HONG KONG: American International Group Inc, the insurer bailed out by the US government, is near an agreement to sell its Taiwan life insurance unit to Primus Financial Holdings Ltd, sources familiar with the matter said.

New York-based AIG is in advanced talks with Primus and the two companies may sign an agreement as early as next week, the three sources said, asking not to be identified. Primus Financial, co-founded by former Citigroup Inc Asia investment banking chief Robert Morse, offered more than $2 billion for AIG's Taipei-based Nan Shan Life Insurance Co, two of them said.

AIG, once the world's biggest insurer, is divesting units to repay loans included in its $182.5 billion government bailout. The selection of Primus Financial would end a four-month battle for Nan Shan that pitted the Hong Kong-based company against Chinatrust Financial Holding Co and Cathay Financial Holding Co.

Jennifer Chen, a spokeswoman for Primus, declined to comment. An outside spokeswoman for AIG, who declined to be identified citing company policy, had no comment.

Primus and Chinatrust sweetened terms of their offers in September as they entered final talks with AIG, two people familiar with the matter said. Fubon Financial Holding Co and Cathay Financial dropped out of the bidding after AIG rejected their offers, they said.

Nan Shan, with 4 million policyholders, is burdened with unprofitable guaranteed-return policies it sold in the 1990s when interest rates were higher, raising concerns that a buyer may need to inject more capital.

The AIG unit and other Taiwanese insurers sold policies before 2000 with guaranteed returns of at least 6.25 percent, said Andy Chang, a director at Taiwan Ratings, the local partner of Standard & Poor's, in August. Most policies sold now carry returns of about 2 percent, he said at the time.

Nan Shan's 36,000 agents are also asking AIG to return NT$14 billion ($435 million) of pensions that may have been used as operating capital for Nan Shan, Grace Feng, an agent who represents the employees, said in an interview in August. AIG on August 21 agreed to return 27 percent of the amount to the agents once it finds a buyer for Nan Shan, Feng said.

AIG was rescued by the government last year after wrong-way bets on securities tied to US subprime mortgages brought it to the brink of collapse, threatening to cause a financial-system meltdown. The company has in the past year agreed to sell assets that include a US auto insurer, a Japanese office tower and Canadian operations, for about $9.8 billion.

Nan Shan raised $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement. AIG, which owns 97.57 percent of the unit, contributed most of the money. Nan Shan's management holds the rest of the company.

Bloomberg News

(HK Edition 10/07/2009 page2)