Posted on 02 Mar 2009
American International Group, Inc. (AIG) and American International Assurance Company, Ltd. (AIA) today announced a broad set of actions, taken in cooperation with the U.S. Department of the Treasury (U.S. Treasury) and the Federal Reserve, to improve AIG’s capital structure, protect and enhance the value of its key businesses, and position these franchises for the future as more independently run, transparent companies.
AIG is working closely with the management of each of its major operating businesses to establish the appropriate governance and capital structures for those businesses. Certain businesses that are already positioned for sale will continue on this track; some will be held for later divestiture; and some businesses, such as AIA and American Life Insurance Company (ALICO), will continue to review their divestiture options, which ultimately may include a public offering of shares, depending on market conditions.
AIG intends to contribute the equity of AIA and ALICO into special purpose vehicles (SPVs) in exchange for preferred and common interests in the SPVs. This will enable the Federal Reserve Bank of New York (FRBNY) (or a trust for the benefit of the FRBNY) to receive preferred interests in repayment of a portion of the FRBNY facility. The amount of the preferred interests will be a percentage of the fair market value of AIA and ALICO based on valuations acceptable to the FRBNY. AIG will continue to hold the common interests in the SPVs. These transactions will reduce AIG’s debt and interest carrying costs, while allowing AIG to continue to benefit from its ongoing common interests in the SPVs. Until subsequent divestment, AIA will remain a wholly owned subsidiary of AIG, consolidated in AIG’s reported financial statements.
“Given the importance of AIA and ALICO to repaying our obligation to the U.S. government, we think this structure is the optimal solution to maintain the value of these businesses and best position them to enhance their franchises,” said Edward M. Liddy, Chairman and Chief Executive Officer, AIG.
“The ultimate success of our restructuring plan centers on ensuring that the unique businesses that make up AIG can thrive on their own. While this process may take up to several years to complete, we will ultimately create stronger, sounder businesses worthy of investor, customer, and regulatory confidence. We greatly appreciate the continued cooperation and support of our customers, business partners, the U.S. government and regulators around the world,” Mr. Liddy said.
“The separation of AIA from AIG represents a major step forward for AIA and will reinforce its position as a leading company in Asia,” said AIA’s President Mark Wilson.
AIG also confirmed today that it had received proposals to acquire all or part of the share capital of AIA. These proposals are preliminary and are being reviewed along with AIG’s consideration of a full or partial IPO of AIA. In addition, AIG has decided to retain Philam Life, together with the operations of AIA. “We will continue to consider all strategic alternatives for AIA and evaluate expressions of interest from qualified parties with access to capital,” Mr. Wilson said.
“AIA’s ability to weather the economic storm and continue to operate profitably demonstrates the strength of our operations, confidence from our customers, and support of our distribution partners,” Mr. Wilson said. “We continue to retain and win business, which speaks volumes about the extent of our offerings and depth of our customer relationships. Policyholder funds will continue to be protected by the regulatory safeguards in each of the countries where we operate.”