Insurance mega-giant American International Group (NYSE:AIG) and General Electric (NYSE:GE) have announced that AIG will buy the GE Edison Life Insurance Company in Japan and GE's U.S.-based auto and home insurance business for between $2.1 billion and $2.2 billion, depending on the closing date. GE said it will take a pre-closing dividend of $440 million.

GE Edison joins AIG's existing Star Life and ALICO Japan businesses in Japan to strengthen AIG's hand in the world's No. 2 insurance market, where it will climb from eighth to sixth in annual life insurance premiums. Japanese insurers' financial woes have led to consolidation, and AIG obtained Star Life from belly-up Chiyoda Mutual Life Insurance Company in 2000. GE itself started GE Edison as a joint venture in 1998 with Toho Mutual Life, which failed a year later.

Last July, GE set up GE Insurance to include its Employers Re reinsurance business and other insurance operations, and has been reorganizing with an eye to its golden rule: to compete only in businesses where it can be No. 1 or 2. According to reports, GE CEO Jeffrey Immelt told analysts last month that his company would look to divest a number of insurance units. GE Edison is not even in the top 10 in Japan, so the move is a natural part of GE's Darwinian culture.

AIG already has a leg up in China, the other key Asian market where, according to the Insurance Journal, the company began operations in 1975 and obtained its first license in 1992.

AIG and GE are two of the top 10 most widely held stocks in U.S. portfolios. But before buying, selling, or holding either AIG or GE, investors need to ask a few questions. Consider Bill Mann's skeptical look at AIG executive compensation and cozy board relationships and determine whether there has been improvement, and also examine his critical view of GE's pension liabilities.

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