AIG’s Rebranded Auto Unit May Be Among First Sold, Analysts Say

The biggest insurance company that may have collapsed a while ago AIG or American International Group Inc., the insurer that renamed its U.S. auto business this week to prepare the operation for potential buyers, may find that unit among the easiest to sell, analysts said. Zurich Financial Services AG, Allstate Corp. and Travelers Cos. would each benefit from owning New York-based AIG’s 21st Century Insurance, which sells policies over the Internet, said Paul Newsome, an analyst at Sandler O’Neill & Partners. The unit’s name was changed from aigdirect.com, reverting to the brand of a business acquired in 2007. “Auto insurance is less affected by the current economic crisis than almost any other sector,” said Brian Sullivan, editor of Auto Insurance Report, a weekly industry newsletter. “21st Century is extremely attractive for a buyer that could bolt it onto its own business.” AIG is selling businesses including life insurance and retirement services in the U.S. and overseas to repay a $60 billion loan that’s part of the government’s rescue package. Rivals selling auto coverage sidestepped the losses that hobbled life insurers, which means more buyers may be able to make bids. 21st Century may sell for about $1.5 billion, said Gary Ransom, an analyst at Fox-Pitt Kelton Cochran Caronia Waller. Operating income in AIG’s personal-lines division, which gets most of its revenue from auto insurance, rose 86 percent to $52 million in the third quarter on policy sales of about $857 million. Progressive Corp., which relies on auto coverage for 90 percent of its sales to individuals, trades at about 78 percent of 12-month revenue, according to Bloomberg data. Easier to Sell 21st Century, the eighth-largest insurer of personal autos in the U.S., is cutting 6.6 percent of jobs, according to an October memo to workers. The unit had about 5,500 employees as of September 2007. “It will be easier to sell 21st Century than it will be AIG’s life businesses that have more exposure to trouble in the financial markets,” said Newsome. “The question is, will it sell for a decent price?” Zurich’s U.S. home and auto unit, Farmers Group Inc., may pass State Farm Mutual Automobile Insurance Co. to become the largest car insurer in California if the firm buys AIG’s business. The acquisition would also add customers in New Jersey, Florida and Pennsylvania, where AIG has more market share than Farmers, according to 2006 data from the National Association of Insurance Commissioners. Zurich Chief Executive Officer James Schiro has said he wants to increase sales in the eastern U.S. Sean Kevelighan, a spokesman for Zurich, declined to comment on 21st Century. ‘Great Interest’ “There’s been great interest in our personal-lines business, and we’ve talked to numerous potential buyers,” said David Monfried, an AIG spokesman, declining to name them. Zurich, Allstate and Travelers sell auto policies mostly through agents. Insurers expect sales through the Internet, the model used by the Geico unit at Warren Buffett’s Berkshire Hathaway Inc., to expand over the next 10 years and need to plan for changes in customer behavior, Travelers CEO Jay Fishman said in an interview in November. Fishman said 21st Century “will clearly get a lot of interest” and “should be one of the easier ones to sell.” Travelers spokesman Shane Boyd declined to comment. Allstate’s Rich Halberg said the Northbrook, Illinois-based insurer’s “management has been clear in the past that they will look at acquisitions as one means of growing our business if the terms are favorable,” and declined to comment further. Stock Slide Property-casualty insurance stocks dropped 32 percent in the past year through yesterday compared with the 45 percent fall of life insurers, which plummeted on concerns that assets tied to mortgages will decline and the firms will have to compensate annuity customers for stock-market losses. Covering cars has been more profitable than insuring homes in the past five years because of record hurricane damage. “The majority of property-casualty companies have fared well enough” amid the credit crisis, with exceptions including AIG and Hartford Financial Services Group Inc., said Joyce Sharaf, an analyst at A.M. Best Co., which rates insurers. AIG, which owned a stake in 21st Century since 1994, acquired in 2007 the remaining 39 percent of shares for about $813 million. The insurer, which is getting advice from Blackstone Group LP on its asset sales, agreed last month to sell Hartford Steam Boiler to Munich Re for $742 million, about a third less than it paid for the unit in 2000. AIG may not be able to repay its entire government loan unless it gets better prices, said analysts including Cathy Seifert of Standard & Poor’s. AIG has also secured agreements to sell a stake in an insurance joint venture in Brazil for $820 million. AIG Private Bank, a unit catering to wealthy clients in Asia and the Middle East, struck a deal to be sold to Abu Dhabi-based Aabar Investments PJSC for 307 million Swiss francs ($275 million). Bad bets tied to home loans brought AIG to the brink of bankruptcy on Sept. 16, when it was bailed out by an $85 billion Federal Reserve loan. The government later boosted the package to about $150 billion.