The sale of American International Group's auto unit to Zurich'sFarmers Group subsidiary will not alter the personal autolandscape, but will allow Farmers to develop an East Coast presenceand become a competitor in the direct writer market, experts andanalysts said.

In exchange for the Wilmington, Del.-based 21st Century autounit, which includes the former AIG Direct and Agency Autobusiness, AIG said Farmers Group will pay $1.9 billion, consistingof $1.5 billion in cash and $400 million in face amount ofsubordinated, euro-denominated capital notes backed by ZurichInsurance Company, Zurich's principal operating unit.

The transaction did not include the AIG Private Client Group,which provides property-casualty insurance to high-net-worthindividuals, the company said.

Analysts from Fitch Ratings and Moody's Investor Services, aswell as Steven Weisbart, senior vice president and chief economistof the Insurance Information Institute, all said the transactionwill not be a landscape changer for the personal auto insurancemarket. This market, they agreed, is large and competitive, withmany players of substantial size.

Mr. Weisbart said the significance of the transaction is that itanchors the business 21st Century has. Some units of AIG, he noted,are facing an uncertain future, and the sale of 21st Century toFarmers helps stabilize the business in that unit, he said.

He also said the acquisition represents a strong entry into thedirect channel for Farmers.

Pano Karambelas, vice president and senior credit officer withMoody's, said Farmers did not previously have a direct channeldistribution platform, and building one out would have beenexpensive. The acquisition of 21st Century, he added, gives Farmersan existing sizable distribution platform.

Mr. Karambelas said he expects Farmers will maintain both thedirect channel and its agency channel. There is not a lot ofoverlap between the two–some synergy, but a lot is complementingbuild-out, he said.

Speaking to the impact Farmers' entrance into the direct channelcould have on other direct writers, such as Progressive and GEICO,Paul Bauer, vice president, senior credit officer for Moody's, saidthe level of competition will remain largely the same. Progressiveand GEICO, he noted, are well-run companies, and this transactionis not threatening to their franchises.

Jim Auden, an analyst with Fitch Ratings, said the acquisitionhelps Farmers expand geographically, as it writes most of itsbusiness on the West Coast, and much of the acquired business is inthe eastern United States.

Mr. Karambelas said Moody's has affirmed Farmers' ratings at“A2.” He said that action was based on the fact that Farmers' isbuilding out on the East Coast, and the complementary businessplatform represented by the acquisition. He also noted Farmers paidless than statutory book value for the auto unit.

These positives are somewhat offset by the increased grossoperating leverage, as Farmers will need capital to cushion againstthe added premiums. But Mr. Karambelas said this is mitigated someby Zurich providing additional reinsurance coverage to Farmers.

The transaction “didn't move the needle enough” to upgrade thecompany's ratings, Mr. Karambelas said. He said even though theacquisition provides positives for Farmers, it is not atransformative transaction given the existing size of Farmers'personal lines platform.

Mr. Auden said the benefit to Farmers is it seized anopportunity to acquire a sizable property that was available. Togain that much organically would have been more difficult thanmaking the purchase, he added.

Reacting to the deal announcement, Fitch revised its RatingWatch on the insurer financial strength ratings of AmericanInternational Group auto subsidiaries involved to “negative” from“evolving.”

The AIG subsidiaries' current insurer financial strength ratingsare “double-A-minus,” reflecting benefits from being part of theAIG organization and the benefits of recent government support,Fitch said, advising that when the deal closes, the rating expectsthat the auto insurance companies' financial strength ratings willlikely be downgraded “to a level more commensurate with that ofZurich's,” which is “A-plus.”