Going along with its asset-divestment strategy, American International Group Inc. ( AIG - Analyst Report ) has agreed to vend two of its sub-units – American General Indemnity Co. and American General Property Insurance Co.

Both units are part of AIG’s American General subsidiary and will be sold to White Mountains Solutions Holding Company of White Mountains Insurance Group Ltd. ( WTM - Snapshot Report ) for about $35 million, as announced by the latter. The deal is expected to culminate by the third quarter of 2012, subject to the fulfilment of the requisite regulatory approval and other closing conditions.

White Mountain Solutions primarily specializes in runoff acquisitions, wherein an insurance company ceases to write new policy and only manages the account until all the existing policies terminate.

Witnessing the dismal performance in both American General Indemnity and American General Property Insurance amidst the ongoing low-interest rate environment and sluggish capital markets, AIG had decided to runoff these businesses. Hence, AIG’s units appear to offer good business propositions for White Mountain Solutions since it well complements the latter’s operations.

We believe that AIG’s growth strategy to discard the redundant assets and focus on its core operations should pay the company in the long run. Moreover, the proceeds from the deal will also aid growth or support the government bailout loan repayment. AIG has repaid a chunk of the $182.3 billion loan that was taken from the US government to bailout itself in 2008.

However, the company is yet to achieve higher synergies from its core insurance business despite divesting redundant assets, as factors including volatile equity markets, widening credit spreads and reduced interest rates continue to showcase declines in the estimated future cash flows and persistently pressurize margins.

The company also has several litigations to deal with, which could further weigh on the financials. However, we expect the company to benefit from its scale of operations upon a healthy economic recovery.

Going ahead, liberation from government loan and focus on core operations should not only improve AIG’s financial leverage but also enhance its operating and competitive leverage against arch-rivals such as MetLife Inc. ( MET - Analyst Report ) and Prudential Financial Inc. ( PRU - Analyst Report ) . Currently, AIG carries Zacks Rank #1, which translates into a short-term Strong Buy rating.