After much speculation that American International Group would take its life insurance unit public, it is now being rumored that MetLife is in talks to buy AIG’s American Life Insurance Company, Alico, for between $14 and $15 billion.
Analysts had been expecting more companies to bid for Alico, but worries have arisen about how liquid AIG’s units are and how likely it would be to find a buyer, said Bill Bergman, a senior equity analyst at Morningstar.
Bergman said word on the Street was that Alico was a sound insurance unit laboring under a financial services unit in crisis. AIG is 80% owned by the government after receiving more than $180 billion bailout. The problem is that “otherwise sound insurance operations are not sound if there is a crisis of confidence,” said Bergman.
One issue is that it is unclear who is in charge at AIG, said Bergman. Last year the New York Federal Reserve established a trust to oversee the taxpayers’ investment, which is what the three trustees -- Jill M. Considine, former board member of the New York Fed, Chester B. Feldberg, a long-time employee of the New York Fed, and Douglas L. Foshee, current board chair of the Federal Reserve Bank of Dallas’ Houston branch—are paid $100,000 per year to do.
In the meantime, if the rumored-negotiations with MetLife prove true, this could be the first step for AIG to get back in good standing with the U.S. government. “It’s important for AIG to show that it can inspire trust in the marketplace to pay back taxpayers, but also to inspire confidence in its general insurance operations, which have been under pressure in the last year,” Bergman said.
On Dec. 1, AIG announced it had closed a transaction with the Federal Reserve Bank of New York positioning Alico for an initial public offering or third party sale, depending on market conditions. As part of the deal, AIG contributed the equity of Alico to a special purpose vehicle. The New York Fed York agreed to exchange $25 billion of its loans to AIG for a stake in Alico and AIG’s American International Assurance Company, or A.I.A. In return the Fed will get $9 billion from an Alico sale or offering and about $16 billion from the A.I.A. offering.
“This action underscores ALICO’s move toward independence and complements the substantial progress we have achieved this year in repositioning ALICO and reinvigorating the brand in all markets,” said Rodney O. Martin, Jr., ALICO Chairman and Chief Executive Officer. “Securing the value of this well-capitalized global insurer is in the best interests of policyholders, distribution partners, and the American taxpayer. We are very excited to begin this new chapter in the life of one of the world’s leading international life insurance companies.”
A challenge to the MetLife-Alico marriage is that AIG’s chief executive Robert Benmosche was MetLife’s CEO from 1998 to 2006. The Wall Street Journal reported that a source confided that when Benmosche took the AIG post in August 2009, he held about 500,000 MetLife shares and about two million MetLife stock options. To avoid potential conflicts of interest AIG set up an independent special transaction committee to handle negotiations between the two companies, the Journal reported.
Nonetheless, Bergman believes MetLife is a good choice for Alico because of its long history in the insurance industry and its appreciation of international operations. Alico serves 19 million customers in 54 countries and has branch offices, subsidiaries and affiliates in emerging, developing and developed markets in Europe, Asia, the Middle East, Africa and Latin America. MetLife is the largest seller of life insurance in the United States. Last month, MetLife’s CEO Robert Henrikson told investors in a company conference call that the company was in a good position to make acquisitions.
MetLife has frequently been mentioned regarding potential merger and acquisition transactions because of its successful operations both in the U.S. and internationally. Not only did MetLife not take any TARP money, it successfully passed the Treasury’s stress test. “MetLife does not need to enter into any M&A transaction to meet its business objectives, and, as we’ve previously stated, our philosophy regarding M&A activity is that any deal MetLife pursues would be strategically important and financially attractive to our shareholders,” said a MetLife spokesperson in an emailed statement.
AIG did not return phone calls seeking comment.