Prudential Plans to Sell 50% of AIA China

Prudential plans to sell a 50 percent stake in AIA China after the acquisition of AIA, the Asian life insurance unit of US insurance giant AIG.

The UK-based insurer on May 17 held a conference, on which it explained value of the acquisition to analysts and investors. "It has been in talks with the China Insurance Regulatory Commission (CIRC), the top Chinese insurance regulator, over the disposal of assets in the Chinese market after the deal," said Barry Stowe, CEO of Prudential for the Asia-Pacific region.

It will have two life insurance licenses in the Chinese market, namely CITIC-Prudential Life Insurance Co., Ltd. and AIA China, after the acquisition. But it is not allowed, currently. The CIRC unveiled proposals on the management of insurer' equity in September 2009 and according to concerned items, no peer competition is allowed provided that two or more insurers are controlled by the same company or one insurer is controlled by another. In the watchdog's opinion, there will be two choices for it. One is to sell a 50 percent stake in CITIC-Prudential Life and the other is to sell a 50 percent stake in AIA China and then merge both into one.

"It will sell a 50 percent stake in AIA China after the deal," said Tidjane Thiam, CEO of Prudential. It indicates that the insurer will not give up the stake in CITIC-Prudential Life and AIA China will end its history as a wholly-owned foreign insurer in the Chinese market.

It has become a focal point who will take the 50 percent stake in AIA China. CITIC Group will have to take the stake provided that it does not want the stake it holds in CITIC-Prudential to be diluted, said industry observers. "The CIRC does not set a deadline for the matter, so it is not in urgent need to dispose the assets," reiterated Barry Stowe. In other Asian markets, it intends to sell part or all of the stake in AIA, too.

AIA China's commercial value is USD 1.2 billion in line with statistics by Prudential. AIA's imbedded value was USD 22 billion in 2009 and according to Prudential, it was the third-biggest life insurer after China Life Insurance Co., Ltd. (SHSE: 601628 and SEHK: 2628) and Ping An Insurance (Group) Company of China, Ltd. (SHSE: 601318 and SEHK: 2318) in the Asian market. The premium revenue it captured in the Chinese market reached USD 188 million in 2009.

CITIC-Prudential Life was established by Prudential and CITIC Group in October 2000 and so far, it has stretched out reach to 31 Chinese cities. Its annual premium revenue growth amounted to 55 percent during 2001 and 2009 and last year, it made a made a balance in profit and loss, with premium revenue hitting USD 71 million.

(USD 1 = CNY 6.83)