LONDON: US insurance giant AIG has agreed to sell its Asian arm, AIA, to British insurer Prudential for around US$35 billion, a source close to the deal said.

American International Group (AIG), which received a huge taxpayer bailout to stave off collapse during the financial crisis, had been persuaded to let Prudential buy its Asian businesses, said the source late Sunday.

The deal will transform Prudential into the world’s top non-Chinese insurer by market capitalisation, ahead of major competitors Allianz and AXA.

It is understood the sale will be unveiled in the coming days, perhaps as early as Monday.

The purchase will be financed in cash, through a rights issue by Prudential, and through AIG taking a minority part of the British insurer, said the source.

Tidjane Thiam, who took up the job of Prudential chief executive in October, had never hidden his desire to expand the business in Asia.

The business chief, who has French nationality but was born in Ivory Coast, went to New York at the end of last week to persuade AIG’s board to sell American International Assurance (AIA) to his company.

Prudential stepped in as AIG was planning an initial public offering for its Asian arm in Hong Kong in April.

Estimates had valued the market flotation at around US$10 billion – which would have been the biggest of 2010 on global markets.

Prudential’s shareholders, for their part, welcomed the company’s projects, said the source.

AIG, which teetered on the brink of collapse in the depths of the financial crisis and received around US$180 billion of taxpaxer money, has been forced to give up some of its assets.

In 2008, the firm tried to sell up to 49 per cent of AIA through an auction process but had to drop the idea after failing to receive suitable offers. The company then turned to the idea of an initial public offering.

The US giant reported Friday a fourth quarter net loss of US$8.9 billion – still nearly 10 times less than in 2008, when AIG recorded US$99.2 billion in losses.

Prudential will be transformed by the deal to buy AIA, which will double its size. The company, founded in 1848, currently has a market capitalisation of about US$23 billion.

AIG almost went under in September 2008, unable to meet its obligations for contracts written to insure mortgage securities and related assets without sufficient capital.

The Federal Reserve, fearing a shock to the global financial system in the event of an AIG default, provided a loan of US$85 billion to AIG in September 2008 in what would be the first portion of the gigantic bailout.

AFP/sc, 01 March

insurance, investments