THE NEED to repay a multibillion-dollar loan from the United States government has prompted American International Group (AIG) to sell non-core businesses, including the Philippine American Life Insurance Co. (Philamlife).

In a statement issued late Friday night (Oct. 3), AIG said it will "refocus on its core property and casualty insurance business and generate liquidity" to repay an $85-billion bailout package from the Federal Reserve Bank of New York (FRB). The company noted its subsidiary Philamlife and some of its affiliates have been identified for possible divestment.

Local analysts said early Friday that AIG’s sale of non-care assets was plain and simple "deleveraging" to pay off debts since troubled US firms are currently facing difficulty borrowing due to wide spreads that make lending very costly. They added that selling assets was the fastest way to raise capital since the impact of the US Congress’s $700-billion bailout plan for financial institutions is still unclear.

The need to quickly raise cash will allow AIG to immediately meet stiff loan conditions. In a statement, the FRB said the $85-billion loan has a two-year term and with safeguards to protect and compensate the US government and taxpayers, including their acquisition of a close to 80% stake that would effectively diminish shareholders’ equity.

AIG said Philamlife will easily attract buyers given its long-time premier position in the Philippine insurance market with consolidated assets of P107 billion and stockholders’ equity of P49.5 billion as of Dec. 31, 2007. Its revenues in 2007 reached P36.7 billion, which was a 14% growth from 2006. The 60-year-old company’s investments are mainly in government securities, corporate bonds and blue chip securities.

In the AIG statement, Jose L. Cuisia, Jr., Philamlife president and chief executive officer, said, "Our policy owners and clients can be assured that their interests are protected because of the company’s financial strength. A change in ownership will not in any way diminish policy owners’ benefits and security. We will remain focused on daily execution of our business and continue to provide policy owners and clients with the highest levels of service."

Mr. Cuisia, a former central bank governor, added AIG’s divestment decision did not reflect its subsidiary’s (Philamlife) business or historical performance.

Shortly after the US government’s announcement of AIG’s bailout, the Yuchengcos were the first to signify their intention for AIG’s stake. Mr. Cuisia, in an earlier interview, has not confirmed nor denied the reports except to say that there were parties that indicated interests in Philamlife.

According to Philamlife’s Web site, the company’s subsidiaries and affiliates are:

  • Philam Insurance Co., Inc. a merger of American Home Assurance Co. and The Philippine American General Insurance Co. The subsidiary has assets in excess of P5.2;
  • Philam Care Health Systems, Inc., a health maintenance organization;
  • Philam Plans, Inc., a pre-need provider;
  • Philam Asset Management, Inc., which administers three mutual funds: Philam Bond Fund, Philam Fund and Philam Strategic Growth Fund;
  • Philam Financial Advisory Services Inc.; and
  • Philam Properties Corp., a real estate arm established in December 1995 main to develop office buildings for the Philam Group of Companies. It has evolved into project development, marketing, property and asset management of the Philamlife Tower and other Philamlife-owned properties.