The Philippine American Life and General Insurance Co. (Philamlife) cancelled an ongoing bidding process after a new bailout package from the US government resulted in the folding of the Philippine firm under AIG’s Asian unit.

In a statement Wednesday, Philamlife said that it “will be retained and made part of the American International Assurance Co. Ltd. (AIA) group.”

The change in AIG’s asset sale strategy is reported to be an effort by AIG and officials of the US government to prevent a fire sale of the US insurance behemoth’s crown jewels, and a way to buy itself some time to wring out higher bid prices for its assets.

Philamlife, which was put in the auction bloc in October, has attracted the interest of at least 10 of Philippines’ biggest capitalists who toyed with the idea of buying their way to the top of the local life insurance industry.

By February, however, at least four groups of Filipino firms and their foreign partners were reported to have submitted their bids for Philamlife before the February 25 deadline.

The bids for Philamlife reportedly fell short of how much AIG considered as fair market value. Previously, AIG was reported to be expecting about $2 billion from the sale of Philamlife.

The bidders are said to be dismayed by AIG’s decision to halt the bidding process, which they described as “very expensive.” The bidders reportedly hired lawyers, consultants and other experts to assist them in reaching a bid price.

Standalone

Philamlife may be a drop in the AIG’s billion-dollar bucket, but it used to be a standalone insurance unit that boasts of a legacy position of being in a market and region where AIG first started its foreign business decades ago.

Hongkong-based AIA, on the other hand, is AIG’s insurance arm for its hodgepodge stake in Asia and Pacific markets where AIG has either layered or direct stake or joint venture agreements with local players.

With Philamlife now being folded under the wing of AIA, both crown jewels could then be offered to bidders who might be willing to sweeten their bids. By delaying the sale, AIG could give prospective suitors, which reportedly include Manulife Financial Corp, more time to address the global economic crisis that hammered them and hampered their ability to make offers.

Asian bloc

In Philamlife’s Wednesday statement “AIA said it was appropriate at this time to include Philamlife in the new AIA structure as the rest of AIA is being separated from AIG and positioned as an independent operation.”

According to Philamlife President and CEO Jose Cuisia, the move will provide the company with access to resources and Asia-wide networks, with AIA as a leading life insurance organization in the region.

"Philamlife is and has historically been a strong business. It is a leading life insurer in the Philippines with the widest network of offices, largest number of agents and most extensive portfolio of products and services," Cuisia said.

For his part, AIA President Mark Wilson said it was appropriate to include Philamlife to the new structure, as the rest of AIA is slowly being separated from American International Group Inc. (AIG) and being positioned as an independent operation.

"The Philippines is a very important part of the AIA Asian landscape. We are confident that there will be benefits for Philamlife’s customers, employees and agents from being fully integrated into Asia’s leading insurance company. This will further improve the structure and business of Philamlife," Wilson said.

Sources earlier said Prudential Plc. and Manulife Financial Corp. have made preliminary offers for AIA, but Prudential's offer fell short of what AIG wants for the business. AIA is AIG's Asian unit.

China Life Insurance Co. Ltd., which was seen as another large potential bidder, has already pulled out of the auction for AIA, on worries about the quality of the business.

The auction of AIA, one of AIG's prized and largest assets, has faltered, with bidders dropping out and AIG finding it hard to get people to pay top dollar for the business.

AIG wants between $20 billion and $40 billion for AIA, depending on the size of the stake sold. With Reuters