AIG, MetLife Agree on $15.5 Billion Deal for Asian Life Insurer
March 8, 2010 – Officials for American International Group (AIG) today announced they have finalized a $15.5 billion deal to sell the insurer’s Asia-based life insurance subsidiary to MetLife.
The deal for AIG’s American Life Insurance Company, popularly called “Alico,” is the second major sale announced by AIG during the past week and means the two transactions combined will allow the insurer to pay down about $51 billion of its remaining $102 billion in debt remaining from AIG’s $182.5 billion, taxpayer-backed federal debt. AIG last week announced a $35.5 billion deal to sell its American International Assurance firm to Prudential.
Initially planned to be concluded by the end of February, the deal for Alico was put on hold while MetLife officials look into potential federal tax issues related to how Alico conducts its business overseas. Headquartered in Delaware but primarily doing business in Asia, Alico officials routinely withhold federal taxes from life insurance distributions made to its U.S.-based customers. But because Alico does most of its business overseas, the firm does not withhold federal taxes from distributions to non-U.S. citizens living in other nations.
Concerned U.S. officials might take exception to Alico’s tax-withholding methods, officials for MetLife and AIG are seeking a clarification on the matter from the U.S. Internal Revenue Service. Company officials say the request for a clarification from federal officials is more of a formality and likely won’t delay the potential sale occurring by the end of the month. Selling Alico for $15.5 billion would be the second-largest transaction done by AIG as company officials attempt to repay its staggering debt to U.S. taxpayers.
Alico mostly does business overseas in 50 nations and is one of the largest life insurance companies in lucrative, emerging Asian markets. Industry analysts say $15.5 billion is a large amount to pay for a company valued at about $4 billion in 2008, but Alico has a large share of lucrative emerging life insurance markets in China and other parts of Asia.
The deal means the Federal Reserve Bank of New York would get about $9 billion as partial reimbursement for the taxpayer-funded bailout of the nearly bankrupted insurer in 2008. AIG would retain the remaining $6 billion. The $9 billion would be used to buy back preferred shares of AIG stock the federal government owns as collateral for rescuing the ailing insurer in 2008.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials last year agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
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