Prudential Ceases Bid on AIG Unit, Says Asking Price Is Too High

March 8, 2009 – United Kingdom-based insurance group Prudential has withdrawn from the bidding process for the struggling American International Group’s (AIG) lucrative Asian subsidiary, the American International Assurance Corporation – commonly called AIA.

Prudential officials said the asking price of more than $10 billion was too high, according to The Sunday Times of London. AIG officials reportedly are seeking up to 20 billion dollars Asia-based unit.

The Asian subsidiary is one of AIG’s most lucrative assets and has more than 20 million policyholders. But AIG officials are basing their asking price on what the insurance unit was worth before the recent global economic meltdown that has devalued greatly most large corporations.

Although Prudential is pulling out of the bidding, the insurer remains a strong candidate to acquire other potential AIG units up for sale. Prudential remains a financially strong corporation, and company officials recently said current market conditions support expansion efforts with many companies being sold at bargain prices.

AIG is selling the unit as part of its effort to repay a $60 billion loan from United States taxpayers. Company officials earlier announced a goal of selling enough assets to repay the portion of its now nearly $180 billion federal rescue this year. But yet another revision of its loan terms might cancel sales of some units.

AIG became the world’s most indebted insurer after federal officials in September agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.

Under the December revision, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts. The latest bailout adjustment boosts its total value to nearly $183 billion.

AIG is attempting to sell off its overseas life insurance units and other subsidiaries to repay up to $60 billion in loans this year. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.

AIG has raised more than $2 billion through the sale of several subsidiary units, including commercial insurer Hartford Steam Boiler for about $742 million and joint Brazilian venture for about $820 million. AIG in January agreed to sell the insurer’s Philippines-based retail bank and auto-lending subsidiary to the East West Banking Corporation for $48.5 million.

Industry analysts say the insurer could raise up to $50 billion through the sales of AIG’s U.S.-based and overseas life insurance units and retirement savings units.