In a continuing effort to improve efficiency, AIG (NYSE:AIG) has agreed to sell two of its run-off units, American General Indemnity and American General Property Insurance, to White Mountains Solutions Holding Co., a subsidiary of White Mountains Insurance Group Ltd., which specializes in runoff acquisitions.  The deal, worth about $35 million, is expected to close in the third quarter of this year.
Low interest rates and uncertainty prevalent in the markets led to poor performances from the above two divisions and resulted in their runoff status, as the company ceased to write new policies but continued to pay claims on existing policies. AIG has been divesting redundant operations to focus on its core business, and plans to sell off nearly 80% of its stake in its plane-leasing unit, ILFC Holdings Inc.
The recent sale of Maiden Lane III Securities by the Federal Reserve Board of securities saw the company repay the $182 billion Federal loan that was used for its bail-out in 2008.  The company is expected to accrue up to $5.8 billion from the sale through its equity stake in the facility. Relief from the government loan and improvement in AIG’s brand image will boost its core operations. The company was forced to re-brand some of its units following the financial crisis, but it believes that customer confidence regarding its image has improved. 
The Property and Casualty division, Chartis, which accounts for more than half (56%) of our price estimate for AIG’s stock will use the name AIG, starting this fall. (See AIG Is Ready To Use Its Own Name Again For P&C Business) We share the company’s optimism for the division, and we expect AIG to gain share in the P&C market over our forecast period, as illustrated in the chart below.
Life insurance and retirement solutions divisions have also been performing strongly for AIG. The company plans to rename its SunAmerica business to AIG Life and Retirement to represent the core company.
We believe that AIG’s stock is fairly valued as our $30.41 price estimate for the company’s stock is in line with the current market price. You can gauge the effect of a change in the forecasts by modifying the interactive charts above.Notes:
- White Mountains to Acquire 2 Runoff Subsidiaries From AIG Division, Insurance Journal, June 28th, 2012 [↩]
- Analysts: AIG to See up to $5.8B from Maiden Lane III Securities Sales, propertycasualty360, 3rd July, 2012 [↩]
- EXCLUSIVE-AIG to resume use of its brand name, Reuters, 29th June, 2012 [↩]