Reliance Eyes AIG's Asian Insurance Arm

A deal would make the Indian life insurer Southeast Asia's largest, but it's likely to have some competition in the bidding

Reliance Anil Dhirubhai Ambani Group (ADAG) is looking to buy out the Asian insurance business of AIG. If it goes through, the deal—which would exclude AIG's Indian businesses—would make Reliance South-East Asia's largest life insurer. It could well be the second-largest overseas buyout by an Indian firm. ADAG is likely to be one of several bidders looking to buy these AIG businesses.

Sources told ET that the asking price for American International Assurance Company (AIA), AIG's wholly-owned arm, has been pegged at around $10 billion. Sources said Citibank, acting on behalf of AIA, has approached ADAG to buy out AIA. AIA is AIG's flagship life insurance company for South-East Asia and is the largest life insurer in the region with businesses across South East Asia.

Last month, the US nationalised AIG which was on the brink of collapse with an $85-billion loan and restructured its top management. This was followed by another $38 billion last week. Now, the insurance giant is 80%-owned by the US government.

Last year, Tata Steel had acquired Anglo-Dutch steel major Corus for $12 billion and Hindalco had acquired Novelis for around $7 billion. In comparison, Indian financial services firms have been rather conservative in their international acquisitions.

In most geographies, AIG operates as AIA while in some markets like Australia and New Zealand, it functions as AIG.

When contacted, the R-ADAG spokesperson declined to comment. Sources, however, told ET that the group is interested in the deal, given AIA's dominance in the region.

The Indian group has been spreading its financial services businesses overseas through Reliance Money, the retail brokerage and distribution arm of Reliance Capital. The company recently acquired 15% stake in Hong Kong Mercantile Exchange, which came on the back of a partnership with local firm Goldride Securities, for distributing financial products and services.

Reliance Money, which is looking to generate half of its revenue from abroad by 2013, is actively expanding operations in the Middle East.

Top group executives are currently evaluating options and likely to take a decision soon. "Chances of a deal are 50:50. R-ADAG could be looking at a modest valuation, in the $5-6 billion range. The deal is still at a nascent stage, and there's no certainty that it will go through," said a source.

R-ADAG already has a life insurance venture in India—Reliance Life Insurance—which is an associate company of Reliance Capital, the flagship financial services firm of the group, which has interests in asset management, stock broking, insurance, proprietary investments, private equity and other activities in financial services.

In India, AIG has a 24:76 life insurance joint venture with the Tatas. This business is unlikely to be part of the proposed deal with Reliance-ADAG, as the Tatas may have a right of first refusal in any sale by AIG.

AIG, which had assets in excess of $1 trillion in 2007, has been looking to sell parts of its businesses and assets and focus on the core general insurance business. AIG's move to sell AIA is at variance with its earlier statement to retain a continuing ownership interest in its foreign life insurance operations.

Life insurance and retirement services business is the largest revenue generator for AIG. Out of the total revenues of $110 billion in 2007, life insurance generated $53.6 billion and general insurance $51.7 billion. Asset management and other financial services are comparatively smaller business areas of AIG globally.

In 2007, AIG generated $92.7 billion worth of aggregate business, which includes premium, deposits and other considerations from life insurance and retirement services businesses. Out of this, $67.5 billion came from operations outside the US. Besides AIA, this also represents businesses from other units of AIG spreading across Europe, Latin America and Japan.