AIG, Zurich Said to Near $2 Billion Auto Unit Deal

AIG, Zurich Said to Near $2 Billion Auto Unit Deal

April 16 (Bloomberg) -- American International Group Inc. is close to selling its U.S. auto business to Zurich Financial Services AG for about $2 billion, the insurer’s biggest divestiture since being rescued by the government, said three people familiar with the situation.

An agreement to sell New York-based AIG’s 21st Century Insurance unit may be reached as early as today and Zurich would pay mostly cash, the people said. Negotiations between the insurers, which stalled in February over a disagreement in price, may yet hit another stumbling block, said one of the people. AIG spokesman Mark Herr and Sean Kevelighan of Zurich Financial declined to comment.

Chief Executive Officer Edward Liddy is working to dismantle most of AIG, once the world’s biggest insurer, to help repay parts of a $182.5 billion government bailout. AIG has been in intermittent talks with Zurich over the auto unit, one of the most resilient parts of its insurance holdings, since last year. The company has announced deals worth $2.4 billion so far.

AIG said last month it will hand over its two largest non- U.S. life insurance units into government trusts to cope with the global credit crisis that has hobbled potential buyers’ ability to make qualifying bids. AIG said it owes about $46 billion of a $60 billion federal credit line as of April 2.

Interest in U.S.

Zurich CEO James Schiro said in a January Bloomberg Television interview that he was interested in increasing revenue in “personal lines in the U.S.” The company pulled out of the bidding for Royal Bank of Scotland Group Plc’s insurance unit, which includes Direct Line and Churchill in the U.K., last year and bought a 50 percent stake in Banco Sabadell SA’s insurance units.

Zurich said March 2 it will keep 3.75 million shares that it had repurchased to fund potential takeovers, instead of canceling the stock. Fitch Ratings that day lowered the outlook on Zurich Insurance Company, the main unit of Zurich Financial, to “negative” from “positive,” citing concern about capital.

Zurich fell 60 centimes, or 0.3 percent, to 191.6 Swiss francs by 9:10 a.m. in Swiss trading. The insurer has lost 16 percent this year, compared with a 17 percent drop in the 34 member Bloomberg Europe 500 Insurance Index, giving Zurich a market value of 27.3 billion francs ($23.8 billion).

21st Century, which is run by Chief Executive Officer Anthony DeSantis in Wilmington, Delaware, and has offices in Woodland Hills, California, sells auto policies over the telephone and Internet, avoiding the expense of using agents. Zurich’s Farmers Group Inc. unit, and rivals including Allstate Corp. and Travelers Cos., rely on agents for most of their sales.

Internet Sales

Insurers expect Internet sales, the model used by the Geico unit at Warren Buffett’s Berkshire Hathaway Inc., to expand over the next 10 years and they should plan for changes in customer behavior, said Jay Fishman, Travelers’ CEO, in an interview in November.

The combination would make Zurich, including the Farmers unit, the largest auto insurer in California, according to 2007 data from the National Association of Insurance Commissioners.

AIG acquired part of 21st Century in 1994 and got a majority stake in 1998. It bought the remaining portion in 2007 for $22 a share, valuing the entire company at $1.9 billion.

The unit was renamed aigdirect.com, then the 21st Century moniker came back after AIG was rescued from collapse by the government last year.

21st Century has been for sale since before Oct. 3, when Liddy confirmed on a conference call that it was on the block.

BLOOMBERG