Zurich deal for AIG auto unit drives U.S. expansion

* Zurich closes AIG acquisition, seen accretive in 1st yr

* Moves Zurich unit into No. 3 in U.S. auto insurance mkt

* Unit Farmers still assessing whether will make job cuts

By Lilla Zuill

NEW YORK, July 1 (Reuters) - Zurich Financial Services AG
(ZURN.VX) said it closed its $1.9 billion acquisition of AIG's
U.S. auto insurance business on Wednesday, and expects the
business to bolster earnings at its Farmers division
immediately.

Farmers Group Inc CEO Robert Woudstra told Reuters in a
telephone interview that the deal is expected to bolster its
bottom line significantly since it immediately gives the
company an additional 1.5 million customers.

"This acquisition represents a perfect strategic business
fit," said Woudstra, and catapults Farmers into the No. 3 spot
among U.S. auto insurers, a profitable but highly competitive
area. State Farm and Allstate (ALL.N) hold the first and second
spots, respectively.

The purchase is a significant step in Zurich's drive to
build a bigger presence in the United States. Much of the
expansion for Europe's fourth-largest insurer has been through
Farmers Group Inc's insurance units, which Zurich manages but
does not own.

Under the purchase agreement, Zurich also on Wednesday sold
the regulated insurance entities acquired from AIG, which had
recently been rebranded as 21st Century, for $1.4 billion in
cash to Farmers Exchanges.

Woudstra said the 21st Century name would continue to be
used, and a newly launched advertising campaign will remain in
place.

He did not rule out job cuts as a result of the acquisition
but said both sides were still hammering out possible areas of
duplication.

The deal was one of the largest purchases Swiss-based
Zurich has made in some time. In recent years its M&A policy
has been mostly for smaller bolt-on acquisitions in growth
markets, including last year's $241 million purchase of
majority ownership of two Brazilian companies: Companhia de
Seguros Minas Brasil CSMB3.SA and Minas Brasil Seguradora
Vida e Previdencia.

For AIG, which had been the world's largest insurer, it was
the largest asset sale since the troubled U.S. insurer received
a $180 billion government rescue last September.

American International Group Inc (AIG.N) is trying to sell
off assets to pay back government loans of about $83 billion,
but has found it hard to find buyers for some big-ticket
items.
(Reporting by Lilla Zuill, editing by Matthew Lewis)