Posted on 12 Jan 2011
Insurer American International Group Inc. (AIG) has agreed to sell its Taiwan unit to Ruentex Group for US$2.16 billion in its second attempt to exit the market and recoup money it owes the U.S. government.
The Ruentex Group, which owns interests in supermarkets, cement and finance, signed the deal with AIG, winning out over three financial holding companies from the island that were also competing to acquire AIG's Nan Shan Life Insurance Co. unit.
However, the buyers' relative lack of industry experience could raise concerns from Taiwan's financial regulator, which has to approve the deal and blocked an earlier sale of Nan Shan.
In a statement Wednesday, Taiwan's Financial Supervisory Commission said it would "cautiously review" the bid. The FSC has said previously that its approval of a potential deal will depend on whether a buyer has sound financing and insurance experience, will look after policyholders and staff, will make a long-term commitment to the company and can meet future funding needs.
AIG has been attempting to sell Nan Shan as part of a broad sale of assets to help repay taxpayers for its financial-crisis-era bailout.
"The participants in the consortium enjoy an excellent reputation in Taiwan," AIG President and Chief Executive Robert Benmosche said in a statement.
"Ruen Chen offers strong operational and funding capabilities and possesses a clear ability to satisfy the strict criteria that governed AIG's bid review process."
"It's a surprising outcome," said Sam Radwan, managing partner of Enhance International, a consultant focused on insurance in Taiwan and mainland China. "The FSC has always been clear as to what their requirements are."
The Ruentex Group bought a 20% stake in ING Groep NV's life-insurance unit in Taiwan in 1986 but sold its entire stake back to ING in 2001. One question regulators will want to consider is whether that ownership qualifies as operational experience, Mr. Radwan said.
Ruentex companies owns a 15% stake in SinoPac Financial Holdings Co., a medium-size financial conglomerate in Taiwan. Another consortium member, Pou Chen Corp., owns stakes in financial companies as well, including a mainland Chinese lender.
The consortium, through its new vehicle Ruen Chen Investment Holdings Ltd., has agreed to keep the current management team and the Nan Shan brand, AIG said. It will also maintain the existing compensation and benefits package for employees and the existing agency and commission structure for a minimum of two years.
Andrew Borodach, AIG's assistant general counsel, said at a news conference in Taipei on Wednesday that Nan Shan might also list on the Taiwan stock exchange, which would support the Taiwan insurer's capital base.
Other bidders for Nan Shan included Fubon Financial Holding Co., Cathay Financial Holding Co. and Chinatrust Financial Holding Co. People familiar with the matter said in December that the Ruentex consortium bid the most.
Members of the Ruentex consortium, which was advised by Citigroup Inc., include supermarket operator Ruentex Development and cement-and-chemical fiber maker Ruentex Industries, which are both owned by local businessman Samuel Yin. Footwear maker Pou Chen is controlled by C. J. Tsai, another local businessman.
In August, the FSC blocked Nan Shan's sale to a Hong Kong consortium for US$2.15 billion, citing concerns about the group's financial strength and commitment. One member of that consortium, private-equity firm Primus Financial Holdings Ltd., joined with new partners to bid in the latest auction.
Nan Shan's large customer base makes it attractive to local firms looking to secure a bigger share of the island's crowded insurance market. But the fact that a large proportion of Taiwanese already have coverage, and the large number of unprofitable policies sitting on the books of many insurers, have made foreign investors wary of the sector, and prompted a spate of exits. According to AIG, Nan Shan is the largest life insurer in Taiwan by total book value, with four million policyholders.