AIG Hawaii, the third-largest writer of automobile policies in the state, and 21st Century Insurance Group on the mainland have been sold to Farmers Group Inc. in a cash-and-stock deal worth $1.9 billion.

Zurich Financial Services Group, parent company of Farmers, said the deal to buy American International Group Inc.'s U.S. auto insurance business is subject to regulatory approval and is expected to close no later than the third quarter.

AIG Hawaii President Robin Campaniano said he thinks the deal will be positive for both employees and customers in the state.

“;The Farmers Group has a reputation of being very strong financially and also has a reputation of being a very solid player,”; Campaniano said. “;It's a great brand and has been around for, perhaps, 50 years.”;

AIG Hawaii has 310 employees statewide and 65,000 auto insurance customers representing about 100,000 cars. The company ranks third in market share in the state behind GEICO and State Farm.

“;My sense is that as policies renew sometime in the future, we will roll them into our new company,”; Campaniano said. “;In the near term, our customers will be relatively unaffected by the change in ownership. In the long term, we will be issuing policies as part of a strong and very reputable company.”;

New York-based AIG has been selling off a number of business units to help repay $182.5 billion in financial support from the government that it has received since September. The company also has taken a lot of heat for bonuses it paid to employees while it was in financial straits.

“;Obviously, since it is going to be owned by Farmers Group, we're not going to be part of AIG any longer,”; Campaniano said. “;So it's more than just changing the name. We have a different ownership situation, so whatever adverse publicity, whatever stigma there may be with the mainland AIG, we're going to look forward to being divorced from that part.”;

AIG Hawaii generated $100 million of written premiums in 2008 after recording about $118 million in sales in 2007.

“;The financial problems of AIG were more or less limited to the financial services division of AIG and not the insurance division,”; Campaniano said.

Hawaii Insurance Division Commissioner J.P. Schmidt said he already has been in contact with other insurance commissions to set up a process to make any kind of transfer “;as smooth and efficient”; as possible.

“;This appears to be good news,”; Schmidt said. “;Zurich and Farmers are good, solid companies. This will enable AIG Hawaii to move on and, hopefully, continue to provide service to the people in Hawaii.”;

AIG Hawaii, which primarily offers auto policies, also provides homeowners' insurance, umbrella policies, workers' compensation, commercial auto insurance and temporary disability insurance.

Under terms of the agreement, Los Angeles-based Farmers Group will pay $1.5 billion in cash and $400 million in subordinated, euro-dominated capital notes backed by Zurich Insurance Co., AIG said. Farmers also will assume 21st Century's outstanding debt of $100 million.