NEW YORK—American International Group Inc. will be better able to focus on its core businesses, including its property/casualty operations, with the sale of two major noncore assets behind it, observers say.

AIG last week said it agreed to sell American Life Insurance Co. to MetLife Inc. for $15.5 billion. The ALICO deal, along with last month's agreement to sell AIA Group Ltd. to Prudential P.L.C. for $35.5 billion, will go a long way toward repaying the New York-based insurer's federal debt, observers say.

Observers note that the life insurance units are two of the three biggest noncore assets that AIG is expected to sell. The third—Los Angeles-based airplane leasing unit International Lease Finance Corp.—is likely to be sold either whole, as the economy improves, or piecemeal, observers say (see story, page 20).

AIG has been selling off operations to repay the governments' September 2008 financial bailout. AIG plans to retain its core units, which include property/casualty insurer Chartis Inc. and domestic life insurance and retirement services unit SunAmerica Financial Group.

The $15.5 billion ALICO deal includes $6.8 billion in cash with the rest in MetLife equity securities, according to AIG. The cash portion of the sale proceeds will be used to redeem preferred interests in ALICO that are owned by the Federal Reserve Bank of New York.

As part of the deal, AIG and the New York Fed reached a five-year agreement on ALICO's slightly more than $1 billion portfolio of Japanese commercial mortgages, which was a “more troubled asset class” for AIG, MetLife Chief Financial officer William Wheeler said during an analyst call last week.

Under the agreement, MetLife will be responsible for the first $100 million of losses in the portfolio. Then, “we and the ALICO special-purpose vehicle,” which is controlled by AIG and the New York Fed, “will share losses over and above that amount,” Mr. Wheeler said. While the agreement covers the full amount of the mortgages' face value, “they're not going to get wiped out,” he said of the mortgages.

AIG said with AIA Group and ALICO deals combined, it is on track to generate about $50.7 billion, which consists of $31.5 billion in cash to repay the Federal Reserve and another $19.2 billion in securities it will sell over time to repay the government, after completion of agreed-upon minimum holding periods.

Also last week, AIG conducted a secondary public offering of its remaining 9.2 million shares of Transatlantic Holdings Inc. for $53.35 per share, or possible gross proceeds of $490.4 million. The sale of the shares, which account for about 13.8% of Transatlantic's common shares, came after AIG's secondary public offering of 29.9 million common shares in June 2009 that brought AIG about $1.1 billion.

Including the June Transatlantic stock sale, gross proceeds of asset sales aside from the ALICO and AIA Group deals total more than $10 billion in cases where financial information was disclosed.

According to AIG's 2009 10-K, as of Dec. 31 AIG had a remaining balance of $94.76 billion to repay of the $182.3 billion government bailout package.

Clark Troy, Chapel Hill, N.C.-based senior analyst with the Aite Group L.L.C., a research and consulting firm, reacted positively to the sale. “I don't see any particular downside from AIG's perspective” to the ALICO deal. “They are acquiring a large chunk of MetLife and they do continue to have skin in the game” with the MetLife stock, he said.

Stewart Johnson, a portfolio manager with Stamford, Conn.-based investment bank Philo Smith & Co., said it appears AIG President and CEO Robert M. Benmosche's “strategy to end the fire sale and wait for more reasonable prices may be starting to pay off. It could probably be argued that Met got a decent deal for ALICO, but it's by no means a fire sale price.”

He added, “Bob Benmosche used to be the CEO of Met. It certainly looks like he had the phone number of the right person to get the deal done.”

Mr. Benmosche was not personally involved in the negotiations, AIG confirmed.

Cathy Seifert, an equities analyst with Standard & Poor's Corp. in New York, said the ALICO deal has “earned AIG a lot of credibility in the eyes of the government to be able to pay off a significant amount of their obligation to the government.” It is “good for the company, and I think that it's good for the company's relationships with Washington,” she said.

“It's another step in the right direction of paying back the taxpayer,” said Bill Bergman, an analyst with Morningstar Inc. in Chicago.

While observers say the next major deal could involve ILFC, John L. Ward, CEO of Cincinnati-based Cincinnatus Partners L.L.C. said, “I would not be surprised if there was a break in the action while they regroup and recalibrate their strategy.”

Mr. Ward said, “There's still a lot of work to make sure both of these deals close and get through the regulatory hurdles and then...AIG will take a fresh look at their divestiture strategy.”

Mark Rouck, a Chicago-based analyst with Fitch Ratings, said AIG's next big cash generators could be the sale of $19.2 billion in Prudential and MetLife securities that AIG acquired with the AIA and ALICO deals, which it plans to sell over time.

Mr. Ward said if those holdings remain strong and appreciate in value, they alone would be “tremendous upside opportunities for AIG, which is only enhanced by waiting out the full recovery of the capital markets.”

Observers say the deals enable AIG to better focus on its core Chartis Inc. property/casualty insurance business.

AIG “needs to be focused on the health of the underlying businesses, the businesses they intend to keep,” including Chartis, S&P's Ms. Seifert said.

Chartis also needs “to adjust to a somewhat smaller premium volume than what they generated historically,” said Bruce Ballentine, a vp with Moody's Investors Service in New York.