NU Online News Service, Sept. 30, 11:01 a.m.EDT

American International Group Inc. (AIG) has released details ofits plan to pay back taxpayers for bailing out the mammoth company,gradually allowing the federal government to reduce its variousforms of assistance to AIG.

The plan will allow AIG to "concentrate our full attention onmanaging our businesses for the benefit of all of ourstakeholders," said Robert H. Benmosche, president and chiefexecutive officer, in a statement.

The chief executive said he also believes AIG will "repay thetaxpayers with a profit."

AIG said its $20 billion direct debt to the Federal Reserve Bankof New York (FRBNY) and the $26 billion in interest the FRBNY hasin two special purpose vehicles (SPVs) will be repaid in full.

Also as part of the plan, the company will issue common stock tothe U.S. Treasury Department.

The repayment of senior debt and conversion of common stock bythe Treasury are each expected to be done by the end of the 2011first quarter if regulatory approvals go through, AIG said.

The Treasury, which had owned 80 percent of AIG after thebailout, is to own 92.1 percent of the common stock of AIG after itconverts the $49.1 billion of preferred shares it has under theTroubled Asset Relief Program (TARP) into about 1.66 billion sharesin common stock.

The Treasury will then sell the shares to the public over time.This step will not occur until the FRBNY is repaid, AIG said.

The exit strategy "dramatically accelerates the timeline forAIG's repayment, and puts taxpayers in a considerably strongerposition to recoup our investment in the company," TreasurySecretary Timothy Geithner said in a statement.

To repay the FRBNY, AIG said it will use its own resources andproceeds from other assets, including an initial public offering ofAmerican International Assurance Co. Ltd (AIA) on the Hong KingStock Exchange–subject to approvals and market conditions. AIG saidit will also use proceeds from the $15.5 billion sale of AmericanLife Insurance Co. (ALICO) to MetLife Inc.

The ALICO-to-MetLife transaction is expected to close during the2010 fourth quarter.

The FRBNY also has about $26 billion in preferred interest intwo special purpose vehicles (SPV). AIG said it will use $22billion in TARP funds to purchase an equal amount of interests ineach SPVs and give them to the Treasury as part of the plan toallow the Treasury to sell stock to the public.

In a separate statement AIG said it has entered into anagreement to sell Japan-based life insurance subsidiaries Star LifeInsurance Co. and Edison Life Insurance Co. to PrudentialFinancial, Inc. for $4.8 billion–about $4.2 billion in cash. Thetransaction is expected to close during the 2011 first quarter,pending regulatory approvals.

This money will be put toward retiring the remainder of theFRBNY's preferred interest in the SPVs, AIG said.

In a message from Mr. Benmosche, the chief executive saidthat, considering how well AIG's operating companies haverebounded, taxpayers can expect to profit from their support of thecompany.

But experts have already said the sale of stock has everythingto do with timing. If shares are sold quickly, it could drive downthe price and reduce the return. Should the Treasury gets rid ofits stock in the company rapidly, AIG could face a creditdowngrade, the experts said.

Mr. Benmosche said that over the last year AIG has sold non-coreunits, improved its financial strength, improved liquidity,increased risk management and stabilized core insurancebusinesses.

The company has also de-risked AIG Financial Products, the unitin charge of the credit default swaps that were blamed for thecompany's downfall, he added. When AIG was bailed out, this unit'sexposure to derivatives was $2 trillion. At the end of the secondquarter this year, the exposure was reduced 70 percent to $602billion, Mr. Benmosche said.

The unit "will not longer pose a significant financial risk toeither AIG or the broader financial system," he said.

The federal government made more than $182 billion available toAIG about two years ago when it faced a liquidity crisis due to adowngrade in its credit rating, which required AIG to post morecollateral to its swap trading partners. AIG said it owed thegovernment $101.2 billion as of June 30.