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Insurer American International Group Inc. took another step Monday toward spinning off its property casualty and general insurance business and renamed the operation Chartis.

AIG placed Chartis, formerly known as AIU Holdings, into a separate unit known as a special-purpose vehicle, or SPV.

SPVs are entities sometimes set up ahead of the split or sale of a unit to separate its operations from the parent company.

In April, New York-based AIG said it would spin off AIU Holdings, which includes commercial insurance, foreign general insurance and private client group businesses, into a separate firm as part of its restructuring plan to help repay a $182.5 billion government bailout.

The business serves more than 40 million clients in 160 locations.

Kristian Moor was named president and CEO of Chartis on Monday.

The government provided AIG with an $85 billion rescue package amid the growing credit crisis in September.

In return, the government took about an 80 percent stake in AIG.

Since then, the government has provided additional rounds of support that now total $182.5 billion.

AIG has been selling assets, cutting costs and planning to spin off multiple operations to repay the government.

Aside from AIU Holdings, AIG has also said it would place two life-insurance subsidiaries – American International Assurance Co. and American Life Insurance Co. – into special-purpose vehicles ahead of planned spinoffs.

After setting up a special-purpose vehicle, AIG could still have the option of selling the operations to another investor or launching initial public offerings for shares in the businesses.

Although AIG could retain majority stakes in each of the spinoffs, separating the units allows them to create different management teams to operate the firms.

The spinoffs also allow AIG to separate the still-performing businesses from a parent company whose brand is likely hindering business.

Being able to rename some of the operations while cashing in a portion of their market value could help further stabilize business while paying off the government loan.

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In an article I read, Soros called credit default swaps as instruments of destruction. Below is part of the article:Soros said the asymmetry of risk and reward embedded in CDS exerted so much downward pressure on the bonds underlying the contracts that companies and financial institutions could be brought to their knees.

“Some derivatives ought not to be allowed to be traded at all. I have in mind credit default swaps. The more I’ve heard about them, the more I’ve realized they’re truly toxic,” he told a banking conference.

“CDS are instruments of destruction which ought to be outlawed,” Soros told a meeting of the Institute of International Finance, many of whose member banks and financial institutions are active participants in the huge CDS market.

Going short on bonds by purchasing a CDS contract carried limited risk but almost unlimited profit potential. By contrast, selling CDSs offered limited profit and practically unlimited risk, Soros said.

He said one financial institution that discovered to its cost the risk/reward distortions of CDS was insurer American International Group, which was a big seller of CDS, offering banks protection against a deterioration in their bond portfolios, especially mortgage-linked securities.

“AIG thought it was selling insurance on bonds and as such CDS were outrageously overpriced. In fact AIG was selling bear market warrants and it severely underestimated their value,” Soros said.

But the potential damage that CDS could do was not limited to financial firms, Soros added. He pointed to the bankruptcy of North America’s largest newsprint maker, AbitibiBowater Inc, and the pending bankruptcy of General Motors”In both cases, some bondholders owned CDS and they stood to gain more by bankruptcy than by reorganization.

“It’s like buying life insurance on someone else’s life and owning a license to kill,” he concluded.

Soros’ criticism echoes fellow investor Warren Buffet’s description of derivatives in 2003 as “financial weapons of mass destruction.”

On derivatives in general, Soros said they should be as strictly regulated as stocks.

He said derivatives should be standardized and saw no case for custom-made derivatives, which he said only increased the profit margins of the financiers who tailored them.

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Bank of East Asia has acquired the Taiwan securities arm of American International Group, the Economic Daily reported on Thursday, citing unnamed sources.

The acquisition indicates Bank of East Asia, Hong Kong’s fifth-largest lender, is interested in tapping the wealth management markets in Taiwan, China and Hong Kong, the paper said. It said the deal was worth “millions of dollars”.

AIG Wealth Management Services Ltd, the U.S. insurer’s securities arm in Taiwan, declined to comment on the report. Bank of East Asia was not immediately available for comment.

The acquisition, subject to regulatory approval by Taiwan, comes as troubled AIG is trying to shed its assets to help shore up its financial position. – Reuters

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