Houston Firm Stuns Holders, Goes on Block : Insurance: American General, the nation’s fourth-largest insurer, acted to foil Torchmark’s lower offer. Bidding may reach $7 billion.

HOUSTON — American General Corp. stunned shareholders and one suitor Wednesday by putting itself up for sale, in an auction expected to fetch $7 billion for the nation’s fourth-largest insurance company.

The company’s stock price jumped sharply higher after the announcement at American General’s annual shareholders meeting, where the anticipated event had been a showdown with hostile suitor Torchmark Corp.

Harold S. Hook, American General’s chairman, said the company decided to put itself up for auction because it was vulnerable to a possible takeover at a discount price and wanted to realize the maximum value for its stockholders.

American General stock finished up $7.50 at $47.625 a share as the most actively traded issue on the New York Stock Exchange.

Company officials and analysts said they expected the bidding for American General to reach about $7 billion, or more than $55 per share.

Birmingham, Ala.-based Torchmark had made an unsolicited $6.34-billion, or $50 per share, cash and stock buyout offer for American General in March. But Torchmark later withdrew the offer, opting instead to wage a proxy fight to elect its own five nominees to the 15-member board.

Since then each company has been vigorously urging shareholders to support its board nominees.