Has really so little changed? UK insurance company Prudential is today expected to announce the purchase of AIA, the Asian assets of state-owned AIG merican International Group, forestalling a planned Hong Kong initial public offering. With the ringing of crisis alarm bells barely fading from earshot, financial institutions are once again lusting after transformation and grabbing ever greater size.
Buying AIA would be no ABN Amro, however – the 2007 investment banking deal that fatally wounded Royal Bank of Scotland and Fortis. Prudential and AIA are the two largest pan-Asian insurers and, combined, would dominate a region where populations are young, have relatively few debts and hold savings largely in low interest-bearing bank accounts. Three quarters of assets for the new group would be in Asia, from the 35 per cent held there by Prudential now.
AIA is also a well established (and cash generative) business. Still, Pru will have to find $30bn to $35bn (£20bn to £23bn) to seal the deal, more than its current £15bn market capitalisation. It will also be paying about 1.5-1.7 times embedded value, when European insurers typically hover about one times. But valuations are racier in Asia – French insurer Axa, for instance, is to pay 2.8 times embedded value to buy out the half of its Asia-Pacific business it doesn't own – and this may be an opportunity for the Pru to bring Asian investors into the fold.