NEW YORK - American International Group Inc (AIG), whose history in insurance spans 90 years from a Shanghai start-up to the biggest US bailout, is swapping its roots in Asia for cash as rivals seek to expand beyond shrinking markets.
AIG's planned $35.5 billion sale of Hong Kong-based AIA Group Ltd to the UK's Prudential Plc, announced this week, comes as the firm negotiates with MetLife Inc on the disposal of its No 2 overseas life insurer. The divestment of smaller units may follow, drawing interest from rivals seeking Asian growth like Prudential Financial Inc of the US and Axa SA and Allianz SE, said Randy Binner, an analyst with FBR Capital Markets.
"The Asian market is higher growth, and I think that's very much reflected in the price that they're paying for this property," Douglas Meyer, a Fitch insurance analyst, said of London-based Prudential's AIA deal. The AIG units "are fairly unique properties in terms of the scale of their businesses there, and those just don't exist elsewhere."
The US life-insurance market contracted 15 percent last year amid the economic slump, prompting carriers to seek growth elsewhere.
They're trying to tap into rising demand in Asia, where increasing affluence will help drive 40 percent of global life insurance premium growth over five years, according to a 2009 study by McKinsey & Co.
That's a boon to AIG Chief Executive Officer Robert Benmosche as he sells pieces of what was once the world's largest insurer to repay a government rescue. With the AIA deal, he's handing Prudential a franchise ranked first in Hong Kong, Thailand and Singapore, according to Citigroup Inc, an adviser to AIG. By combining AIA with existing operations, Prudential will become the No 8 carrier in China, Citigroup said.
'Strong presence'
AIA has "a very good presence in Hong Kong and Thailand," said Phil Leung, the Shanghai-based head of mergers and acquisitions for Bain & Co in China. "Most importantly, they have a very strong presence in China."
China's insurance market, which was the world's sixth largest in 2008, expanded by an average 30 percent annually since 1978 to 1.1 trillion yuan ($161 billion) last year.
The life insurance market alone may grow to as much as $275 billion in gross premiums by 2015, making it at least the fifth largest, according to McKinsey.
"The biggest bang for the buck is going to be India and China," said Wayne Dalton, an analyst with SNL Financial. "The reason for that is because of scale."
MetLife's negotiations for AIG's American Life Insurance Co may lead to a deal valued at $15 billion, people with knowledge of the matter have said. Including AIA, AIG has struck deals to raise more than $47 billion selling assets since September 2008 when it was rescued by the US. The New York-based insurer's bailout is valued at $182.3 billion.
Interest from rival life insurers and the success of the AIA deal may entice AIG into bringing two more Asian units back to the market, Binner of FBR said. In October, Benmosche dropped plans to sell AIG Star Life Insurance Co and AIG Edison Life Insurance Co, saying the two units had more value under AIG.
"When AIG says, 'Well those are no longer for sale,' you have to infer that as part of the negotiation process," Binner said. "If they're really going to get rid of AIA and Alico, it seems less plausible that they're going to keep Star and Edison."
Life insurance expanded by 14 percent in emerging markets in 2008, led by growth in South and East Asia, compared with a 7.8 percent decline in industrialized countries, Swiss Reinsurance Co said in a December report. While the region is poised for further growth, "intense competition" is weighing on profits, Yvette Essen, an analyst at AM Best Co, said in a report on both life and property-casualty sales.
Need to improve
"We need to improve the exposure to emerging markets," Axa CEO Henri de Castries said in last month.
Emmanuel Touzeau, spokesman for Paris-based Axa, declined to comment. Michael Matern, a spokesman for Munich-based Allianz and Bob DeFillippo of Newark, New Jersey-based Prudential Financial declined to comment.
Aflac Inc, the world's biggest seller of supplemental health insurance, has no plans to join the hunt for large acquisitions, CEO Dan Amos said in an interview. Insurers, whose capital declined as stock markets slid in 2008, need to conserve funds in case of further dips, he said.
"I don't think we're in acquisition mode," Amos said. "The issue out there is preservation of capital."
MetLife, the biggest US life insurer, is seeking to add to an international presence that it boosted with the 2005 purchase of Travelers Life & Annuity from Citigroup for more than $11 billion. Axa, Prudential Financial and New York-based MetLife each reported higher levels of capital after markets rebounded.
"In developing insurance markets around the world, the growth rates are, on average, twice what the growth rates in the US are," MetLife Chief Financial Officer William Wheeler said in September 2008.
Bloomberg News
