AIG to divest stake in Philamlife


Posted at Oct 03 2008 09:29 PM | Updated as of Nov 07 2008 07:38 AM

The American International Group (AIG) will sell its non-core assets to pay off a massive loan from the US government. Its Philippine subsidiary, the Philippine American Life Insurance Co. (Philamlife), has been identified for possible divestment along with some of Philamlife's affiliates.

"[AIG is]  selling valuable assets including Philamlife," Philamlife president and CEO Jose L. Cuisia, Jr. Cuisia told ABS-CBN News in a phone patch. 

Cuisia explained that "It's not something that [AIG] would have wanted to do, but because they have to pay this loan to the Federal Reserve that they are selling highly valuable assets around the world. 

Cuisia stressed, however, that "AIG's divestment decision is not a reflection of their subsidiaries' business or historical performance."

AIG, once the world's largest insurer, accepted a federal bailout last month after losses in the financial products unit drove it to the brink of collapse.

AIG's chief executive officer Edward Liddy announced Friday that they will refocus on its core property and casualty insurance business.

Selling the life insurance operations would be a reversal for Liddy, who previously said that staying in that business was a priority. 
Philamlife, the largest and most profitable insurance company and the undisputed market leader in the Philippines for over 60 years, is a crown jewel for AIG and will surely attract local and international interest.

Several groups, including the Yuchengco Group, have already expressed interest in acquiring Philamlife.

Despite an impending change in ownership, the company assured policy holders that it will still be able to fulfill its obligations to premium holders and investors.

In a statement, Cuisia said that "Philamlife remains to be a stable and strongly capitalized organization. Our policyowners and clients can be assured that their interests are protected because of the company's financial strength. A change of ownership will not in anyway diminish policy owners' benefits and security."

AIG's financial woes

AIG's sale of its assets would end a controversial US government bailout of AIG, once the world's largest insurer.

AIG needs to raise cash quickly to repay the $61 billion it has drawn from the $85 billion emergency facility from the US Federal Reserve. The lifeline from the Federal Reserve allowed AIG to avoid bankruptcy after taking massive losses on mortgage derivatives.

But it needs to pony up fast as the US central bank has the right to take an almost 80 percent stake at the end of the loan's 2-year term, thus, heavily diluting current shareholders and investors.

"AIG plans to retain its US property and casualty and foreign general insurance businesses, and to retain a continuing ownership interest in its foreign life insurance operations," the company said in a statement.

The Blackstone Group and JP Morgan will be AIG's global coordinators for the divestiture program, AIG said, adding that its "property and casualty businesses generated approximately $40 billion in revenues in 2007.

AIG chairman and chief executive Edward Liddy said in a statement: "We are refocusing on our traditional strengths in property and casualty underwriting.

Libby said AIG had "already been contacted by numerous strong, stable parties, and we expect that buyers will recognize the value of these properties."

He added, "Our goal is to emerge from this process as a smaller but more nimble company that is solidly profitable and has good long-term growth prospects."

Undisputed market leader

The Yuchengcos, another major local insurance player and one of the elite families in the Philippines, earlier admitted that they were interested in buying AIG's business in the Philippines if it is put in the auction block.

Cuisia, however, said there are others who have expressed interest in Philamlife, too.

Potential buyers of Philamlife stand to gain the undisputed market leader in the life insurance sector and a household name.

Philamlife currently has total assets of P108.3 billion as of December 2007 account for one-third of the entire industry’s P367 billion.

Trailing behind are Sun Life of Canada (Phils) Inc. (P67 billion), Filipino-owned Insular Life Assurance Co. Ltd (P57 billion), Philippine AXA Life Insurance Corp (P33 billion) and Manufacturers Life Insurance Co (Phils) (P20 billion).

Philamlife also has the highest capital base (P1.65 billion), most investments (P86 billion), and highest networth (P21 billion).

In 2007, revenues amounted to P36.7 billion, reflecting a 14% growth, while the P7.4 billion new business from life insurance operations was higher by 57.6 percent versus the previous year. Benefits payments totalled P6.6 billion.

The bulk of the company's invested assets are concentrated in marketable Philippine government securities, corporate bonds, and blue chip equities.

With Philamlife’s size and reach, prospects of its instability, arising from association with financially bleeding bleeding parent AIG, and direct exposure to financial instruments based on toxic mortgages in the US, sent chills to the entire industry last month.

Officials of the company and the Insurance Commission, the industry regulator, immediately assured the public that Philamlife remains financially safe, stable, and that each financial product offered to the public is a separate legal entity, meaning their clients' money is not co-mingled with AIG's.

The Philippines is the AIG’s oldest market. AIG’s American founder, C.V. Starr, established Philamlife in 1947 on the heels of the devastation of World War II to provide an alternative to traditional foreign aid. It grew rapidly.

Philamlife's endowment policies mobilized savings from the local population and provided funds to promote national development. In the 1950’s, when there was a acute housing shortages, Philamlife was involved in developing middle income housing. -- with AFP, Reuters, Lala Rimando of, and Liza Reyes of ABS-CBN Business.