AIG Sells US Auto Unit to Zurich Financial For $1.9 Billion

Zurich Financial Services will buy American International Group's U.S. auto insurance business for $1.9 billion, making its Farmers Exchanges the third-largest U.S. personal lines insurer.

AP

Zurich also said on Thursday that it expects first-quarter results will be materially in line with recent quarters and its regulatory solvency ratio will remain strong, following a finalized year-end 2008 figure of 160 percent.

It said the deal with AIG would boost its earnings per share immediately.

Zurich had a business operating profit of $1.0 billion and net income after tax attributable to shareholders of $205 million in the fourth quarter.

For AIG, the deal is the largest divestiture since its September rescue by the U.S. government.

Its shares were up 10 cents, or 6.25 percent, at $1.70 in afternoon trading on the New York Stock Exchange. Zurich shares, which are down 15 percent this year, closed 3.4 percent higher on Thursday at 198.70 Swiss francs.

Zurich's Farmers Group Inc will acquire AIG's 21st Century Insurance Group in exchange for $1.5 billion cash and $400 million in notes backed by Zurich Insurance Co. Farmers Group will also assume 21st Century's outstanding debt of $100 million.

Zurich plans to immediately sell the regulated insurance entities to the Farmers Exchanges for $1.4 billion cash. It will also provide increased underwriting capacity to the Farmers Exchanges.

Zurich, the fourth-largest European insurer, manages the Farmers Exchanges but does not own them.

Zurich will sell ordinary shares to raise $1.1 billion to help meet increased capital needs to support the acquisition and the additional business assumed.

It said it will immediately launch the sale of shares to a limited number of institutional investors.

Broader Base

AIG bought out the minority shareholders in 21st Century in 2007 in a deal that valued the business, at that time, at about $2 billion.

The business being sold includes the former AIG Direct business and Agency Auto business. The company operates in 49 states and Washington, D.C.

In 2008, 21st Century reported total premiums of $3.6 billion.

The deal adds about 1.5 million direct auto customers and an estimated 500,000 new customers per year to Farmers' personal lines operations. It also broadens its geographic base, particularly in the eastern United States. The transaction is expected to close by the third quarter.

The deal excludes AIG's Private Client Group, which provides property and casualty insurance to high net worth individuals.

U.S. taxpayers have taken a roughly 80 percent stake in AIG, once the world's largest insurer, in exchange for providing up to $180 billion in financial support.

The company is trying to ditch assets in a bid to pay back the government but has struggled to find buyers for big-ticket.

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