The Financial Supervisory Commission (FSC) last week gave conditional approval to a bid by Ruen Chen Investment Holding, a Ruentex Group-led consortium, to acquire American International Group’s (AIG) 97.57 percent share in Nan Shan Life Insurance for US$2.16 billion, 10 months after the US insurance giant’s previous attempt to sell its Taiwanese unit hit a snag.
Under the commission’s seven conditions to acquire Nan Shan, Ruen Chen now needs to put an extra NT$6 billion (US$208.1 million) in a custodian account within 60 days to prove it has the financial means to run the life insurer, in addition to an earlier pledge of providing NT$30 billion in cash or the equivalent in assets under the account.
Other conditions — major Ruen Chen shareholders must put all Nan Shan shares into trust, shareholders are not allowed to channel Nan Shan funds to their own business interests and the buyer must promise to keep its bank loans below 48 percent of the purchase cost, for example — represented the commission’s efforts to examine the buyer’s long-term commitment, preventing the buyer from leveraging local capital for quick gains.
While it is not yet known when the Investment Commission will offer its green light to AIG’s second attempt to dispose of Nan Shan, the regulatory review this time round seems to have proceeded much more smoothly than had the 11-month review of the Hong Kong consortium comprising China Strategic Holdings and Primus Financial Holdings.
Even so, the ownership transfer of Nan Shan — which represents not only AIG’s effort to pay back its US government bailout funds, but also the largest financial deal in the history of Taiwan’s insurance industry — is not an ending to the story; rather it is the beginning of a new phase that poses as much of a challenge to the industry as the Nan Shan sale.
There are challenges ahead on at least two fronts. On the one hand, who will be next to exit Taiwan amid foreign insurers’ dwindling interest here? On the other hand, will Nan Shan sustain or improve its competitiveness without AIG’s financial support and professional know-how?
Over the past three years, a number of foreign insurers such as ING Antai Life Insurance, UK-based Prudential, Aegon of the Netherlands and US-based MetLife have sold or are mulling divesting their local subsidiaries.
While Aviva’s attempt to end its joint venture in Taiwan has been rejected by the FSC, a broad consensus exists in the industry that the British insurer may still plan to lower its stakeholding in the venture. So, the question is what has gone wrong with Taiwan’s insurance market and will such exits by foreign insurers pose a challenge to the government’s effort to turn the nation into a regional asset management hub?
To Nan Shan, the ownership change from AIG to Ruen Chen — composed of supermarket operator Ruentex Development, cement and chemical fiber maker Ruentex Industries and shoemaker Pou Chen — indicates yet another test of its capability to expand market share, raise capital and retain talent. In the long term, the company also needs more insurance expertise and top professionals in specific fields if it is to upgrade its financial-product innovation capabilities.
Perhaps the most challenging task that Taiwan’s insurance sector will face after the Nan Shan sale is whether the government can continue liberalizing and internationalizing the insurance industry to beef up its competitiveness and develop some of Taiwan’s insurers into regional key players. This would require more professional input, something that has been largely neglected by those involved in the Nan Shan case.