Posted on Sep 22, 2010 by Sergio Ulloa
Early reports indicate that Pudential Financial Incorporated is nearing a US$4-5 billion (EUR 3-3.8 billion) deal to take over two Japanese Life insurers from the American International Group Inc (AIG).
Japanese life insurance companies AIG Edision Life Insurance Co and AIG Star Life Insurance Co have been highlighted as possible acquisition targets for the Prudential Financial Incorporated in a deal which could generate up to US$5 billion (EUR 3.8 billion) for AIG. If concluded, the sale would provide a significant contribution towards repaying the US$182.3 billion (EUR 137.3 billion) AIG owes to US taxpayers for the bailout of the company in 2008 following the global collapse of financial markets. Along with other financial institutions, which received government bailouts, AIG received US$182.3 billion (EUR 137.3 billion) from the US government resulting in the company being nearly 80% owned by the US taxpayer.
Prudential is the second-biggest U.S. life insurer and has been present in the Japanese insurance market for more than twenty years. It has been looking to further strengthen their presence in this market following the takeover of bankrupted Yamato Life Insurance Co in May 2009 - which subsequently changed its name to Prudential Financial Japan Life Insurance. If Prudential do acquire the two Japanese life insurers, it will mean that they will increase their presence in the Japanese life insurance market and will utilize their considerable expertise in this industry.
Rumours have been circulating about the potential sale of AIG's two Japanese life insurance businesses as the US based company looks to create capital to repay the US government loan. Prudential Financial Inc has emerged as the front runner for the acquisition after suspected initial talks stalled earlier this year.
A buyer of the either of the Japanese life insurance companies would obtain a well established Japanese life insurance business. AIG Star Life Insurance Co Ltd provides life insurance coverage and retirement pension plans to individuals and group policyholders. AIG Edison Life Insurance operates as a subsidiary for American International Reinsurance Company Ltd providing life insurance services in Japan, with customers that include large corporations, unions and government agencies. If a takeover does go-ahead, it will see Prudential Financial Japan Life Insurance increasing their reach and life insurance product range in Japan.
AIG has been busy retrenching since the world financial crises took hold, while other rival insurers have been pursuing global expansion by re-positioning and entering new operating channels, as global financial markets stabilise and opportunities for restructuring emerge.
Earlier this year, AIG saw a potential deal worth US$2.15 billion (EUR 1.6 billion) blocked by the Financial Supervisory Commission (FSC) of Taiwan for the sale of the life insurance unit of AIF Taiwan by Primus Financial Holdings Ltd and China Strategic Holdings on the grounds of violation of investment regulations.
Recently American International Insurance (AIA), the Asian arm of AIG, entered into an agreement with Industrial and Commercial Bank of China (ICBC) to form a bancassurance partnership in China to develop a network for sales, marketing, telemarketing and wealth protection services in a deal which will strengthen AIG's network in this fast growing economy.
There are also early reports that AIG Group Ltd has received approval to list Asian life insurance business American International Assurance (AIA) on the Hong Kong Stock Exchange (HKEX), which could generate up to US$15 million (EUR 11.3 million) from IPOs (Initial public offerings). AIG has progressed to the floatation on the HKEX after the collapse of the US$35.5 billion (EUR 26.7 billion) deal with Prudential earlier this year, which would have seen the British insurer acquiring AIA from AIG. AIG has sought numerous avenues to generate capital to pay back the Group's US$182.3 billion (EUR 137.3 billion) debt to the US taxpayer after the government bailout in 2008.
In June 2010, the Life Insurance Association of Japan (LIAJ) reported that there were 47 life insurance companies operating in Japan with the main firms being: AIRIO, Midori, Lifenet, SBI AXA Life, Japan Post (Kampo), Hartford Life, ALICO Japan, ING, Manulife, AIG Edison and AIG Star. The Japanese insurance market experienced a premium decline of roughly 58% in 2008, although, in 2006, the total premium income generated in this market amounted to US$363 billion (EUR 273.2 billion) - which was nearly one-sixth of the total world life insurance premium income for the year. The Japanese life insurance market is now facing stiff competition from China and Indian markets; Japan has the oldest age profile population in the world and a declining young population, which has lead to a fall in life insurance customers.
Insurance Companies Mentioned:
The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.
AIG Star Life Insurance
AIG Star Life Insurance Co. Ltd. is involved in providing life insurance coverage and retirement pension plans to the individual and group policyholders.
AIG Edison Life Insurance
AIG Edison Life Insurance Company provides life insurance services in Japan. AIG Edison Life Insurance has 8,000 sales agents and 17 bancassurance partners in Japan. The company is also providing new distribution channels for AIG which includes, corporation, unions and government agencies
AIA is a Hong Kong-based life insurance company doing business across Asia that has been in business since 1919. They service over 20 million policies through 23,000 employees and 300,000 agents throughout markets in Asia, including; Vietnam, Thailand, Taiwan, South Korea, Singapore, Philippines, New Zealand, Malaysia, Macau, Indonesia, India, Hong Kong, Mainland China, Brunei and Australia.