Prudential and AIA Fight It Out in Asia

Prudential's (PUK) Tidjane Thiam tried and failed to buy AIA Group to expand in Asia, his first test as chief executive officer. To succeed now he will have to beat AIA's new CEO—and his ex-boss—Mark Tucker. Thiam's former mentor has begun gauging investor appetite for an initial public offering of AIA, which at about $15 billion would be one of Hong Kong's largest. The IPO of AIA, a unit of American International Group (AIG), marks the beginning of a race that will pit Thiam, 48, and Tucker, 52, in a contest for the world's fastest-growing insurance market.

"It's a case of eat or be eaten," says Christopher Wong, a fund manager at Aberdeen Asset Management in Singapore, which oversees $267 billion of assets including Prudential shares. "The growing sophistication of Asian consumers in terms of wealth management and family protection is a direct benefit to life insurers in Asia. It's going to be a new battleground for growth."

For Thiam, success in Asia will help appease investors who called for him to quit after his £25.7 ($35.5 billion) bid for AIA collapsed. For Tucker, AIA's IPO will give him independence from AIG.Prudential (which is not related to New Jersey-based Prudential Financial) and AIA are the two biggest international insurers in Asia and the only two with branches across the continent. "We've been competing for a long time," Thiam told Bloomberg in an August interview. "It's well recognized they are in need of a turnaround. We've taken them over in growth, profitability, and in margins. That momentum is real." Thiam declined to give a forecast for sales growth in Asia, which provided 44 percent of the company's profit from new business in 2009, saying that expansion depends on factors he can't control such as economic growth. "We will do better than the competition," he says. "That we can control." Failing to beat AIA may "be the catalyst for a takeover" of Prudential, says Jonathan Newman, an analyst at Brewin Dolphin Holdings, which manages £21.6 billion including Prudential shares.

While Prudential has accelerated sales in the region since 2008, AIA has been hurt by the U.S. bailout of AIG. Its sales declined 5 percent, to $11.6 billion, in 2009 as AIG's rescue deterred potential customers. "Prudential's agents in Asia are currently much more productive than AIA's, but I expect AIA to narrow the gap pretty quickly," says Martin Brown, who helps manage £69 billion at Ignis Asset Management, one of Prudential's 30 biggest shareholders. Prudential had about 410,000 sales agents in Asia at the end of 2009 compared with about 320,000 at AIA. Both companies compete in Asia with China Life Insurance (LFC), Ping An Insurance, and Axa Asia Pacific Holdings.

In 2008, when Tucker was serving as CEO of Prudential, he plucked Thiam from rival U.K. insurer Aviva, giving the Ivory Coast-born French national his first job on the board of a publicly traded company. British-born Tucker, who was a professional soccer player in his youth, left Prudential in 2009, handing the top job to his protégé. In July, AIG CEO Robert H. Benmosche picked Tucker to head AIA.

Tucker plans to sell about 49 percent of the company this month, according to two people with knowledge of the matter. The proceeds will go toward paying back the U.S. government. Tucker and Patricia Chua, a Hong Kong-based spokeswoman for AIA, declined to comment. The IPO would give Tucker a platform to make a takeover bid for Prudential, says Barrie Cornes, a London-based analyst at Panmure Gordon. That possibility does not worry Thiam. "I love Mark and respect him," he said in August. "We can't become obsessed with AIA. We don't see it as a threat."

The bottom line: Having failed to buy his chief competitor in Asia, Thiam is now going up against his old boss in one of the world's richest markets.

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