British insurer Prudential said on Monday it was in “advanced” talks to purchase AIA, the Asian arm of United States insurance giant AIG, in a deal that would create the biggest insurer in south-east Asia.
“The board of Prudential notes the recent press speculation regarding a possible transaction involving AIA Group Limited,” the London-listed group said in an official statement.
“Prudential confirms that it is in advanced discussions with AIG regarding a possible combination of its business with that of AIA.”
The statement gave no mention of the possible price that Prudential was willing to pay for AIA.
“As part of Prudential’s continued focus on its Asian growth strategy, the business continually reviews opportunities for expansion,” it added.
“AIA represents a unique and strategically compelling opportunity for Prudential and AIA to create the leading insurer in South-East Asia.”
A source close to the deal revealed late on Sunday that AIG had agreed to sell its Asian division to Prudential for about $35-billion.
The deal will transform Prudential into the world’s top non-Chinese insurer by market capitalisation, ahead of major competitors Allianz and AXA.
“There can be no certainty that these discussions will lead to any agreement or as to the terms or timing of any such agreement,” Prudential said on Monday.
Prudential stepped in as AIG was planning an initial public offering for its Asian arm in Hong Kong in April.
Estimates had valued the market flotation at about $10-billion, which would have been the largest on global markets this year.
AIG was forced into giving up some of its assets after the company’s near collapse in the depths of the financial crisis led the US government to hand it a bailout of about $180-billion.
In 2008, the firm tried to sell up to 49% of AIA through an auction process but had to drop the plan after failing to receive suitable offers. The company then turned to consideration of an initial public offering.
The Wall Street Journal reported that some of the proceeds from the sale of AIA to Prudential were already earmarked for US government coffers.
Unable to meet its obligations
AIG on Friday reported a worse-than-expected fourth quarter net loss of $8,9-billion dollars, although the shortfall was nearly 10 times less than in 2008, when AIG recorded $99,2-billion in losses.
Prudential will be transformed by the deal to buy AIA, which will double its size. The company, founded in 1848, currently has a market capitalisation of about $23-billion.
Sales in Asia already make up half of new contracts for Prudential across a number of countries including China, India, Indonesia, Malaysia and Thailand. The company also has a strong presence in Britain and the United States.
AIG almost went under in September 2008, unable to meet its obligations for contracts written to insure mortgage securities and related assets without sufficient capital.
The Federal Reserve, fearing a shock to the global financial system in the event of an AIG default, provided a loan of $85-billion to AIG in September 2008 in what would be the first portion of the gigantic bailout.
AIG generated fresh controversy at the start of February when it revealed plans to pay $100-million in bonuses — a year after similar payments ignited a political firestorm. — AFP