July 16 (Bloomberg) -- American International Group Inc. asked buyout firms bidding for its Taiwan life insurance unit to team up with local companies, six people familiar with the matter said, a move that may help secure regulatory approval for the $2 billion deal.

Blackstone Group LP and Morgan Stanley, hired by AIG to manage the sale of Nan Shan Life Insurance Co., sent letters to potential buyers this week asking them to partner with Chinatrust Financial Holding Co. or Fubon Financial Holding Co. for the next round of bidding, the people said, asking not to be identified because discussions are confidential.

AIG, aiming to sell assets outside the U.S. to repay loans in a $182.5 billion bailout, may be seeking to placate Taiwanese government concerns about selling the island’s second-biggest life insurer by total premiums to private-equity investors. Taiwan’s Financial Supervisory Commission said it wants a buyer of Nan Shan to have experience in insurance.

“It’s not that we don’t welcome private equity companies,” Lu Ting-chieh, the regulator’s chief secretary, said in a July 15 interview. “They can partner with companies that have experience.”

Nan Shan Life may fetch as much as $2 billion, the people said.

Bain Capital LLC, Carlyle Group, Primus Financial Holdings Ltd. and MBK Partners Ltd. are among buyout firms selected to enter into the next round of bidding, the people said. The private equity companies must decide by tomorrow who they’ll team up with, two of the people said.

Principles

Cathay Financial Holding Co., Taiwan’s largest publicly traded financial-services company, has also expressed interest in Nan Shan and will probably bid alone in the second round, two of the people said.

“The commission isn’t targeting any types of companies, though we have principles on who’s taking over Nan Shan Life,” said Lu. “They should have experience in life insurance. They can’t come in, restructure the company and sell it to take the profit.”

Peter Rose, a New York-based spokesman at Blackstone, didn’t respond to an e-mailed request for comment outside of regular business hours. Officials at Nan Shan, Morgan Stanley, Bain Capital, MBK Partners, Primus Financial and Fubon declined to comment. Spokespeople at Chinatrust and Cathay Financial didn’t immediately reply to calls seeking comment.

AIG, formerly the world’s largest insurer, separated Nan Shan from other non-U.S. life insurance assets it’s selling.

Market Share

Nan Shan has 4 million policyholders and an 11 percent market share in terms of total premiums. Burdened with unprofitable policies, it raised $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement. AIG owns 97.5 percent of the unit and Nan Shan’s management holds the rest.

Nan Shan Life has a sales force of about 35,000 agents and operates 24 branches and 427 sales offices. It was founded in 1963, qualifying the company to expand into China, which requires foreign insurers to have at least 30 years of operating history. The company had NT$1.5 trillion ($45.5 billion) of assets at the end of April.

AIG agreed to sell the assets of its Taiwanese credit-card operations to Far Eastern International Bank for an undisclosed amount on June 30.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

Last Updated: July 15, 2009 23:50 EDT