UPDATE: AIG Moves To Split Off Property, Casualty Operations To AIU

American International Group Inc. (AIG) said Tuesday that it will transfer AIU Holdings, the property/casualty holding company it formed in March, to a special purpose vehicle to prepare for the sale of a stake in the business, which may include a public offering of shares.

At the same time, AIG said it will buy back from AIU Holdings its equity interests in International Lease Finance Corp., United Guaranty Corp. and Transatlantic Holdings Inc. (TRH) leaving the special purpose vehicle holding only its global property/casualty businesses.

"Taken together, these actions accelerate the move of AIU Holdings toward greater independence," said Kristian P. Moor, president of AIU Holdings, in a press release Tuesday.

The move comes after AIG sold two of its property insurance businesses at lower prices than it had paid for them years before, which some took as a sign of AIG's damaged reputation and a lack of buyers with the capital to make big acquisitions. AIG is selling businesses to raise cash to pay back its U.S. government bailout, which has contributed more than $173 billion so far in loans and purchases of AIG assets. If market conditions do not favor a sale, AIG could instead offer shares of AIU Holdings to the public.

Last week, AIG sold its personal lines auto insurance business to Zurich Financial Services Group (ZURN.VX) for $1.9 billion. In April, AIG closed on its sale of Hartford Steam Boiler to Munich Re Group for $739 million. Both units sold for less than AIG paid for them.

AIG began the process of separating its insurance businesses from its troubled Financial Products division on March 2, when it formed AIU Holdings. It also formed another special purpose vehicle for its life insurance businesses.

AIG is trying to sell International Lease Finance Corp., its aircraft leasing business, and the sales process will not be affected by the restructuring, an AIG spokesman said. Reportedly, AIG has accepted a second round of bids for the unit, but the spokesman said he could not comment on the process

As a standalone company, AIU Holdings would have recorded $45 billion in 2008 revenue, which would rank it 54th among Fortune 500 companies and would make it the largest property and casualty insurer in the world.

AIU Holdings will serve as the holding company for AIG's Commercial Insurance, Foreign General Insurance and Private Client Group units. The name was taken from AIG's well-known international brand, American International Underwriters. In 2008, the companies that make up AIU Holdings had net written premiums of about $36 billion.

The Federal Reserve Bank of New York said the action "is an important next step in the company's efforts to place key business units in the best position to optimize their operations and maximize their value."

Insurance rater A.M. Best Co., which approved of AIG's initial separation steps in March, said it will comment on AIG's latest plans some time Tuesday.

AIG's shares closed up 13.2% to $1.46. The stock has fallen 94% since September.

-By Lavonne Kuykendall, Dow Jones Newswires; [phone]; [e-mail]

(Kathy Shwiff and Donna Childs contributed to this report.)