AIG Sells Canadian Life Unit to Bank of Montreal

American International Group Inc., the insurer bailed out by the U.S., agreed to sell a Canadian unit to Bank of Montreal for about C$375 million ($305 million), as AIG accelerates sales to repay a $60 billion government loan. The purchase of AIG’s Canadian life insurance business will add about 400,000 clients and 300 employees, and will increase Bank of Montreal’s earnings within a year, the Toronto-based bank said today in a statement. AIG is being forced to sell dozens of businesses, including a jet-leasing company and insurance operations in the U.S. and Japan, to repay a U.S. government loan. The New York-based- insurer raised $1.8 billion in asset sales before today’s announcement, including an equipment insurer and a private bank. “That certainly wasn’t a rich price AIG got for that asset, but it wasn’t horrible for this market,” said Robert Haines, an analyst at CreditSights Inc. in New York. “They had to start showing progress in getting some of these deals done.” The deal values the Canadian operations at “slightly above” book value, or assets minus liabilities, said David Monfried, an AIG spokesman in New York. The final purchase price will adjust if the unit’s worth changes before the acquisition is completed, AIG said in the statement. Keep Employees The transaction will make Bank of Montreal, Canada’s No. 4 bank, the second-largest bank-owned seller of life insurance by premiums and deposits after Royal Bank of Canada, said Gilles Ouellette, chief executive officer of the private client group. Bank of Montreal plans to keep all of the unit’s employees and may add more people over time, Ouellette said in a phone interview. “I wouldn’t be surprised if that was the reason they liked our bid,” he said. Bank of Montreal’s insurance operation accounted for 4.3 percent of non-interest revenue last year. AIG’s Canadian life business, based in Toronto, had C$571.4 million of revenue in the first six months of 2008, according to an Oct. 3 letter to customers. That compares with Bank of Montreal’s C$222 million in insurance revenue for the year that ended Oct. 31. “It makes sense as a way for Bank of Montreal to build out their wealth-management platform,” said Ian Nakamoto, director of research at MacDougall MacDougall and MacTier Inc. in Toronto, which manages about C$3 billion, including Bank of Montreal shares. Canadian Rules Canadian banks have been pushing to boost insurance sales even as federal law prohibits them from selling policies in bank branches. Royal Bank, the country’s largest bank, began opening insurance offices adjacent to its branches in 2005. The transaction “does put the bank in good stead,” if the government lifts the restrictions on branch sales of insurance, Dundee Securities Corp. analyst John Aiken wrote in a note to clients. It’s too early to say whether Bank of Montreal will open insurance branches, although “it’s a possibility,” Ouellette said. The AIG purchase is the biggest insurance takeover by Bank of Montreal. The price-to-book value for the transaction is about 1.1, compared with an average of 1.3 for Canada’s four publicly traded insurers, Aiken wrote. The price compares to ratios at comparable U.S. insurers including 0.59 for the shares of Birmingham, Alabama-based Protective Life Corp. and 0.83 for Kansas City Life Insurance Co., according to Bloomberg data. The purchase is expected to be completed by June 1, AIG said in a statement. The business will operate under the BMO Insurance brand. Bank of Montreal is getting advice from its own investment bankers on the transaction, while AIG is using bankers at JPMorgan Chase & Co. and lawyers at Debevoise & Plimpton LLP. Blackstone Group LP is counseling AIG on its global asset-sale program.