AIG, PICC Group ink deal to sell life insurance in China

AIG confirms US$500m investment in PICC Hong Kong IPO

PUBLISHED : Thursday, 22 November, 2012, 3:04pm
UPDATED : Thursday, 22 November, 2012, 3:04pm

American International Group (AIG) has signed an accord with Chinese state-owned insurer PICC Group to sell life insurance in the world’s second-largest economy, as the US insurer increases its bets in an underdeveloped market.

The non-binding agreement announced on Thursday brings AIG closer to its roots in China, where the company’s predecessor was founded more than 90 years ago, and is part of AIG’s plan to invest US$500 million in PICC’s planned Hong Kong initial public offering.

People’s Insurance Company (Group) of China (PICC) is seeking to raise up to US$3.6 billion through the IPO, with AIG and other investors agreeing to buy nearly 50 per cent of the shares.

To demonstrate its commitment, AIG agreed not to sell more than 25 per cent of its stake in PICC for a period of five years after the IPO. But it may offload the entire stake if final legal documentation for the proposed venture with PICC isn’t completed by May next year, the US company said in a statement.

AIG plans to step up in presence in China, by setting up a joint venture with PICC Life, a unit of the Chinese insurer, to distribute life insurance and other products primarily in large cities.

AIG’s current Aian exposure includes a 13.7 per cent stake in its former Asian unit AIA Group and a 9.9 per cent stake in PICC Property and Casualty, a unit of PICC Group.

AIG was forced to spin off two-thirds of AIA in 2010 as part of a package of asset sales to help repay US$182 billion in bailout funds it received from the US government during the 2008 global financial crsis.

China had the fifth largest life insurance market in the world last year with US$134.5 billion in total written premium, PICC said in its preliminary IPO prospectus, citing figures from the Sigma Report compiled by Swiss Re. Life insurance penetration in China reached 1.8 per cent at the end of last year, compared with 8.8 per cent in Japan and 3.6 per cent in the United States, it added.

PICC Life ranked third among life insurers in China in the six months ended June this year, with 57.2 billion yuan (US$9.2 billion) in total written premium in the period, the company said. It has a life and health insurance distribution network of about 2,200 branches.

PICC’s life insurance business accounted for about 29 per cent of its gross written premium of 149.2 billion yuan in the six months ended June this year.

The company had 51.4 million life insurance customers at the end of June, up 18 per cent from six months earlier.

AIG’s predecessor was founded in Shanghai in 1919 by US entrepreneur C.V. Starr. Twenty years later, Starr temporarily relocated to the United States to avoid political instability in Asia and, following the second world war, decided to run his US businesses from New York. They came to be known as AIG, whose shares began trading in New York in 1984.