Prudential’s Takeover of AIA: Customer Rights and Interests Retained

The UK-based Prudential has come to an agreement with American International Group (AIG) to acquire the latter’s Asian insurance arm at a record US$35.5 billion, making it the largest-ever acquisition in the global insurance industry. The deal is expected to raise Prudential’s Asian market share from 47 % to 60 % and serve a combination of more than 30 million customers.

A new high in Asia

The Hong Kong-based AIG unit, known as American International Assurance (AIA), has made a presence in Asia for more than 90 years and expanded its operating network with some 20,000 employees and 250,000 agents in the fast-growing market. At present, AIA is servicing more than 20 million customers in Asia, making it the largest insurer on the continent.

Prudential and AIA will merge into a new entity, temporarily called “New Prudential.” The new company will assume the name Prudential plc, be headquartered and incorporated in the UK, and traded on the main market of the London Stock Exchange with ADRs traded on the New York Stock Exchange.

The Vietnam life insurance arm, Prudential VN, said the transaction offers the opportunity to bring together two leading companies, positioning the combined group to capture the future growth opportunity in Asia.

According to Prudential VN, Prudential will list both AIA and Prudential on the Hong Kong Stock Exchange after the merger deal is completed. The existing Board of Prudential will become the Board of New Prudential. AIG Group will receive total consideration of US$35.5 billion, comprising US$25 billion in cash and US$10.5 billion in New Prudential shares and other securities. The cash component of the consideration will be financed through an underwritten rights issue, raising US$20 billion (this is considered the largest raising in the UK) and through issuance of US$5 billion senior debt.

To pay the largest overseas deal, Prudential plans a record issue to raise US$20 billion in the coming month.

Asia has been a major driver of value for Prudential for several years and in 2009 it accounted for 44 per cent of new business profit. The combined group would have 60 per cent of 2009 new business profit coming from Asia and puts us in a strong leadership position in all the critical growth markets in the region.

Rights and interests of customers are guaranteed

According to Prudential VN, after the merger, all rights and interests of customers will be guaranteed. Because many merger procedures are being completed, no specific information for this matter is made. However, regarding the protection of customers’ rights and interests in transferring insurance policies, the Law on Insurance Business provides that, in case an insurance company is insolvent or dissolved; such insurance company shall transfer all insurance policies to other companies. The transfer of insurance policies must enclose the transfer of all funds, even professional provision funds, in connection to the entire of transferred insurance policies. The authorities and obligations attached to insurance policies are unchanged until the due maturity.

AIA Vietnam, a life insurance arm, said AIA Vietnam has started sending letters to its customers where the company confirms that all rights and interests of customers are unchanged. At present, all customer care and consulting operations are normal.

Posted by VBN on Mar 11 2010. Filed under Enterprises. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry