CRISIS STRENGTHENS MANULIFE'S HAND IN AIG BID

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FINANCIAL SERVICES: INSURANCE
Crisis strengthens Manulife's hand in AIG bid
Headshot of Eric Reguly

ERIC REGULY

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October 7, 2008

ROME -- The chances of Manulife Financial Corp. winning parts of American International Group Inc. are rising sharply as the credit crisis hurts the ability of rival insurers to knock the Canadian company out of the picture, industry sources and analysts said.

NOTE: MANULIFE IS A WELL KNOWN COMPANY.

Manulife and other insurers are expected to bid for AIG divisions as early as this week, they said. The American insurance giant is under pressure to sell businesses quickly to repay an $85-billion (U.S.) Federal Reserve loan that spared it from bankruptcy last month.

An insurance source said Manulife has been working hard on the AIG file and could end up with big chunks of AIG's Asian or American businesses.

Analysts agreed. "We have expected Manulife to be an aggressive bidder and nothing we heard on the AIG conference call on Friday leads us to believe otherwise," Colin Devine, managing director in New York of Citigroup Investment Research, said in an interview. "Manulife could take a quantum leap here and replace AIG as the global insurance stock to own."
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The Globe and Mail

Dominic D'Alessandro, the Manulife CEO who steps down next spring, did not return a phone call seeking comment.

During the AIG conference call, Edward Liddy, the company's new CEO, said the company would have "clear bias" for selling off businesses to companies with strong ratings, balance sheets and brand names.

Manulife appears to meet those requirements. The insurance subsidies of Manulife, North America's largest insurer by market value, carry a rare triple-A rating from Standard & Poor's. Its financial position is strong and, through John Hancock, the big American insurer it bought in 2003, it has a well-known brand name in the United States.

Manulife's share price has held up relatively well during the financial crisis. Its shares trade at about two times book value, compared with half that, or less, among some of its rivals. By comparison, ING Groep NV, the Dutch insurance and banking company, traded yesterday at about $21, or about $6 less than its book value. "We don't believe there are many bidders out there poised to bid against Manulife," Mr. Devine said.

Manulife has not said which AIG businesses it would like to own, though the American operations, especially the defined contribution retirement and 401 (k) pension divisions, would be high on its wish list, analysts said. The life and annuity business of AIG's American Life Insurance Co. (ALICO) would also appeal to Manulife. ALICO is a stand-alone insurer that operates in 55 countries, including Japan and South Asia, and had premiums and deposits of $18-billion and assets of $100-billion, in June.

Mr. Liddy said AIG wants to sell its domestic U.S. life insurance operations and chunks of is foreign life insurance business. It wants to keep the U.S. property and casualty operation and overseas general insurance. "The preference is to sell [the U.S. life business] all as one unit," he said. "We have a preference to have larger transactions because they can be done with some speed and will attract larger buyers."

The punitive interest rate on the AIG rescue loan - 8.5 percentage points above the three-month London interbank offered rate (Libor) - makes swift assets sales a priority. As of last Wednesday, AIG had drawn down more than $63-billion of the $85-billion credit line. After the conference call, S&P revised its watch on AIG's credit to "negative." S&P analyst Rodney Clark said the amount borrowed "is much larger than we previously anticipated" and that the asset-sale plans "exceed our expectations."

The price tag on AIG's life, annuity and pension business in the United States would probably be no less than its statutory book value of about $18-billion. Some estimates have put the value of AIG's U.S. life insurance operations at $24-billion. Manulife's market value is about $46-billion.

Research firms have said that Warren Buffett's Berkshire Hathaway, Allstate, MetLife, AXA and Canada's Sun Life are among the potential other bidders for AIG's businesses. AIG has enlisted JPMorgan and Blackstone Group to co-ordinate the sales effort.

MANULIFE (MFC)

Close: $32.75 (U.S.); down $1.30

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