American International Group Inc. said it reached an agreement to sell its American Life Insurance Co. (Alico) to MetLife Inc. for about $15.5 billion.

Consideration includes $6.8 billion in cash, with the rest in the form of equity securities in MetLife (NYSE: MET), subject to closing adjustments.

AIG (NYSE: AIG) said the cash will be used to reduce the liquidation preference of the Federal Reserve Bank of New York in the special-purpose vehicle formed by AIG and the Fed to hold the interests in Alico.

"This sale is an important step toward repaying the government," said AIG Chairman Harvey Golub in a statement. "Alico is a unique international life insurer, and we view this as a terrific combination that will further enhance the company's potential over the long term."

Golub said the Alico sale, combined with the announced deal to sell AIA Group to the United Kingdom's Prudential plc, will generate $50.7 billion, including $31.5 billion in cash that will be used to repay the New York Fed. Another $19.2 billion in securities will be sold by AIG over time to repay the government as well.

"In addition, both sales give AIG greater flexibility to move forward with our restructuring and rebuilding efforts, and focus on enhancing the value of our key insurance businesses," said Golub.

AIG said the transaction has been approved by the board of both MetLife and AIG, and is expected to close by the end of this year. The transaction is subject to domestic and international regulatory approvals.

Founded in 1921, Alico has 12,500 employees in more than 50 countries, and 20 million customers worldwide.

Last week, AIG also announced a plan to sell its 13.8% interest in reinsurer Transatlantic Holdings Inc. AIG said it would sell in a public offering the remaining 9.2 million shares of Transatlantic (NYSE: TRH) owned by American Home Assurance Co., an AIG subsidiary (BestWire, March 5, 2010).

AIG has been selling assets to repay the federal government, which offered up to $182 billion to bailout AIG in the fall of 2008, when the company nearly fell into bankruptcy because of collateral payments tied to credit default swap contracts (BestWire, June 8, 2009).

Metropolitan Life Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior). A month ago, A.M. Best Co. placed the financial strength ratings and issuer credit ratings of the life/health and property/casualty insurance subsidiaries of MetLife under review with negative implications, and placed the issuer credit ratings of MetLife under review with negative implications. Those actions reflected MetLife’s public comments at the time that it was in discussions with AIG over the potential acquisition of Alico (BestWire, Feb. 9, 2010).

At the same time, A.M. Best placed the financial strength rating of A (Excellent) and issuer credit rating of "a" of Alico under review with positive implications due to the same developements.

(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com)