American International Group announced last week it wasaccelerating the spin-off of its major property-casualty insuranceunits into a separate company so it can sell off a minority shareto the public.

The decision, undertaken with the strong support of the FederalReserve Bank of New York, was the first component of a revisedresolution plan unveiled when AIG announced a huge loss March2.

At that time, AIG disclosed that the government had agreed tothe third revision of the AIG resolution plan. That plan included a$30 billion additional line of credit for AIG.

Currently, total capital injected into AIG stands at $182.5billion, according to figures released by the General AccountingOffice. AIG said it now owes the government roughly $80 billion–$40billion of capital funded through the Troubled Asset Relief Programand $40 billion drawn from a $60 billion credit facility funded bythe Federal Reserve.

The spun-off unit will be AIU Holdings and will include itscommercial insurance, foreign general insurance and private clientgroup units. It will result in AIU Holdings' having a board ofdirectors, management team and brand distinct from AIG.

AIG will make it an independent entity by transferring thecompany to a special purpose vehicle in preparation for thepotential sale of a minority stake in the business, the companysaid.

“This ultimately may include a public offering of shares,depending on market conditions,” said AIG.

Under the special purpose vehicle arrangement, AIG willcontribute the equity of AIU Holdings into an SPV in exchange forpreferred and common interests in the SPV. AIG also said it intendsto purchase from AIU Holdings its equity interests in InternationalLease Finance Corporation, United Guaranty Corporation andTransatlantic Holdings Inc.

A.M. Best said the actions would not prompt it to change the “A”ratings of the p-c companies. “While capital and surplus willremain unchanged, the quality of capital in these subsidiaries isexpected to improve as these investments in these AIG affiliateswill be exchanged for high-quality, liquid assets of equal value,”the Oldwick, N.J.-based rating firm added.

A spokesperson for the Federal Reserve Bank of New York said:“This action is an important next step in the company's efforts toplace key business units in the best position to optimize theiroperations and maximize their value. It is in the best interests ofthe American taxpayers, the company, and its customers andemployees that these efforts succeed.”

The AIG decision was announced only hours after a CongressionalOversight Committee on TARP grilled Treasury Secretary TimothyGeithner. Data revealed at the hearing disclosed that AIG hadreceived more TARP cash than anyone else–$70 billion. The rest ofthe aid to AIG came from other facilities, including purchase oftroubled assets.

In opening remarks at the hearing, Rep. Jeb Hensarling, R-Tex.,a member of the oversight panel, had noted that “most people areunimpressed with the Treasury's management of AIG.” He did notelaborate.

LIDDY'S HOLDINGS DRAW IRE

Separately, days earlier, Congressman Elijah E. Cummings, D-Md.,reiterated a demand that AIG Chief Executive Edward Liddy resign inthe wake of a disclosure that he has a substantial interest inGoldman Sachs.

AIG paid $12.9 billion to Goldman with part of the taxpayerfunds AIG used to cover credit default swaps and other derivativeobligations.

In an April 6 filing with the Securities and ExchangeCommission, Goldman Sachs revealed that as a previous director atGoldman Sachs Mr. Liddy received 18,244 shares of restricted stockofferings worth more than $2.2 million for compensation for hisservice. He resigned the position in September of last year afteragreeing to take over as AIG CEO at the behest of then TreasurySecretary Henry Paulson.

Mr. Cummings said in a statement renewing a previous call forMr. Liddy's resignation that the holdings raised the question ofwhether Mr. Liddy was acting in the best “interests of AIG or ofhis stock in Goldman.” Even the appearance of conflict of interest“is a reason for alarm,” he said.

It is important, the lawmaker said, that people have confidencein what is being done with taxpayers' funds, and investors needconfidence in the markets. Also, because the company has receivedas much aid as it has, Congress and the American people needconfidence in AIG's management, he said, adding that Mr. Liddy'sfailure to reveal his financial interests is undermining thatconfidence.

Congressman Alan Grayson, D-Fla., who is a member of the HouseFinancial Services Committee, in an interview with NationalUnderwriter said at the very least Mr. Liddy should recusehimself from any decision regarding Goldman Sachs, but came up justshort of calling for his resignation.

“Given the fact that his $1 per year compensation wasdisingenuous, I would not be sorry to see him go,” said Mr.Grayson.

Mr. Grayson was also critical of Mr. Liddy's failure to name thepeople responsible for AIG's dilemma in the financial productsdivision during his testimony before the committee.

“He refused to tell me the names of the people responsible forthis $100 billion-plus payout by the taxpayers, and I find thatunwillingness to answer a simple question to raise even deeperquestions about whether he is the right person for that job,” Mr.Grayson said.