AIG Buys 9.9 Percent Stake in PICC

by Paul Denlinger

Posted Oct. 13, 2003

American International Group, the US insurance company, has bought a 9.9 percent stake in PICC, China's largest property insurance company. AIG is believed to have paid about US$200 million for the stake, which would have valued the company at about US$2 billion.

PICC, like other leading Chinese insurance companies, is seeking to raise capital by listing on the Hong Kong Stock Exchange. Morgan Stanley and China International Capital Corp. are acting as PICC's advisers. PICC has hoped to raise US$500 million from the Hong Kong listing. The sale of 9.9 percent to AIG will mean that the underwriters will now have to sell only US$300 million in the company. This will make it that much easier to have a successful listing.

In addition, fund managers will be more willing to invest in PICC now that AIG has invested in the company.

PICC has 26,000 sales staff and 65,000 agents, and controls 70 of China's property insurance market. AIG will train their staff. It is expected to have a net profit of US$181 million this year. As the property insurance market expands in China, a major issue for the company will be managing growth and costs; AIG is expected to help in this area.

The deal will help AIG by expanding its distribution in China, and PICC will benefit from AIG's knowledge, experience and expertise.

China Life and Ping An Insurance are both larger than PICC, and are also planning Hong Kong listings. Unlike PICC, they do not yet have foreign strategic partners. It is expected that this deal will accelerate pressure for them to find partners.

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