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

American International Group Inc. said it has agreed to sell American International Assurance Group Ltd. to Britain-based Prudential plc for approximately $35.5 billion, its largest asset sale to date as the insurer works to pay back its government debt.

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

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

The $10.5 billion in Prudential securities will be monetized at some point, depending upon market conditions "following the lapse of agreed-upon minimum holding periods," AIG explained in a statement.

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

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

The transaction is expected to close by the end of this year.

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

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

He continued, "Combining Prudential, which has long been committed to enhancing its profile in Asia, and AIA, a remarkable Asian franchise, will create an unrivalled life insurance powerhouse in Asia, one of the world's fastest growing markets."

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

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

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

He added that the agreement provides Prudential "with a one-off opportunity to transform the growth profile of the Group and offers long-term material benefits to our shareholders. Both parties are committed to a smooth transition process including the commitment to the strong major AIA brand and the unique strengths of the sales forces. The combined business will be the largest life insurers in seven major Asian countries, allowing us to continue to create shareholder value through our presence in the world's most dynamic and attractive markets."

Special Reports /

AIG Sells Life Group To U.K.&#039;s Prudential Plc

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