American International Group Inc
The embattled insurer said on Thursday it will put the equity of the units, American International Assurance Co (AIA) and American Life Insurance Co (ALICO), into special purpose vehicles, preparing both for initial public offerings.
The Federal Reserve Bank of New York will receive preferred stakes of $16 billion in AIA and $9 billion in ALICO, it said.
The transactions will reduce AIG's debt to the Fed under a credit facility to $15 billion from $40 billion, it said.
Edward Liddy, AIG's chief executive, said the agreement with the New York Fed represents a major step toward repaying taxpayers and preserving the value of AIA and ALICO.
The New York Fed, in a separate statement, said the agreement will help AIG repay taxpayers and restructure. The AIA and ALICO transactions are expected to close in the second half of 2009, pending regulatory approvals.
ALICO operates in more than 50 countries but generates more than half its revenue in Japan.
Once the world's largest insurer by market value, AIG nearly collapsed last year because of soaring losses from credit default swaps, as customers who bought debt protection from the company's financial products unit boosted their demands for collateral.
AIG lost more than $99 billion in 2008 and has received a series of government bailouts, including roughly $85 billion of loans.
The company has found it more difficult to sell assets for good prices because prospective buyers know it needs to dismantle itself to help repay taxpayers.
Last year AIG tried to sell AIA privately for as much to $20 billion but failed to find a buyer.
Liddy, a former chief executive at Allstate Corp
AIG shares closed Wednesday at $1.42 on the New York Stock Exchange.
(Reporting by Jonathan Stempel in New York and Sweta Singh in Bangalore; Editing by Dinesh Nair and John Wallace)