American International Group (AIG) said on Monday that it has decided to sell its stake of almost 98% in Taiwan life insurance unit Nan Shan Life Insurance Co. for about $2.2 billion to a group led by Hong Kong-based investment company Primus Financial Holdings.

The Primus consortium, which includes Hong Kong-listed China Strategic Holdings, will take over Nan Shan Life, Taiwan’s largest life insurer by book value. Primus and China Strategic will seek loans from Taiwanese banks to finance the deal.

China Strategic owns an 80% stake in the consortium, while Primus holds the remaining 20%. Following the close of the transaction, Primus consortium will maintain the existing compensation and benefits package for Nan Shan’s 4,000 employees for at least two years.

Pending regulatory approval, Blackstone Advisory Partners and Morgan Stanley (MS) acted as AIG’s financial advisers for this deal.

We view this divesture as a key step by AIG to raise cash after the U.S. government rescued the company from collapse by providing $182.5 billion in exchange for 80% ownership last year.

In July 2009, AIG completed the sale of 21st Century Insurance Group, part of its personal auto insurance division, to Farmers Group Inc. for $1.9 billion.

AIG is the leading U.S.-based international insurance and financial services organization and among the largest writers of commercial, industrial, and life coverage in the U.S. The company’s business and investment portfolio are more exposed to sub-prime than other P&C insurers, and earnings are more dependent on partnership income. We expect AIG to report additional unrealized market valuation losses and impairment charges in the upcoming quarters as the market turmoil is expected to persist for a while.

Though AIG has been able to head off collapse by enlisting government support, it continues to face significant threat to its business model, customer base and distribution network as a result of the ongoing financial crisis. We are also concerned about the company’s significant exposure to residential and commercial mortgage backed securities.

Zacks Investment Research
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