NU Online News Service, March 1, 11:52 a.m.EST

American International Group Inc. said it has agreed to sellAmerican International Assurance Group Ltd. to Britain-basedPrudential plc for approximately $35.5 billion, its largest assetsale to date as the insurer works to pay back its governmentdebt.

The New York-based insurer said the deal includes approximately$25 billion in cash, $8.5 billion in stock securities and $2billion of preferred Prudential stock, all subject to closingadjustments.

AIG said $16 billion will be used to redeem the interests of theFederal Reserve Bank of New York (FRBNY) in the special purposevehicle formed to hold the interests of AIA. It will also repayapproximately $9 billion under the FRBNY credit facility.

The $10.5 billion in Prudential securities will be monetized atsome point, depending upon market conditions "following the lapseof agreed-upon minimum holding periods," AIG explained in astatement.

All net cash proceeds will go to repaying the company'soutstanding debt under the FRBNY credit facility, AIG said.

AIA Group operates in 15 geographical markets across AsiaPacific and includes more than 320,000 agents and approximately23,500 employees serving more than 23 million policies in-force andmore than 10 million participating members of its clients for grouplife, medical, credit life coverage and pension products.

The transaction is expected to close by the end of thisyear.

Robert Benmosche, AIG president and chief executive officer,said after considering whether it would sell AIA or spin thecompany off in an initial public offering, the faster track torepaying FRBNY was the sale to Prudential.

He added that the deal gives AIG greater flexibility to moveforward in its restructuring and "enhancing the value of our keyinsurance businesses, which will benefit all stakeholders."

He continued, "Combining Prudential, which has long beencommitted to enhancing its profile in Asia, and AIA, a remarkableAsian franchise, will create an unrivalled life insurancepowerhouse in Asia, one of the world's fastest growingmarkets."

He added, "Indeed, in undertaking this transaction, both we andPrudential are committed to preserving the AIA brand and the uniquestrengths of each of our sales forces, which it key to capitalizingon AIA's long-term potential."

On Friday, in a recorded statement concerning the company'sfull-year results, Mr. Benmosche said the company was consideringwhether to sell or spin off in an IPO AIA and American Life Co.

In a separate statement, Tidjane Thiam, Prudential plc's groupchief executive said of the deal, "With this agreement we have aunique opportunity to create the leading pan-Asian life insurer.The combination of Prudential and AIA will create a sectorpowerhouse in the fastest growing markets in the world."

He added that the agreement provides Prudential "with a one-offopportunity to transform the growth profile of the Group and offerslong-term material benefits to our shareholders. Both parties arecommitted to a smooth transition process including the commitmentto the strong major AIA brand and the unique strengths of the salesforces. The combined business will be the largest life insurers inseven major Asian countries, allowing us to continue to createshareholder value through our presence in the world's most dynamicand attractive markets."