AIG Unit's Fate Hangs in the Balance - Analyst Blog

Taiwan's financial regulator has set five conditions for the American International Group Inc.'s (AIG) Nan Shan deal, according to Reuters. The Financial Supervisory Commission (FSC) is expected to give a report to Taiwan's parliament this Thursday.

Last October, AIG agreed to sell its Taiwan life insurance company, Nan Shan Life, to China Strategic and Hong Kong-based financial services firm Primus Financial. Nan Shan has a third position by market share in Taiwan and has more than 4 million policyholders.

However, the deal raised a politically sensitive issue. There was concern in Taiwan that the buyers are supported by funds from China. In February of this year, Taiwan's foreign investment regulator said that it would look for talks in the Parliament over the deal.

Though China and Taiwan have been political enemies for a long time, diplomatic relations improved after Taiwanese President Ma Ying-jeou took office in 2008. However, Taiwan is still hesitant of opening up its major industries such as the financial services to investors from China.

As per the report, the conditions include guaranteeing that the funding sources of the buyers adhere to Taiwanese regulations. Additionally, the buyers need to have the ability to raise money for future business needs. The buyer must also have experience in operating an insurance business and should be committed to Nan Shan for the long term.

The FSC will have the final say about the Nan Shan deal after considering the parliament's views.

In a separate development, AIG had announced yesterday the pricing of the secondary public offering of its remaining shares in Transatlantic Holdings Inc. (TRH). The offering of 8,466,693 shares of Transatlantic’s common stock owned by American Home Assurance Company (AHAC), a subsidiary of AIG, was priced at a public offering price of $53.35 per share.

Goldman Sachs Group Inc. (GS), Wells Fargo Securities of Wells Fargo & Company (WFC) and BofA Merrill Lynch, a part of Bank of America (BAC), the underwriters of the offering, have a 30-day option to purchase up to an additional 725,969 shares of Transatlantic common stock from AHAC. The underwriters have entered into an agreement under which TRH will purchase 2 million of the shares owned by AHAC in the offering.

AIG, which received federal support worth $182.5 billion, has been trying to sell assets and streamline its operations for the past several quarters in an effort to repay the bailout money.

AIG announced two deals in March. It will sell its American Life Insurance Co. (ALICO) unit for about $15.5 billion to MetLife Inc. (MET). MetLife will pay $6.8 billion in cash and approximately $8.7 billion in MetLife equity securities, subject to closing adjustments.

Last week, the company also announced the sale of its Asian life-insurance unit, American International Assurance (AIA) to the U.K.'s Prudential Plc (PUK) for about $35.5 billion.

With the improvement in the capital market, AIG is expected to experience a recovery in the value of its investments. However, the soft insurance market conditions continue to pose a significant challenge for the company's core property/casualty operating subsidiaries.

However, we believe that the other issues that have to be dealt with immediately to help revive AIG are improving overall managerial efficiency and inspiring confidence among the dejected staff. Though the company stands to benefit from its scale of operations and the equity market appreciation, we remain concerned about its significant exposure to risky assets.

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Read the full analyst report on "MET"
Read the full analyst report on "PUK"
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