AIA Confirms Deal for Malaysian Life Insurer

Asian insurer AIA Group Ltd. 1299.HK -0.17% confirmed plans to buyING Groep NV's INGA.AE +0.05% fast-growing Malaysian life-insurance operations for $1.73 billion in cash.

The Wall Street Journal reported Wednesday that a deal for the Malaysian insurer, considered the crown jewel of ING's Asia business, could be announced as soon as Thursday, citing people familiar with the deal.

AIA, which was sold by its parent, American International Group Inc., AIG +0.11% two years ago, beat out several of the world's biggest insurers, such as Canada's Manulife Financial Corp. MFC.T -0.92% and the two biggest U.S. life insurers, MetLife Inc.MET -1.28% and Prudential Financial Inc. PRU -1.01%

North American insurers found it hard to compete against AIA's financial strength. Investors have embraced AIA's business since it went public in Hong Kong in October 2010 partly because of the insurer's exposure to some of the fastest-expanding markets in the world, with a presence in 16 markets across Asia.

AIA's forward earnings multiple is 18.3 times, compared with Manulife, at 13.8 times; MetLife, at about 6.6 times; and Prudential PRU.LN 0.00% Financial, at about nine times.

AIA's shares have risen 50% since its initial public offering and climbed 0.3% to HK$29.70 on Thursday after the announcement.

AIA also has built up a formidable war chest, with billions of dollars in excess capital above the required buffer stipulated by regulators. AIA said it would finance the purchase using its own cash and external debt financing.

The deal is AIA's first major acquisition since its IPO, dwarfing its purchase of a small Sri Lankan insurer for $109 million in September.

Insurers from around the world have called Southeast Asia a sweet spot and have been trying to bulk up in the region. ING's sale represented a rare opportunity to buy a large life-insurance business in Malaysia, with 9,200 sales agents, and establish a valuable banking partnership with Malaysia's Public Bank through which an insurer could sell its policies.

AIA said the deal would create Malaysia's largest life insurer in terms of premiums sold, leapfrogging Malaysia's Great Eastern Life Assurance and Britain's Prudential PLC. AIA said the deal would have an immediate positive financial impact for itself.

AIA is already has the fourth-biggest life insurer in Malaysia in terms of premiums; AIA expects to cut $24 million in costs annually by eliminating overlap between the two businesses.

Some challenges remain. AIA's management now has to spend resources integrating its new purchase a process which AIA estimated would cost $55 million spread over three years. The deal is still subject to regulatory approval.

For ING, the sale is the first fruits in a dismantling of its Asian insurance operations. Of its broad Asian franchise, bidders fought most fiercely over its Malaysian business. The company expects to record a net gain of around EUR780 million after the deal closes.

ING had hoped to announce the sale of other businesses in the region in tandem with the Malaysian sale; however, people with knowledge of the matter said negotiations regarding ING's Japanese business had stalled after the local regulator voiced concerns.