AIG's plan to spin off prized ops all about timing

By Lilla Zuill - Analysis

NEW YORK (Reuters) - American International Group Inc (AIG.N) may not get the highest possible price from a rushed public sale of its prized property-casualty business, but it cannot afford to wait long.

AIG said last week it is speeding up plans to sell its global property-casualty operations, most likely via an initial public offering, as it looks to repay the roughly $80 billion it owes the U.S. government.

It is a lousy market to sell any financial asset, but the longer AIG waits, the higher the risk that the business becomes more tainted by the rest of the insurer's troubles.

"Over time, people just get AIG fatigue. A buyer of insurance just doesn't want to deal with: Is AIG bankrupt? Are they solvent? Are they going to be around?," Chief Executive Edward Liddy said last month at a congressional hearing.

"And if I can't turn this situation around, we run the risk that that business does atrophy," Liddy added.

That appears to already be happening.

AIG's property-casualty businesses contributed close to half of the company's overall $83.5 billion in premium in 2008. But since the insurer's federal rescue last September, business has slipped, and numerous high-level executives have quit, joining rivals seeking to pick off AIG's customers.

The general insurance operations saw net written premiums decline 22 percent in the fourth quarter, and the company warned that it was seeing fewer new customers and had lost existing business partly because of concerns over AIG's financial strength.

When AIG reports earnings next month, investors may learn of more weakness in the insurance operations.

"We are expecting revenue to be down in the quarter as premiums written were already down pretty significantly in the last quarter," said Pete Larson, an analyst with independent research firm Gradient Analytics.

Larson also expects AIG to be hit by more losses in 2009 from soured mortgage investments and on derivative guarantees that drove much of its $100 billion in losses over the past year.

AN EXTRAORDINARY CHALLENGE

AIG wants to sell at least part of its 90-year-old property-casualty insurance arm, recently renamed AIU Holdings, in an initial public offering. Under a best-case scenario, an IPO of the business could be valued as high as $58 billion, Bernstein Research analyst Todd Bault estimated in an April 23 note, based on the price-to-book multiple of peer Chubb Corp

(CB.N).

But the ultimate value for an AIU IPO would be determined by investors, who in this market are already skittish after large losses from the credit crisis.