AIG puts US life, pension and retirement business on the block

In an announcement today by AIG Chairman and CEO Ed Liddy, it was revealed that AIG has put their US life, pension and retirement businesses on the block as part of their effort to pay off the $85 billion federal loan that saved them from filing Chapter 11 last week. In a late morning press conference with analysts Liddy outlined a plan for AIG that included sale of the aircraft financing unit, it's financial products division, the US personal lines companies, US life, retirement and pension business and some other assets. The reshaped AIG according to this plan would center around it's commercial property casualty business in the US, international subsidiaries and the immensely profitable international life insurance operations.

While the details remain to be seen as to what companies have the interest and funds to close this deal, it's quite clear that the US life insurance arms of the AIG empire are going to be sold to the highest bidder. What life markets would this cover and which one's, according to this company report, would be for sale?

Well, a review of the list of the big names on the life company list would include:

AIG Annuity Insurance Company

AIG Life Insurance Company

AIG SunAmerica Life Assurance Company

American General Life Insurance Company

American Life Insurance Company

SunAmerica Life Insurance Company

The Variable Annuity Life Insurance Company

Obviously, this would seem to imply, if we take the company at it's word after todays announcement that the structured settlement arm would be in a position where the internal settlement program that directed settlement funds from the AIG personal and commercial lines divisions could be put out to pasture. While the P&C side might stay intact, the in house placement of annuity business would come to an end due to the fact that their would no longer be an "in house" life market to direct business toward.

While this might seem to spell the end of structures through AIG as it is currently managed, that isn't necessarily the case. It would appear the US commercial lines and excess/surplus carriers would remain intact, and thus stay as a powerful force in the settlement of a wide range of casualty lines of business. Additionally, it is entirely plausible that any purchasor of American General or AIG Life would want to retain their structured settlement operations as it's highly profitable and a big premium generator.

What is in doubt is the future of the coordinated program that encourages AIG P&C companies to actively suggest structured settlements to their claimants. Regardless of your feelings about AIG there is no question they are a big generator of structured settlement business and awareness of the concept and to lose their advocacy of the concept would be a big blow for the structured settlement industry and NSSTA.

Stay tuned, lets see how it turns out, but if you are heavily reliant upon AIG P&C for your structured settlement business it is likely there are going to be some uncertain times ahead.

Update on Monday, October 6, 2008 at 05:58AM by The Settlement Channel

After a few phone calls and emails, I do want to clarify a few points on this posting regarding the future of a coordinated structured settlement program between AIG Casualty units and the life markets at American General and AIG Life.

I think there is wide spread misunderstanding as to how these coordinated programs work, where you have units at the P&C company level that actively educate and encourage the use of structured settlements across the primary P&C units that would be in a position to advocate structures. Basically, and I am simplifying here, you have a group that works as the liaison and coordinator of selecting structured settlement brokers who handle that companies structured settlement underwriting, what brokers are on that approved list, what life markets are on their approved list and managing the process of getting funds steered back to their in house life companies when their rates are the best choice on a case.

If, in the case of AIG we know that their internal unit acts as the traffic cop that selects approved brokers, approved life markets, educates across the AIG platform and works to send premium back to the AIG life markets. It is with out question the most powerful group of it's type in the industry given the amount of premium they handle and their impact on the life markets.

My opinion, given AIG's announcement last week that it's key life, annuity and personal line businesses in the US are on the block according to their plan to repay the loan, is that the business imperative to retain this coordinated program is going to be on thin ice as the life markets are sold and leave the AIG umbrella. Other then the ability to send money back to an in house life market, or to participate in approved company lists with other large P&C units such as Hartford, Liberty, Allstate, you have to ask what would the business imperative be to retain this oversight program, particularly if the US personal lines business is also on the block per the Friday announcement? Unless the restructured and slimmed down AIG that focused on commercial lines that was described under the Edward Liddy plan, determines a business purpose for the unit that doesn't include sending substantial premium to in house or affiliated life markets, any observer has to wonder what the future of that unit is as an AIG entity.

The future I could see for it as an ongoing process would be if it was purchased in whole along with the key life markets by a firm that wants to replicate what AIG had in place. Those buyers would have to have, or wish to have, a P&C operation that desires creating or up grading it's structured settlement capacity and to maximize the value of the purchase of the subsidiary. I can't off the top of my head think of a unit, other then a Berkshire Hathaway, that might be a logical buyer, but who knows what buyers are going to emerge in the coming days.

Look, I realize this is a stressful time for our entire industry and AIG employees and partners in particular. I've tried, unlike many others in our profession, to advocate calm, boost up the value of the AIG entity and avoid speculation and writing that would create concern or uncertainty about the safety of the life annuities. However, someone has to mention and discuss the obvious given Ed Liddy's announcement last week about which units are for sale. AIG has used over $60 billion of the loan amount in the first 8 days of the program and likely will use most if not all of it soon. They are going to have to sell fast to the highest bidder and if you separate the P&C and life companies during that sale process, the structured settlement market is going to be impacted. There is no way around it. I wish it weren't so, despite the fact that I am not a direct beneficiary of the AIG program as they had a policy for decades of not working with plaintiff advocates. The company has for years been the primary generator of cases and premium in my profession and their current situation is a train wreck for our entire business, and a train wreck that none of us had a hand in creating. What makes it a tragedy is it was not the fault of the people at the P&C or life markets but they are paying the price in anxiety, uncertainty and stress now that this surreal work out is being made public.

As I said before, and I should qualify further, this situation with AIG is going to reshape our business in ways we still can't predict. Hopefully the program remains intact and a buyer or the slimmed down AIG decides to keep it in place and the decent people who work there and make that place work can get back to their jobs. However, forces are at work right now in our markets, economy and government that are going to change banks, life companies, P&C firms and the structured settlement market. Most of us are just along for the ride as the tide is bigger then we are and all you can do is show up, do your job and hang in to see what the final resolution is going to be.