Japan Insurers, QBE Seen Eyeing AIG Assets; China Less Likely

By Tony Munroe | September 17, 2008

Japan’s well-capitalized and acquisitive insurers and Australia’s top player are seen as potential buyers if reeling U.S. heavyweight AIG sells assets, analysts and fund managers said.

However, China’s ambitious insurers are expected to be more cautious given market turmoil at home, industry watchers said.

American International Group, once the world’s most valuable insurer, was rescued from potential bankruptcy late on Tuesday when the U.S. Federal Reserve agreed to lend it up to $85 billion over two years in exchange for a near 80 percent stake.

Given the hefty interest rate on the loan — 850 basis points over LIBOR — AIG is under pressure to offload assets, such as its huge aircraft leasing business.

It was not immediately clear if insurance businesses might come up for sale, although the Wall Street Journal reported earlier this week that AIG, which operates in more than 100 countries, might sell Transatlantic Holdings, its New York-listed reinsurance group. Swiss Re and Munich Re have been mentioned as potential buyers.

Analysts also said Canadian life insurance company Manulife Financial Corp would be interested in some of AIG’s businesses.

Japanese insurers, looking to grow beyond a stagnant home market, have been acquirers of late and continue to keep their eyes open for deals.

“It’s a no-brainer,” said CLSA analyst Yuin Lim in Hong Kong. “If you have a non-growing mature market, excessive capital, you have a big war chest there.”

In July, Tokio Marine Holdings agreed to pay $4.7 billion for property insurer Philadelphia Consolidated Holding Corp. Tokio Marine had earlier purchased Lloyd’s insurer Kiln Ltd. for £442 million ($789 million).

In another sign of the Japanese industry’s outward focus, Nippon Life Insurance said in August it would raise 50 billion yen ($474 million) to strengthen its capital and invest abroad.

However, Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, said potential Japanese buyers were unlikely to emerge in the near-term. “I think it would take quite some time to split up AIG and sell it off, considering the due diligence. This is a company that’s had a financial crisis,” he said.

AUSTRALIA, CHINA
In Australia, industry leader QBE Insurance Group Ltd, rebuffed in a bid earlier this year for local rival Insurance Australia Group, is the likeliest buyer of AIG assets that might come up for sale, a fund manager said.

“The only one likely to show up as interested is QBE. AIG is a vast organization with bits throughout the world, there certainly would be bits that QBE would be interested in,” said Mark Nathan, portfolio manager at Fortis Investment Partners.

While China’s big state run financial firms have bought significant minority stakes in western peers, Beijing has become gun-shy recently as overseas acquisitions rack up paper losses and domestic markets swoon.

The Shanghai Composite Index is off 63 percent this year, eroding investment profits at big players China Life Insurance, Ping An Insurance and PICC Property & Casualty, which is 9.9 percent owned by AIG.

“It’s not likely for Chinese insurers to acquire AIG’s overseas businesses,” said Gong Jinping, analyst at China Merchant Securities.

China Life has expressed interest in investments abroad but said recently it needs to be cautious given global uncertainty.

Ping An bought 5 percent of Belgian-Dutch financial group Fortis for $2.67 billion last year. But its $3.33 billion deal for half of Fortis’ asset management unit has had its approval delayed by Beijing, according to Fortis.

“For one thing, it’s too risky to buy overseas assets now. On the other hand, Chinese insurers themselves are suffering from weakening repayment abilities and don’t have enough capital for big acquisitions,” Gong said.

(US$1-105.54 yen=0.5599 pound) (Additional reporting by David Dolan in TOKYO, Mette Fraende in SYDNEY, Samuel Shen and Heorge Chen in SHANGHAI and Kirby Chien in Beijing; Editing by Louise Heavens)

Was this article valuable?

Here are more articles you may enjoy.