AIA buyout may result in Philamlife, Pru Life merger

MANILA, Philippines - The acquisition by British insurer Prudential Plc of AIG’s Asian unit AIA Group Ltd. will likely lead to the merger of Philippine American Life and General Insurance Co. (Philamlife) and the Pru Life Insurance Corp. of UK (Pru Life UK), Philippines.

Philamlife is a subsidiary of AIA, the prized Hong Kong-based unit of the troubled American International Group (AIG). Last Monday, AIG agreed to sell AIA for $35.5 billion to Prudential.

AIG owes the US government $182.3 billion in the form of bailout money due to its folly in complex derivatives which contributed immensely to the global financial crisis.

In a press statement sent to The STAR, AIG president and chief executive officer Bob Benmosche said the Prudential/AIA merger would result in an Asian financial and insurance powerhouse.

“This transaction assures AIA of a well-respected, highly-rated, financially strong partner in which its management, customers, employees, agent sales force, and distribution partners can have confidence. Both we and Prudential are committed to preserving the AIA brand and the unique strengths of each of our sales forces, which is key to capitalizing on AIA’s long term potential,” Benmosche said.

Philamlife, the leader in the Philippine life insurance industry, reported total premium income of P13 billion and assets worth P111.4 billion in 2008. On the other hand, Pru Life UK reported premium income of P3.4 billion and assets worth P12 billion, ranking it fifth and sixth, respectively, among the country’s insurers.

Industry sources said while a merger is inevitable, the surviving entity in the transaction is still an issue since Philamlife is a more recognized name compared to Pru Life UK.

Philamlife has been the subject of massive courting from the Ayala Group of Companies and the SM Group, when AIG first announced it was for sale in 2008.

While the acquisition attempt failed, the Ayala Group was able to get a slice of Philamlife by forming a bancassurance joint venture. The same corporate exercise also saw Philamlife acquiring a majority stake in Ayala Life Assurance Corp., the life insurance arm of the Ayala Group.

Aside from the Philippines, the other Asian countries that will be affected by the Prudential acquisition are mainland China, India, Hong Kong, Indonesia, Malaysia, Singapore, Thailand and Vietnam.

Prudential Plc bought AIA for $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities, and $2 billion in face value of preferred stock of Prudential.

The cash portion of the proceeds from the sale, the largest to date in AIG’s ongoing restructuring efforts, will be used to redeem preferred interests with a liquidation preference of approximately $16 billion held by the Federal Reserve Bank of New York (FRBNY) in the special purpose vehicle formed to hold the interests in AIA, and to repay approximately $9 billion under the FRBNY credit facility. 

AIG intends to monetize the $10.5 billion in face value of Prudential securities over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods. All net cash proceeds from the monetization of these securities will be used to repayany outstanding debt under the FRBNY credit facility.

Founded 160 years ago, Prudential is a leading international financial services provider. The transaction includes all of the companies of the AIA Group operating in 15 geographical markets across Asia Pacific, including the company’s international network of more than 320,000 agents and approximately 23,500 employees serving the holders of more than 23 million in-force policies and the more than 10 million participating members of its clients for group life, medical, credit life coverage and pension products.