Earlier this week, American International Group Inc. (AIG) announced its intentions to invest HK$718.1 million or about $92.5 million in PICC Group’s PICC Property and Casualty Co. Ltd. (PICC P&C). The investment will be made through a rights offering. Following the investment, the company will hold a 9.9% stake in PICC P&C.
The investment will be a step ahead in the joint venture (:JV) that was announced between AIG and PICC Life Insurance Co. Ltd. (PICC Life) in collaboration with The People’s Insurance Co. of China Ltd. (PICC Group) in Nov 2012. The JV was based upon the condition that AIG will contribute $500 million by buying the H shares of PICC Group. Moreover, AIG will retain at least 75% of the $500 million shares for 5 years post the initial public offering (:IPO) of PICC Group, which was initiated last year.
PICC Group is the fourth-largest insurance company in China and a strong market position brightens AIG’sgrowth outlook through this JV. This should also boost the company’s distribution of life and P&C insurance products, thereby escalating growth opportunities in its core businesses. Further, PICC Group has about 69% stake in PICC P&C, which also fortifies AIG position in the China’s P&C insurance market.
Moreover, China’s P&C insurance market is escalating by a healthy 10–15% on an annual basis. This also explains the rationale behind AIG’s investment in PICC P&C, which enjoys about 35% ownership in the P&C insurance market of China.
The complete repayment of the government bailout loan and asset disposals has helped AIG to focus on its core insurance operations and attain a flexible capital position. The progress is also reflected by the modest growth in the company’s financials.
While any robust growth compared with the peer group appears overly ambitious at present, we believe a positive turnaround in the global economy and an improved macro scenario is likely to pave the way for significant growth of AIG.
Along with AIG, its peers such as MetLife Inc. (MET), Cigna Corp. (CI) and Hartford Financial Services (HIG) carry a Zacks Rank #2 (Buy).
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