US insurance giant American International Group Inc (AIG) has announced the sale of its Asian arm to British insurer Prudential PLC, in another step to restructure its business.

The Asia-based AIA Group, the cornerstone of AIG's business, will change hands in a government-approved $35.5bn deal, in a bid to turn in profits and repay the government.

The sale to Prudential could reduce by nearly one-fifth the amount of federal bailout money still invested in the struggling AIG.

Officials and analysts say it remains unclear whether taxpayers will eventually recoup all the money AIG drew from a $182.5bn rescue package the US government committed to at the height of the 2008 credit crunch.

In return for that package, the government got a nearly 80 per cent stake in the insurer.

As of December 31, AIG had $129.3bn in outstanding government aid.

Cathy Seifert, an equity analyst at Standard & Poor's, said that she thinks the sale is the "appropriate decision".

"I think we are probably going to see a more streamlined, paired down company," she told AP Television.

"To the extent that that becomes more manageable from an operational risk control and financial perspective that's a good thing for everyone."

Doubts over debts

A treasury official working on the deal who spoke on condition of anonymity said it was not yet clear whether all the taxpayer money will be returned.

The AIA deal will give AIG $25bn in cash and $10.5bn in securities, with the cash portion going back to pay nearly 20 per cent of the almost $130bn in outstanding bailout funds.

Many analysts remain sceptical that all the funds AIG had taken from the government will be returned.

"It's probable we are not going to get our money back," Bill Bergman, a Morningstar analyst, told The Associated Press.

"There's a sense of lost confidence that has affected business operations as well as their value in the market place."

AIG's next key sale could be Nan Shan, a Taiwanese company.

AIG is expected to keep Chartis, its larger property and casualty insurance company; two additional Japanese life insurers, and a handful of smaller US-based companies.

They are very unlikely to be sold, according to a Treasury official, adding that after AIA, Alico and Nan Shan, the remaining pieces will likely be retained by "new AIG".

Key player

Following news of AIG's biggest asset sale since receiving multiple bailout packages from the government, US stocks rose on Monday with the Dow Jones industrial average rising 70 points in afternoon trading.

The AIA deal is expected to double the size of Prudential [EPA]

The AIA deal will turn Prudential into the world's biggest non-Chinese insurer by market capitalisation, ahead of major competitors Allianz and AXA, and grow into double its size.

The combined group will be the leading life insurer in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines, as well as the biggest foreign life insurer in China and India, Prudential said.

On Friday AIG reported a worse-than-expected fourth quarter net loss of $8.9bn, although the shortfall was nearly 10 times less than in 2008, when AIG recorded $99.2bn in losses.
 
Prudential, founded in 1848, currently has a market capitalisation of about $23bn.
 
Sales in Asia already make up half of new contracts for Prudential across a number of countries including China, India, Indonesia, Malaysia and Thailand.
 
The company also has a strong presence in Britain and the US.