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Zurich swoops on AIG to gain US market share

Zurich is aiming high in the US Keystone

The Zurich Financial Services group is making a major acquisition in the United States, spending $1.9 billion (SFr2.19 billion) for AIG's Personal Auto Group.

Zurich will also assume $100 million in debts to buy AIG’s 21st Century Direct and other US businesses in a move to increase internet and telephone sales.

AIG, the American International Group and once the world’s largest insurer, has been forced to seek buyers for its insurance businesses to repay the loan portion of a $182.5 billion federal bailout.

The company has been propped up by four US rescues since September and is 80 per cent owned by the federal authorities.

Under the terms of a complex deal, Zurich will buy the operation through its US subsidiary, Farmers Group. This will sell the bulk of the business for $1.4 billion to the Farmers Exchanges, the US insurer managed but not owned by Zurich.

“Strategic priorities”

“The expansion of the US personal lines capabilities of Farmers has always been one of our strategic priorities,” commented Zurich’s CEO James Schiro in a statement.

“The acquisition also illustrates how financial discipline can position us to capitalise on market opportunities even in these challenging times, provided they meet our strategic objectives and financial hurdle rates.”

Zurich, the fourth-largest European insurer, is to sell ordinary shares to raise $1.1 billion to help meet increased capital needs to support the acquisition and the additional business assumed.

On Friday, it announced the successful placing of 4.8 million new shares and existing treasury shares with proceeds of $1.26 billion with a limited number of institutional investors.

The deal adds about 1.5 million direct auto customers and an estimated 500,000 new customers a year to Farmers personal lines operations. It also widens its geographic base, particularly in the eastern part of the US.

Share boost

Zurich said the agreement with AIG would boost its shares immediately and create the third-largest US personal lines insurer.

But it wants to expand further to increase market share and will look at other possibilities, according to Paul Hopkins, chief executive of Zurich Americas.

He did not rule out other deals with AIG and more acquisitions in general.

“We look at AIG as an excellent insurance company,” Hopkins told Reuters in an interview.

“So if there were other assets that met our strategic and financial thresholds that were run by AIG or any other group, we would certainly look at them positively.”

AIG’s Personal Auto Group has about 6,000 employees and generated gross premiums of $3.6 billion last year, with a pre-tax profit of $99.2 million.

In a related development, Zurich said on Thursday that it expected first-quarter results to be “materially in line” with recent quarters’ results.

Zurich had an operating profit of $1 billion and net income of $205 million in the fourth quarter of 2008. It posted a net profit of $3 billion last year.

swissinfo with agencies

Zurich is an insurance-based financial services provider with a global network of subsidiaries and offices in North America, Europe, Asia Pacific, Latina America and other markets.
The group, which is based in Zurich was founded in 1872. It has a staff of about 60,000 people serving customers in more than 170 countries.
Farmers is a trade name that can refer to either the Farmers Group or the Farmers Exchanges.
The Farmers Group, a management and holding company, along with its subsidiaries, is wholly owned by Zurich.
The Farmers Exchanges are three reciprocal insurances, including their subsidiaries and affiliates, owned by their policyholders and managed by Farmers Group and its subsidiaries.

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR

SWI - a branch of Swiss Broadcasting Corporation SRG SSR