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AIG Says Taiwan Sale Will Cut Profit by $1.4 Billion

Posted on 15 Oct 2009

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American International Group Inc.'s (AIG) $2.15 billion sale of a Taiwan unit, the biggest divestiture announced since the insurer's U.S. bailout, will trigger an accounting charge that cuts profit by $1.4 billion.

AIG, which disclosed the fourth-quarter after-tax charge today in a regulatory filing, said this week that it agreed to sell Nan Shan Life Insurance Co. to a group led by Primus Financial Holdings Ltd. The expense reflects the gap between the $2.15 billion sale price and the value AIG previously assigned to the Taiwan business, said Paul Newsome, an insurance analyst with Sandler O’Neill Partners LP.

“It shows they’re selling things for less than what they originally valued them for, which is probably more a reflection of the mergers-and-acquisitions environment than anything else,” Newsome said in an interview. “The question is, with the new leadership, will there continue to be as aggressive an effort to unload operations?”

AIG, once the world’s largest insurer, is selling assets to repay loans included in its $182.3 billion government bailout. Chief Executive Officer Robert Benmosche, installed in August, has said he would delay some asset sales to get higher prices. The company has secured agreements to sell about $12 billion in holdings, including an auto insurer, a Tokyo office tower and an equipment guarantor since the September 2008 rescue.

AIG said in August that the planned divestitures of two larger non-U.S. life insurers, meant to pay down a Federal Reserve credit line by $25 billion, may cost the company $5 billion before taxes.

‘Continued Volatility’

The insurer expects “continued volatility in reported results in the coming quarters, due in part to accounting charges related to ongoing restructuring activities,” AIG said in an August statement.

AIG advanced $1.64, or 3.7 percent, to $46.05 in New York Stock Exchange trading at 10:22 a.m. Christina Pretto, a spokeswoman for AIG, declined to comment.

Nan Shan, with 4 million policyholders, is burdened with unprofitable guaranteed-return policies it sold in the 1990s when interest rates were higher, raising concerns that a buyer may need to inject more capital. Primus, started in April by Citigroup Inc.’s former Asia investment banking chief Robert Morse, said this week it will buy a stake of almost 98 percent along with China Strategic Holdings Ltd. Morse said the partners have an “indefinite commitment” to expanding Nan Shan.

AIG was rescued by the government last year after wrong-way bets tied to U.S. subprime mortgages brought it to the brink of collapse, threatening to cause a financial-system meltdown. The rescue includes a $60 billion Federal Reserve credit line, a Treasury investment of as much as $69.8 billion, and up to $52.5 billion to buy mortgage-linked assets owned or backed by the insurer. AIG had tapped more than $38 billion from the credit line as of last week.