AIG to Sell Japan Life Units to Prudential (U.S.) for $4.8 Billion

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American International Group said Thursday it will sell its two Japanese life insurance units to Prudential Financial Inc for $4.8 billion, marking another step in its efforts to repay U.S. taxpayers.

The sale of AIG Star Life Insurance Co Ltd and AIG Edison Life Insurance Company comprises $4.2 billion in cash and $0.6 billion in the assumption of third-party debt, AIG said in a statement.

The deal will make Prudential the biggest foreign life insurer in Japan and should give it enough scale to take on domestic firms that still dominate the world’s second biggest life insurance market.

“The acquisitions of the two companies will strengthen Prudential’s client base in Japan. This could be a threat to domestic life insurers and other foreign insurers here,” said Kenji Kawada, a director at credit rating company Fitch Ratings.

The Japanese market is mature but still offers growth potential due to its demographic profile, analysts say.

Nearly a quarter of all Japanese are already over 65 and with a tsunami of baby boomers heading into retirement the ranks of retirees is swelling and with it demand for medical insurance and pension planning.

“There’s this feeling that the Japanese market is completely dead and it certainly is very mature from a traditional life insurer perspective,” said Makarim Salman, an insurance industry analyst at Macquarie Securities in Tokyo.

“But an ageing population leads to potential growth in terms of medical and savings provisions and that’s the angle I think they’re approaching it from,” added Salman.

AIG said it will retain and continue to grow its general insurance business in Japan.

AIG expects to take a non-cash pretax goodwill impairment charge of about $1.2 billion in the third quarter.

The sale marks progress for AIG in disentangling itself from the U.S. government, although it still has a long way to go before the taxpayers get paid back in full for their $182.3 billion rescue package.

(Reporting by Chikafumi Hodo, James Topham, Junko Fujita in Japan, Sakthi Prasad in Bangalore; Editing by Muralikumar Anantharaman and Nathan Layne)