3nd UPDATE: AIG To Sell Nan Shan To Taiwan's Ruen Chen For US$2.16 Billion

American International Group Inc. (AIG) is selling its Taiwan life insurance unit, Nan Shan Life Insurance Co., to Taiwan's Ruen Chen Investment Holdings Ltd. for US$2.16 billion, as the U.S. insurer struggles to repay funds it received through a U.S. government bailout during the financial crisis.

But the sale to Ruen Chen, a cement-to-footwear consortium, still awaits approval from Taiwan's Financial Supervisory Commission, which in August blocked a previous US$2.15 billion deal on concerns previous Hong Kong-based buyers lacked financial strength and commitment to Nan Shan.

In a surprise move Wednesday, AIG picked Ruen Chen as the preferred bidder for Nan Shan Life, passing over rival bids from financial holding companies. Ruen Chen is a consortium in which Ruentex Development Co. (9945.TW), Ruentex Industries Ltd. (2915.TW) and three investment funds privately-owned by Ruentex group Chairman Samuel Yin have a combined 80% and Pou Chen Corp. (9904.TW) the remaining 20%.

"The participants in the consortium enjoy an excellent reputation in Taiwan," AIG President and Chief Executive Robert Benmosche said in a statement. "Ruen Chen offers strong operational and funding capabilities and possesses a clear ability to satisfy the strict criteria that governed AIG's bid review process."

"Consistent with these criteria, Ruen Chen has demonstrated that it is able and willing to invest in Nan Shan's future, and that it will protect and serve the best interests of Nan Shan's policyholders, employees and agents," he added.

A listing of Nan Shan on the Taiwan stock exchange is a viable option in the future and would help support the Taiwan insurer's capital base, Andrew Borodach, AIG's assistant general counsel, said at the news conference after the announcement in Taipei Wednesday.

Supermarket operator Ruentex Development and cement-and-chemical fiber maker Ruentex Industries are both owned by Yin, while footwear maker Pou Chen is controlled by C. J. Tsai, another local tycoon.

However, Ruen Chen's lack of significant experience in operating an insurance company could again raise concerns from Taiwan's financial regulator, which blocked the deal by a consortium comprising Primus Financial Holdings Ltd. and Hong Kong-listed China Strategic Holdings Ltd. in August last year. The regulator cited concerns about China Strategic's financial strength and commitment to Nan Shan as reasons behind turning down the Hong Kong deal.

"It's a surprising outcome," said Sam Radwan, managing partner of Enhance International, a consultant focused on insurance in Taiwan and mainland China. "The FSC has always been clear as to what their requirements are."

The FSC has said previously that its approval of a potential deal will depend on whether a buyer has sound financing and insurance experience, will look after policyholders and staff, and make a long-term commitment to the company, and can meet future funding needs. The FSC said in a statement Wednesday AIG had communicated with its sale decision with the regulator and it will "cautiously review" the bid.

Yin said that around half of the financing for Ruen Chen's US$2.16 billion bid for Nan Shan will come from bank loans, and the rest will be cash.

Yin's group of Ruentex companies bought a 20% stake in ING Groep N.V.'s life-insurance unit in Taiwan in 1986 but sold its entire stake back to ING in 2001. One question regulators will want to consider is whether that ownership qualifies as operational experience, Radwan said.

AIG's Borodach said, however, that "Ruentex's 15 years (in the ING venture) should count as an experience in managing and operating insurance company."

The FSC will also be concerned that the deal will be well received by Nan Shan's workforce and doesn't lead to job losses. AIG said in its statement Wednesday that its agreement with Ruen Chen "includes an agreement to maintain the existing compensation and benefits package for employees and the existing agency organizational and commission structure." The current management team will also be maintained, as will the Nan Shan brand, AIG said.

Apart from its involvement in ING's Taiwan unit, Ruentex companies hold a 15% stake in SinoPac Financial Holdings Co. (2890.TW), a medium-sized financial conglomerate in Taiwan. For its part, Pou Chen owns about 4% in Mega Financial Holding Co. (2886.TW), a medium-sized financial conglomerate in Taiwan, and also has a stake in Chinese lender First Sino Bank.

Ruen Chen was formed as a consortium in December to specifically bid for Nan Shan Life.

Yin is seen as having close links with Taiwan's government and the political parties, a person familiar with the situation said.

According to a Taiwanese lawmaker Tsai Cheng-yuan, who cited information from his contacts at the U.S. Treasury Department last week, Ruen Chen's bid was less than the US$3 billion offered by Chinatrust Financial Holding Co. (2891.TW) and US$2.7 billion by Cathay Financial Holding Co. (2882.TW).

Fubon Financial Holding Co. (2881.TW) and a consortium made of Primus, Taiwan Secom Co. (9917.TW) and Goldsun Development & Construction Co. (2504.TW) also submitted bids for Nan Shan this time around.

Nan Shan's large customer base makes it an attractive target for local firms looking to secure a bigger share of the island's crowded insurance market. But the high penetration rate and large number of unprofitable policies sitting on the books of many insurers has made foreign investors wary of the sector, and prompted a spate of exits. Nan Shan is the biggest foreign player in the island's insurance market by market share.

According to AIG, Nan Shan is the largest life insurer in Taiwan by total book value with 4 million policyholders. Its sales network consists of 24 branches, 500 agency officers and more than 33,000 agents.

-By Aries Poon and Alison Tudor, Dow Jones Newswires; 886-2-25022557; [e-mail]

(Fanny Liu contributed to this article)

-0-