1 March 2010 Insurance

Metlife to buy AIG's ALICO

MetLife is in talks with American International Group about a $15 billion takeover of its life insurance subsidiary ALICO.

Earlier this month, AIG announced that it had completed a transaction with the Federal Reserve Bank of New York to create a special purpose vehicle (SPV) “in preparation for an initial public offering or third-party sale”.

C. Robert Henrikson, chairman and chief executive officer of MetLife, admitted that they were in “discussions” to buy ALICO but stated that the companies had not reached an agreement, before adding: “There is no certainty that we will.”

The creation of the ALICO SPV, and a similar transaction for American International Assurance (AIA), allowed AIG to pay down $25 billion of debt, reducing the outstanding capital to $35 billion.

ALICO is one of the world’s largest insurers, with $89 billion of assets under management at year-end 2008. Total statutory revenues were $32.2 billion.

Henrikson later said: “MetLife does not need to enter any M&A transaction to meet its business goals. Any transaction needs to be accretive to earnings...In other words, our acquisition criteria have not changed.” When asked for more details about MetLife’s M&A strategy, Henrikson declined to comment, saying that he didn’t want to give “more background colour on discussions that are being had with AIG regarding ALICO”.

However, despite the likely transaction, Bill Bergman, a senior equity analyst at Morningstar, said: “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.”

He also revealed that the industry buzz was that ALICO was a sound insurance unit labouring under a financial services unit in crisis. AIG is 80 percent owned by the US government after receiving a bailout of more than $180 billion.

However, the two companies have one thing in common, which is current AIG chief executive officer Robert Benmosche, who, until 2006, held the CEO title at MetLife.

Despite this, Bergman believes that MetLife is a good choice for ALICO because of its long history in the insurance industry and its appreciation of international operations.

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