Going along with its asset-divestment strategy,
American International Group Inc.
) has agreed to vend two of its sub-units - American General
Indemnity Co. and American General Property Insurance Co.
Both units are part of AIG's American General subsidiary and
will be sold to White Mountains Solutions Holding Company of
White Mountains Insurance Group Ltd.
) for about $35 million, as announced by the latter. The deal is
expected to culminate by the third quarter of 2012, subject to the
fulfilment of the requisite regulatory approval and other closing
White Mountain Solutions primarily specializes in runoff
acquisitions, wherein an insurance company ceases to write new
policy and only manages the account until all the existing policies
Witnessing the dismal performance in both American General
Indemnity and American General Property Insurance amidst the
ongoing low-interest rate environment and sluggish capital markets,
AIG had decided to runoff these businesses. Hence, AIG's units
appear to offer good business propositions for White Mountain
Solutions since it well complements the latter's operations.
We believe that AIG's growth strategy to discard the redundant
assets and focus on its core operations should pay the company in
the long run. Moreover, the proceeds from the deal will also aid
growth or support the government bailout loan repayment. AIG has
repaid a chunk of the $182.3 billion loan that was taken from the
US government to bailout itself in 2008.
However, the company is yet to achieve higher synergies from its
core insurance business despite divesting redundant assets, as
factors including volatile equity markets, widening credit spreads
and reduced interest rates continue to showcase declines in the
estimated future cash flows and persistently pressurize
The company also has several litigations to deal with, which
could further weigh on the financials. However, we expect the
company to benefit from its scale of operations upon a healthy
Going ahead, liberation from government loan and focus on core
operations should not only improve AIG's financial leverage but
also enhance its operating and competitive leverage against
arch-rivals such as
Prudential Financial Inc.
). Currently, AIG carries Zacks Rank #1, which translates into a
short-term Strong Buy rating.
AMER INTL GRP (AIG): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis
WHITE MTN INS (WTM): Free Stock Analysis Report
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