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American International Group (AIG) trimmed its tab to the American people by $25 billion on Tuesday. The insurance company, plagued by fallout from the financial crisis for more than a year, moved two subsidiaries -- American International Assurance and American Life Insurance -- into special units that are used to separate a business from its parent company. A spinoff or sale is the next logical step.
For now, AIG is holding on to the companies and giving the U.S. government preferred equity in the two life insurers. When AIG decides to send the companies public or divest via a private transaction, the feds (and taxpayers) will be able to cash in. Before becoming too optimistic, keep in mind that a timetable hasn't been set.
The U.S. government owns almost 80% of AIG, which it received in exchange for an aid package worth $180 billion. By the end of the third quarter of 2009, AIG had used $122.31 billion of that capital and owed the feds $85.66 billion in loans. By moving the two life companies out of its portfolio, AIG's outstanding aid package would fall to $97.31 billion, with the amount owed declining to $60.66 billion.
The taxpayers' stake in American International Assurance, which covers life risk in Asia and has more than 20 million insureds, is worth $16 billion. The stake in American Life Insurance, which operates in more than 50 countries and provides both life and health coverage, is worth $9 billion.
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