AIG Hawaii, the state's third-largest automobile insurer, is being sold as part of a $1.9 billion deal as owner American International Group Inc. takes steps to repay some of the billions owed in government bailout money.

The deal announced yesterday involves Los Angeles-based Farmers Group Inc. buying AIG's auto insurance unit, a move that will expand Farmers into Hawai'i for the first time.

Yesterday Farmers Chief Executive Officer Robert Woudstra said that Farmers had no immediate plans to make any changes to AIG Hawaii's 310-person staff or operations.

"It's a good fit," Woudstra said from his Los Angeles office, explaining Farmers does not have any business in the state currently.

He said, however, the AIG Hawaii name will disappear.

"I can't tell you right now what we're going to call it, but the AIG name will have to go away."

AIG Hawaii had been contemplating a name change on its own given the stigma of being associated with its parent company, which had severe financial problems and needed a Federal Reserve-led rescue to avoid collapse last year.

In October, AIG put its auto group on the market as it looked for ways to pay off some of the bailout, which now totals about $182.5 billion.

AIG Hawaii President and Chief Executive Officer Robin Campaniano yesterday called the sale a positive development for the local unit. In 2008 AIG Hawaii's premiums written fell to about $100 million, about $18 million less than a year earlier.

Campaniano said some of the decline may have been due to clients departing because of the parent company's problems. A downturn in the Hawai'i economy contributed also.

"We're delighted that this is happening," said Campaniano.

"We're hopeful and very optimistic that the strength of Zurich and Farmers will greatly add to the presence we have in Hawai'i."

Farmers is owned by Zurich Financial Services Group, a Swiss company that serves customers in 170 countries and has business customers in Hawai'i.

AIG Hawaii insures about 100,000 cars in Hawai'i, along with offering homeowners, life, commercial and other insurance. Only Geico and State Farm insure more cars in the state.

Woudstra said he became familiar with the Hawai'i operations in examining AIG's business and that "it has performed exceedingly well for AIG."

"The only product that they write that we don't is flood (insurance)."

He said he had gotten good reports about Campaniano, with people saying nothing but positive things about his reputation.

The AIG automobile business was operated under a unit known as 21st Century Insurance Group, which owned AIG Hawaii as well as running operations in 28 other states. The sale will require the approval of state insurance commissioners.

Yesterday Hawai'i Insurance Commissioner J.P. Schmidt said he would closely look at the deal because of the role AIG Hawaii plays in the state.

"Farmers and Zurich are both good, solid companies, so that's a good thing," Schmidt said. "But we'll be looking at the details and specifics to ensure that the people of Hawai'i are taken care of in the best possible manner.

The sale may be completed this summer. Schmidt said he and other insurance commissioners had been working on a uniform application process so that the sale approval can be processed efficiently.