American International Group Inc (AIG) has recently relaunched its sale of Nan Shan Life Insurance, three months after Taiwan’s regulatory authorities rejected a Hong Kong consortium’s application to acquire the local insurer because of concerns over the buyer’s financial strength and long-term commitment.
The US company wants to divest its local subsidiary amid pressure to pay back its US government bailout. With AIG’s success in raising US$20.5 billion by listing its Asian life insurance arm, AIA Group, in Hong Kong in October, the Financial Supervisory Commission (FSC) had suggested that AIG also take Nan Shan public to raise funds from Taiwan’s capital markets.
Apparently, AIG has put aside the idea of floating Nan Shan shares for now. The company has instead invited several local financial companies and conglomerates to bid for the insurer and will reportedly announce the potential buyers soon.
Therefore, the renewed sale of the 40-year-old Nan Shan again represents a time of uncertainty for the insurer’s 4 million policyholders, approximately 4,000 employees and more than 34,000 agents in Taiwan. Nan Shan has a net worth of NT$140.3 billion (US$4.59 billion) and accounts for one-third of the value of Taiwan’s life insurance market, but the 11-month review process of the previous buyer’s application has not only led to the rejection of the Hong Kong buyer, but also resulted in serious confrontations between management and the firm’s union, as well as a loss of NT$12.58 billion for the first three quarters of this year.
To Taiwan’s regulatory agencies, AIG’s new attempt to dispose of Nan Shan indicates yet another test of its capability and credibility, after it barely survived the previous test.
On the one hand, foreign insurers’ dwindling interest in Taiwan poses a challenge to the government’s effort to turn the nation into a regional investment hub, after several foreign insurers have sold or are mulling divesting their local subsidiaries against an unfavorably low interest-rate environment in Taiwan and a stricter financial accounting requirement in their home markets.
On the other hand, the public would expect the regulators to closely scrutinize the potential buyers, as they did in the previous case about the Hong Kong consortium, given Nan Shan’s sizable market share and the large number of agents, employees and policyholders involved.
The most important thing to qualify a potential buyer is its promise to protect the rights of existing Nan Shan policyholders and employees. It is also vital for the potential buyer to have a strong long-term commitment to operating an insurance company in Taiwan and a good track record of running an insurance business. Moreover, the would-be buyer must prove it has a sound capital-raising ability whenever necessary, as well as legal sources of funding.
Whatever the regulators may think of monitoring the Nan Shan sale, they must make sure the deal will not lead to any potential buyer leveraging local capital for quick gains, nor to any company becoming so dominant as to compromise fair competition in the local market.
Most importantly, the regulators should keep in mind that there is no good reason for the review process to take as long as one year, as in the previous case. There is no need for the government to suggest what AIG should do with Nan Shan. However, for potential buyers, as well as Nan Shan’s agents, employees and policyholders, it should not be too much to ask the regulators to be efficient and decisive this time.