AIG makes a move to list AIA

US-based insurance company American International Group (AIG) confirmed in a statement early Monday morning Hong Kong time that it has changed strategies with regard to its Asian life insurance unit, American International Assurance Company (AIA), and is now looking to position it as an independent entity with its own listing.

The listing will be subject to regulatory approval and will depend on market conditions, but the aim is to float the company on an Asian stock exchange, AIG said without specifying which stock exchange it may have in mind. The listing will result in AIA getting a separate management team and board of directors, it said.

"We continue to consider all strategic options through a robust, structured and disciplined process," AIG's chairman and CEO Edward Liddy said in a written statement, but then added: "At this stage, we believe that a public listing for AIA would be in the best interests of all stakeholders, including US taxpayers, policyholders, employees and distribution partners."

AIG's intentions were further underlined by the fact that it sent out requests for proposals to a number of investment banks yesterday, with the intention of selecting global coordinators and bookrunners for an initial public offering, which market participants suggest could take place in the fourth quarter of this year -- or perhaps in the first quarter of 2010.

In yesterday's statement, AIG said it has hired The Blackstone Group as a global financial adviser for its restructuring programme and as an IPO adviser for the AIA listing. AIG's share price jumped 6.4% in New York trading Monday following the announcement.

Market participants and media have been speculating about a possible IPO since AIG called off an earlier search for investors who would be willing to take over AIA through an M&A deal. Sources say there was some interest, but the company wasn't happy with the prices these potential buyers were willing to pay. Perhaps to make the IPO more attractive, AIG said it intends to incorporate the two AIA units in the Philippines and Taiwan into AIA before the spin-off. These two operate as separate entities and were also expected to be sold separately from the rest of AIA if there was to have been a trade sale.

AIG needs money to pay back the $182.5 billion the US government has extended to the firm since last year to bail it out of its financial troubles. In March, Liddy told a congressional panel that the company plans to repay the government in three to five years. 

Contrary to its US-based parent, AIA has weathered the financial crisis relatively well, and given the problems at the top of the group it should benefit from becoming an independent entity. Mark Wilson, AIA's president and CEO, noted in a written comment that the announcement sets out a "clear and formal roadmap" for the company's independence. "We now have clarity on AIA's structure and future," he added.

That may be, although AIG has said nothing about how much of AIA it intends to spin off and whether or not it intends to retain majority control.

AIA has a long history in Asia where it has operated for 90 years and currently has more than 20 million customers and 250,000 agents in the region. According to yesterday's statement it currently has more than $60 billion worth of assets, which makes it one of the largest life insurers in the region.

The IPO is likely to attract a lot of attention, not just because it could be one of the largest listings in Asia for some time, now that the number of mega-deals out of China has waned significantly, but also because of its well-diversified operations. The company is active in the region's developed markets in Australia, Hong Kong and Singapore, as well as in the strong growth markets of Taiwan and South Korea, and in the emerging markets in China, India and Southeast Asia and according to a banker, no other single life insurer gives access to all of that. And what's more, the company is among the top three players in each of these countries.

There is also a scarcity of listed life insurers in Asia at present, according to the banker, who counts only nine with a "meaningful" market capitalisation, including Chinese players such as Ping An and China Life Insurance, Singapore's Great Eastern, which is owned by OCBC, and Australia-listed AXA Asia Pacific. This should add further to the attraction offered by the region's strong insurance fundamentals, which according to the banker include low penetration rates, an aging population looking for added protection, and high savings rates, which suggest that people have money to put aside.

However, valuations, typically measured by a combination of embedded value and the perceived franchise value, are significantly higher in Asia than in other regions at about three times, versus about 0.5 time in Europe. While this is directly linked to expectations of higher growth and profits, it may make non-Asian investors somewhat cautious towards buying insurance stocks in this region - although a generous IPO discount could counter any such concerns.