American International Group Inc. (AIG) said Tuesday it has agreed to sell its life insurance unit in Taiwan to a consortium led by Hong Kong-based investment company Primus Financial Holdings Ltd. for US$2.15 billion, in the largest sale globally of an AIG business so far.

AIG, which is raising funds to repay the tens of billions of dollars in bailout money it has received from the U.S. government, said in a statement that Primus, co-founded by former Citigroup banker Robert Morse, along with Hong Kong investment firm China Strategic Holdings Ltd. (0235.HK) won the bid for AIG's 97.5%-owned Nan Shan Life Insurance Co.

"We are pleased to have found a buyer who shares our confidence in Nan Shan's bright future, and who has pledged to continue Nan Shan's commitment to its policyholders, agents, and employees, as well as to the people of Taiwan," said Robert Benmosche, AIG Chief Executive Officer.

In acquiring Nan Shan, the Primus consortium has agreed to maintain the Nan Shan brand, the existing compensation and benefits package for employees and the existing agency organizational and commission structure for a minimum of two years following the closing of the transaction, AIG said. The current Nan Shan management team will remain in place.

Primus said it would turn Nan Shan, Taiwan's third-largest life insurer by gross premiums and second largest by assets after Cathay Financial Holding Co.'s Cathay Life Insurance Co., into a regional player.

"As part of AIG, Nan Shan was limited in focus to Taiwan. Under new owners we are very excited about the possibility of expanding Nan Shan into other markets," Morse said in an interview.

Morse said he expects Nan Shan to expand through a combination of acquisitions and organic growth.

Primus Co-CEO Wing-Fai Ng told Dow Jones Newswires in late August that the company would take Nan Shan Life public if its bid was successful, and would consider expanding its operations into China, Hong Kong, Malaysia, Indonesia, Thailand, Japan, Singapore, the Philippines, among others.

Speaking to reporters Tuesday, Ng said Primus is paying a "sky-high" price for Nan Shan because of its regional expansion prospects.

The US$2.15 billion price tag is well above the US$1.2 billion-US$1.3 billion Primus was tipped to have offered initially but in line with a US$2 billion valuation for the unit, when it was put on the block earlier this year.

Based on Nan Shan's Web site, the company, founded in 1963, had NT$1.54 trillion (US$47.66 billion) worth of assets and a net worth of NT$99.68 billion (US$3.1 billion) on June 30. Nan Shan has 4 million policyholders, 34,000 sales agents in addition to 4,000 employees.

The deal is subject to certain conditions being satisfied, including regulatory approvals.

Among pending issues, Nan Shan's sales agents have asked that their mandatory contributions to a provident fund be repaid to them.

Richard L. Bender, AIG's executive vice president and chief operating officer for Greater China and India, told reporters that Primus, AIG and Nan Shan's management will work with employee groups and agent representatives to alleviate their concerns and resolve the dispute over the next few months. He said future negotiations with the agents would be crucial to completing the deal, but he believed a solution could be reached.

 
   Deal Adds To AIG's Asia Sales

The deal is the biggest ever by a foreign company in Taiwan's financial sector - surpassing Standard Chartered's US$1.2 billion acquisition of Hsinchu bank in 2006 - and brings to almost US$3.5 billion the announced amount AIG has raised in Asia.

In May, AIG said it sold its office building in Tokyo for US$1.2 billion. It has also sold some of its Philippine finance assets, its Hong Kong consumer finance unit, its Thai retail bank and credit card business, its Taiwan credit card company and its Indian back-office businesses, for smaller, or undisclosed amounts. It also sold its global third-party institutional asset management unit to Hong Kong tycoon Richard Li for around US$500 million a couple of months ago.

Until Nan Shan, AIG's biggest disposals globally were the US$1.9 billion sale of its energy and infrastructure investment assets in August and its U.S. personal auto insurance business for the same amount.

Waiting in the wings, however, is a much-touted US$5-billion-plus initial public offering of its Asian life-insurance unit, American international Assurance Co, which is set to list in the first quarter of next year, most probably in Hong Kong.

AIG has been selling some of its non-core businesses as part of a major restructuring plan to slim down after it was forced to accept billions in government support last autumn. However, Benmosche has said he doesn't want to be rushed into fire-sale prices.

AIG's government bailout, which began in September 2008, has grown to include government support of all types totaling $180 billion at the end of June, AIG has said.

AIG picked Primus and China Strategic over Chinatrust Financial Holding Co., Taiwan's credit-card giant and the biggest bancassurance services provider. Others bidding for the unit included Fubon Financial Holding Co. and Cathay Financial Holding Co.

Primus has secured 80% of the funding from equity investors, primarily wealthy Hong Kong business people, and will raise the remainder by taking out bank loans, said Morse.

"All financing is in place," he said, with the balance to be financed by a syndicate of banks, which have already committed.

John Chou, a vice president at Taiwan Cooperative Bank (5854.TW), said the bank is managing a NT$24 billion syndicated loan for Primus together with First Financial Holding Co. (2892.TW).

China Strategic, which holds an 80% stake in the consortium, had said earlier it planned to raise US$1 billion from selling convertible bonds to finance the Nan Shan deal.

Andy Chang, a Taiwan Ratings analyst, said the outcome of the sale is the one that will have the lightest impact on the landscape of Taiwan's overcrowded domestic insurance market.

"But if you consider the overseas expansion prospects, this may work to Nan Shan's long-term benefit now that it has not only a Taiwan market, it has Hong Kong investors...which may help the company branch out to China."

Blackstone Advisory Partners and Morgan Stanley acted as financial advisors and Debevoise & Plimpton LLP and Lee & Li, Attorneys-At-Law served as legal advisors to AIG on this transaction. Deutsche Bank AG acted as financial advisor to Primus Financial on this transaction, while Simpson Thacher & Bartlett LLP and LCS & Partners acted as international and domestic legal counsel respectively.

-By Perris Lee Choon Siong and Nisha Gopalan, Dow Jones Newswires; +8862-2502-2557; perris.lee@dowjones.com

(Ellen Sheng and Aries Poon in Hong Kong contributed to this article.)