Bid lifts shares of 21st Century

Shares of 21st Century Insurance Group, the car insurer majority-owned by American International Group Inc., surged 26% on Thursday as investors bet that AIG would have to raise its $690-million offer for the rest of the company.

The stock climbed $4.34 to $20.93, higher than AIG’s offer of $19.75 a share. The world’s largest insurer already owns 61.9% of the Woodland Hills-based company. Shares of AIG fell 99 cents to $68.89, their biggest drop since August.

“They’re expecting that a counter-bid might come in and AIG would be forced to raise its own bid,” said Meyer Shields, an analyst at Baltimore-based Stifel Nicolaus & Co. He raised his rating on the stock to “hold” from “sell.”

Companies are competing for a bigger slice of the $160 billion in annual premiums from auto insurance as accident rates and claims fall. 21st Century insures more than 1.5 million cars and operates in 17 states, according to its website.

New York-based AIG announced the offer after the close of regular trading Wednesday. The company proposed that an agreement be negotiated and approved by a special committee of 21st Century board members who are independent of AIG.

A special committee consisting of 21st Century’s independent and outside directors will review the offer, 21st Century said in a statement.

“It’s premature to talk about anything regarding the offer because the ball is in the company’s court,” AIG spokesman Chris Winans said.