AIG Sells US Auto Insurance Division European Insurer Zurich

In a surprising move, AIG has announced that it will sell its America-based personal auto group to the Swiss insurer Zurich. Shedding this division was the latest in a series of asset dumps that have been made the insurer since it nearly failed back in September 2008.

The deal with Zurich, recently finalized, was brokered after several months of discussion and, within the last few weeks, serious negotiations. AIG plans to use the proceeds of the sale to repay a portion of the $178 billion owed to the U.S. government.

This acquisition was funded by a $1.1 billion institutional share offering will be a big boon from Zurich; the company hopes that this will boost their presence in the United States. Back in 1998, the company purchased Farmers Insurance. Zurich is the fourth-largest insurer in Europe, and with the sale, it will be poised to take place as the third-largest personal lines insurer in the largest global insurance market.

AIG’s high-margin private client division, a part of the insurer’s personal lines unit, was not included in the current deal with Zurich. While there may be speculation that Zurich would be interested in these holdings, according to the company’s CEO, Jim Schiro, was quick to suggest that Zurich was very pleased with the AIG purchase since it would increase earnings. Schiro was quoted as saying: “This will give us the expansion capability that Zurich has been seeking since buying Farmers, and gives us a direct marketing platform, which is key.”

The acquired division, which currently trades under the 21st Century name on the market will be known as Zurich.

Despite this news, AIG has continued to pursue its agreement with the Federal Reserve to sell of a total of 11 businesses in exchange for $85 billion in bailout funds. Yet, it is clear that AIG’s financial woes are far from over-in fact, they may be worsening.