they perceive to be more stable, safer insurance companies. Notably, AIG failed to sell some of its overseas insurance operations earlier this year, and has now decided to hold onto the units and consolidate them with other businesses.
The decision made by the Board and the Federal government back in early March to halt the firesale has proven (so far) to be the right one. This has allowed the businesses to be separated out, thereby reducing concerns on the part of buyers and potentially increasing proceeds from the sale.
That said, what will drive value will be the economy; if it grows, more insurance will be sold and investment returns will increase. If it continues to fall, so will the value of AIG’s component pieces.
Apr
23
