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AMERICAN INTERNATIONAL GROUP, INC. 8-K Report, Material Agreement (Nov 25, 2019)

Filed November 25, 2019For Securities:AIG

Summary

American International Group, Inc. (AIG) announced a significant transaction on November 25, 2019, involving the sale of a substantial ownership interest in its subsidiary, Fortitude Group Holdings, LLC (Fortitude), which holds Fortitude Reinsurance Company, Ltd. (Fortitude Re). Carlyle FRL, L.P. and T&D United Capital Co., Ltd. are acquiring significant stakes, reducing AIG's ownership from 80.1% to a mere 3.5% post-closing. This move is expected to generate substantial proceeds for AIG, with an anticipated total of approximately $1.8 billion from the sale and a planned distribution. The transaction is a key step in AIG's strategy to de-risk and streamline its operations, particularly by offloading legacy run-off business. The sale of Fortitude Re, which reinsures approximately $35 billion of reserves from AIG's legacy life and general insurance run-off lines, is expected to improve AIG's financial flexibility. AIG plans to contribute approximately $1.45 billion of the sale proceeds to its insurance company subsidiaries, further strengthening its core operations.

Key Highlights

  • 1AIG is selling a 76.6% combined ownership interest in Fortitude Group Holdings, LLC (Fortitude) to Carlyle FRL, L.P. (51.6%) and T&D United Capital Co., Ltd. (25%).
  • 2Following the transaction, AIG's ownership in Fortitude will decrease from 80.1% to 3.5%.
  • 3The aggregate purchase price for the sold interests is approximately $1.8 billion ($1,209 million for Carlyle FRL and $586 million for T&D), subject to adjustments.
  • 4A planned distribution of $500 million to AIG is anticipated, subject to regulatory approvals.
  • 5AIG expects to contribute approximately $1.45 billion of the sale proceeds to its insurance company subsidiaries.
  • 6The transaction involves the transfer of reinsured reserves of approximately $31 billion from AIG's Legacy Life and Retirement Run-Off Lines and approximately $4 billion from Legacy General Insurance Run-Off Lines.
  • 7The sale is subject to customary closing conditions, including regulatory approvals and antitrust waiting periods.

Frequently Asked Questions

The primary purpose of this transaction is for AIG to exit a significant portion of its legacy run-off business by selling its controlling interest in Fortitude Group Holdings, LLC, which houses Fortitude Re. This is expected to reduce risk, generate substantial proceeds for capital management and reinvestment, and enhance financial flexibility.

AIG is expected to receive approximately $1.8 billion from the sale of ownership interests in Fortitude. Additionally, there is a planned distribution of $500 million, subject to regulatory approvals, and potential additional payments from the buyers if the full distribution is not received before closing. The net proceeds after adjustments and contributions will impact AIG's financial position.

The sale will significantly reduce AIG's exposure to legacy liabilities reinsured by Fortitude Re. The proceeds will strengthen AIG's capital position, with a portion earmarked for contribution to its insurance subsidiaries, likely supporting solvency and future growth initiatives. The divestiture is part of AIG's broader strategy to streamline operations and focus on its core insurance businesses.

Yes, AIG will pay Fortitude Re for certain adverse development in property casualty related reserves up to a maximum of $500 million, based on an agreed methodology, that may occur on or prior to December 31, 2023. Additionally, upon closing, AIG will recognize a loss of approximately $2.8 billion (after-tax) related to the unamortized balance of intercompany prepaid insurance assets and deferred acquisition costs that are not recoverable, which is incremental to any gain or loss on the sale itself.