AIG agrees to sell its U.S. auto insurance business to Zurich for US$1.9 billion

American International Group Inc. (AIG) has agreed to sell its 21st Century Insurance Group, comprising AIG’s U.S. personal auto insurance business, to Farmers Group, Inc. (FGI), a subsidiary of the Zurich Financial Services Group (Zurich).
Under the terms of the transaction, FGI will pay AIG US$1.9 billion, consisting of US$1.5 billion in cash and $400 million in face amount of subordinated, euro-denominated capital notes backed by Zurich Insurance Company, Zurich’s principal operating unit.
FGI will also assume 21st Century’s outstanding debt of US$100 million.
The transaction is subject to satisfaction of certain conditions, including approvals by appropriate regulatory authorities.
21st Century, based in Wilmington, Delaware, includes the former AIG Direct business and Agency Auto business. The company operates in 49 states and Washington, D.C.
21st Century reported total premiums of US$3.6 billion in 2008, including US$2.7 billion in direct sales and $900 million through independent agents.
The transaction excludes AIG’s Private Client Group, which provides property and casualty insurance to high net worth individuals.
“We are very pleased to reach agreement on a $2 billion transaction, especially in this market environment,” said Edward Liddy, AIG’s chairman and chief executive officer. “In addition, we are moving forward with discussions for several other transactions, and we continue to evaluate how best to assure the continued strength and success of all of AIG’s businesses.”