AIG Looking to Divest Division

Money Morning Staff Reports

Embattled U.S. insurer American International Group Inc (AIG) is looking to sell its Hartford Steam Boiler Inspection and Insurance Co. unit to Germany's Munich Re Group AG, the world's second-largest reinsurance company, a source familiar with the negotiations told Reuters yesterday (Sunday).

The unit could fetch between $700 million and $1 billion, Reuters said. The Washington Journal said the price being talked about is actually in the range of $1.2 billion to $1.5 billion. The negotiations are continuing and the timing of any deal is unknown.

AIG, which bought Hartford Steam Boiler, or HSB, for around $1.2 billion in 2000, is under pressure to sell assets around the world to pay off a huge government loan. The U.S. government saved AIG from bankruptcy in September with a rescue plan that has since ballooned to about $152 billion (the government had to boost the value of the bailout package back in November after the company deteriorated faster than had been expected). AIG has several years to repay the loans, but the company is trying to sell businesses as quickly as possible, both to free itself from the interest it is paying to the government and to avoid further deterioration in the value of its assets.

That is forcing AIG - which has 74 million customers and 116,000 employees in 130 countries - to shed or sell stakes in units globally. AIG said in October that HSB would be among the assets it would sell to repay the federal government. In fact, the Hartford Steam Boiler deal would actually be AIG's first major divestiture as it seeks to repay as much as $60 billion in loans that it received as part of the September government rescue package, sources familiar with the situation told The Wall Street Journal.

However, as AIG moves to sell assets to repay the loan, it faces the twin challenges of its own weakness and the global credit crisis, which has made it difficult - if not impossible - for interested suitors to obtain financing for buyouts or other high-dollar projects.

Hartford Steam Boiler insures steam boilers around the world. It also offers inspection services and engineering consulting. It provides insurance for a range of risks, including insurance to cover the cost of lost business and the cost of needed repairs when equipment breaks down. The company was founded in 1866.
Founded in 1880 in Munich, Münchener Rückversicherungs-Gesellschaft AG, or Munich Re, provides reinsurance coverage to traditional insurance companies in 150 countries, for everything from oil rigs to satellites and hurricanes.

AIG shares closed Friday at $1.60 each. They've traded as high as $60.04 in the past 12 months.

News and Related Story Links:

• Reuters:
  AIG in Hartford Steam talks with Munich Re-source.
• Money Morning News Analysis:
  Federal Government Grants AIG a New Bailout Package.
• Wikipedia:
  Munich Re.
• RTTNews:
  AIG in talks to sell Hartford Steam Boiler unit to Germany's Munich Re, reports WSJ.