Published January 23, 2009

AIG looks to sell chunk of AIA

Group aims to raise US$20b to repay govt loan: report

By GENEVIEVE CUA

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(SINGAPORE) Troubled insurer AIG has taken the first steps to sell off its Asian life insurance operations - which it has described as its 'crown jewels'.

The Financial Times reported that the group aims to raise US$20 billion through the sale to help repay a US$60 billion loan from the US government to save it from bankruptcy.

FT said sales memorandum for AIA with limited information has been sent to some potential bidders. First round bids are expected towards the end of next month. The prospective bidders reportedly include China Life, HSBC, Prudential plc, US-based Prudential Financial, and German insurer Allianz.

AIG will sell off a minority stake, which according to FT will be up to 49 per cent. An AIA spokesperson in Hong Kong said: 'AIG remains focused on inviting strategic investor(s) to take a minority interest in AIA. The divestment is being conducted in a smart, disciplined and competitive process.

'There is no intention to sell AIA on a piecemeal basis. We are tracking our timetable. AIG will choose investors with the best strategic fit for AIA as we anticipate working closely with future partners to continue to grow the business.'

FT's report, however, said AIG would be willing to look at offers for the entire business, and not just for a minority stake. It also said any interested bidder will have to prove it can finance the acquisition.

The sale is taking place in an extremely challenging environment when credit has almost dried up and potential bidders' balance sheets are also strained. The issue of valuation is a challenge as well, as life insurance is a long term business where interest rate and investment return assumptions are key.

AIG teetered on the brink of insolvency last September due to rising losses from guarantees it extended on mortgage derivatives. The news shocked scores of Singapore policyholders who thronged the office here to cancel policies.

AIG first secured a US$85 billion loan from US government in September. The rescue package was restructured in November to total about US$150 billion, giving AIG a lower interest rate and more time to repay a US$60 billion loan.

Hong Kong executives had earlier reassured policyholders here that the Asian life insurance business would not be sold. That was before the immensity of AIG's losses came to light.

The AIA group in Asia has over 20 million policyholders, 200,000 agents and about 20,000 employees in 15 markets. The group reported operating income of US$2 billion in 2007.