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February 9, 2011updated 13 Apr 2017 8:50am

AIG’s restructuring takes major steps forward

In another important step in its restructuring, American International Group (AIG) is to sell its 97.57% stake in its Taiwan unit, Nan Shan Life, to Ruen Chen Investment Holding Company for $2.16bn cash

By LII editorial

Chart showing recent major transactions of the American International GroupIn another important step in its restructuring, American International Group (AIG) is to sell its 97.57% stake in its Taiwan unit, Nan Shan Life, to Ruen Chen Investment Holding Company for $2.16bn cash.

Ruen Chen faced opposing bids from Taiwanese companies such as Fubon Financial, Chinatrust Financial and Cathay Financial. Ruen Chen is 80% owned by Taiwan construction and wholesale products conglomerate Ruentex Group, with footwear manufacturer Pou Chen owning the balance.

The deal is subject to regulatory approval which in this instance holds far more significance than normal.

In August 2010, the Taiwan Financial Supervisory Commission rejected a $2.15bn bid for Nan Shan by a consortium led by Hong Kong-based financial services company Primus Financial. The regulator cited concerns over the consortium’s financial capability and long-term commitment to running Nan Shan.

The other consortium members were Fubon Financial and battery manufacturer, China Strategic.

With regulatory approval clearly a big factor in the latest deal, AIG chairman and CEO Robert Benmosche said in a statement: “The participants in the consortium enjoy an excellent reputation in Taiwan. 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.”

Established in 1963, Nan Shan is Taiwan’s largest life insurer by total book value and third largest by total premiums behind Cathay Life and Fubon Life. Nan Shan has 4m policyholders, 8m policies in force, 24 branches, 500 agency offices, about 4,100 employees and 33,000 agents. According to the Taiwan Insurance Institute, in 2008 Nan Shan recorded premium income of TWD219bn ($7.48bn).

Other recent sales by AIG include a 67% stake in its Asian unit AIA Group through an initial public offer on the Hong Kong Stock Exchange in October 2010. Since it began receiving assistance from the US government in 2008 ($136bn in total), AIG has sold assets worth some $50bn.

But while Nan Shan and other sales may be key steps in AIG’s restructuring, not all are impressed, including former AIG boss Hank Greenberg. In an interview with news agency Bloomberg, he said that while AIG was getting good prices for its sales it was selling irreplaceable assets.

AIG has also reported progress with other aspects of its restructuring, the most significant being completion of its recapitalisation in January this year. This involved exchanging various forms of government support into ordinary shares, resulting in the US Treasury’s stake in AIG rising from 80% to about 92%. Among other things, AIG has also repaid the $21bn outstanding balance under a credit facility from the Federal Reserve Bank of New York.

Commenting, Benmosche said recapitalisation marked AIG’s “new beginning”.

“Based on our success over the last two years in stabilising our businesses, retaining our clients, achieving momentum in sales, restoring relationships with distribution partners, and returning to normal rates of employee turnover, we are confident that we can continue to build long-term value for all of our stakeholders,” he said.

Less impressed was rating agency Moody’s Investor Services, which greeted the latest wave of news with a one-notch downgrade of AIG’s insurer financial strength rating from A3 to Baa1 with a stable outlook.

Moody’s noted: “The downgrades reflect our view that while the core insurance operations have stabilised over the past year, they have not yet improved sufficiently to justify the previous ratings in the absence of continued government support.”

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