China Strategic Terminates Nan Shan Acquisition Deal With AIG

Hong Kong-listed China Strategic Holdings Ltd. said it has terminated agreement with American International Group Inc. for the purchase of its Taiwanese life subsidiary, Nan Shan Life Insurance Co. Ltd.

The decision to quit the deal was made as Taiwan's regulators rejected the proposed acquisition by China Strategic and its partner Primus Financial Holdings Ltd., said China Strategic in a statement. There were concerns that the buyers were backed by capital from mainland China and lack both experience in insurance business and the ability to raise funds for future operations (BestWire, Sept. 1, 2010). In Taiwan, a company funded with capital from China would be disqualified from taking over a local financial services firm. Any overseas company with 30% or more of its capital from China is considered a China-funded entity.

AIG said it is evaluating options with respect to its ownership of Nan Shan after regulatory rejection of the transaction to the Hong Kong-based consortium.

In October 2009, AIG agreed to sell a 97.57% stake in Nan Shan to a consortium comprised of China Strategic and Primus for US$2.15 billion. The deal would have given Primus a 20% stake in Nan Shan while China Strategic would own the majority (BestWire, Oct. 13, 2009).

While AIG is planning an initial public offering of its Asian life insurance subsidiary AIA Group on the Hong Kong Stock Exchange, the insurer has not made any indication about what's next for its life unit in Taiwan.

In July, Nan Shan reported total first-year premiums of NT$1.68 billion (US$53.1 million), representing a 6.5% market share for new life business, according to the Taiwan Insurance Institute.

With total assets of NT$1.73 trillion, Nan Shan represents more than one third of Taiwan's life industry value, according to the Ministry of Economic Affairs.

Many potential buyers have expressed interest in Nan Shan, given the life insurer's market share, established operations and long history in the market. As a mature market with life insurance penetration (premiums as percentage of gross domestic product) of 13.8%, Taiwan is also an attraction for existing and new players.

Also, Nan Shan had delivered good profit results in the past and its substantial business share in Taiwan is attractive to various types of investors. The Nan Shan sale has attracted several private equity funds from Japan, the Middle East and the United States (BestWire, Sept. 1, 2010).

Taiwan's financial companies and insurers have expressed keen interest in Nan Shan, which accounted for 15.32% of the country's life insurance market share, supported by 37,000 employees and 4 million policyholders.

For life insurers, the acquisition would immediately boost market share in Taiwan. Top domestic players such as Fubon Life Insurance Co. Ltd. and Cathay Life Insurance Co. Ltd. would be able to safeguard their leading positions with the acquisition of Nan Shan.

Chinatrust Financial Holding Co. Ltd., a financial conglomerate with businesses in banking, insurance brokerage, securities and asset management, which lost the bidding for Nan Shan last year, has showed continued interest.

(By Iris Lai, Hong Kong bureau manager: [email protected])