Prudential-AIA merger makes sense, but has risk

Prudential's $35.5 billion (Dh130.39bn) offer for American International Group's (AIG) Asia business marries the UK insurer's fast-growth strategy with AIA's mature business profile – a logical, strategic coupling.

The two companies would have an estimated $95bn in policyholder reserves and market leadership in eight markets – including China, and a number two position in India – in a region that is a growth hub for insurers.

But, while it may look a perfect fit, there are integration risks and, for employees, the operational overlap, especially in some Southeast Asia markets, could trigger job losses.

"Synergies in Singapore and Malaysia will have to come from cost cutting since both firms already have large market share," said the former CEO of an insurance company in Asia, adding that a merged firm would be market leader in both countries.

Prudential confirmed yesterday it was in talks with AIG, which had been planning a $10bn plus Hong Kong initial public offering for its AIA unit.

In Asia, the ratio of life insurance premiums to GDP is forecast to rise to about five per cent by 2018 from about three per cent now, according to Bernstein Research analyst Toby Langley.

As word of a possible deal spread, AIA sought to assure its staff.

AIG confirms aia sale

American International Group (AIG) agreed to the sale of its Asian life insurance unit to Britain's Prudential for about $35.5bn, in a deal that would help the US Government get back billions of its bailout money, sources familiar with the matter said. The board of AIG approved the sale of American International Assurance (AIA) to Prudential, UK's largest insurer, and the sides are working on finalising the terms and financing for it, the sources said.

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