Cablegate: Japan Insurance: Potential Buyers Unsure of Aig's

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RR RUEHFK RUEHGH RUEHKSO
DE RUEHKO #2744/01 2750935
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R 010935Z OCT 08
FM AMEMBASSY TOKYO
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RUEHHK/AMCONSUL HONG KONG 6592
RUEHGH/AMCONSUL SHANGHAI 0470
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RHEHAAA/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 TOKYO 002744

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV JA
SUBJECT: JAPAN INSURANCE: POTENTIAL BUYERS UNSURE OF AIG'S
WORTH

Sensitive But Unclassified. Contains Proprietary Information.

Summary
-------
1. (SBU) AIG Japan's insurance operations are potentially an
attractive acquisition target, given media reports that AIG
Japan's FY2007 direct premium revenue was about $24 billion.
Japanese domestic insurers are showing interest, but
questions remain about AIG subsidiaries' balance sheets,
solvency margins, the details of the U.S. bailout, and how
badly AIG's brand has been damaged. Industry expects to
learn more about AIG's plans during an October 3 conference
call for analysts and investors. At least one foreign
insurer has found it necessary to remind the public it is not
part of AIG. End summary.

AIG's Japan Operations Impressive...
------------------------------------
2. (SBU) American International Group (AIG) has seven life,
non-life, and reinsurance companies in Japan -- Alico Japan,
AIG Star Life, AIG Edison Life, AIU Insurance, American Home
Direct, JI Accident and Fire Insurance, and Transatlantic
Reinsurance Company. AIG also has three investment
management companies in Japan, one securities house, and 13
related companies, including consulting and worker
dispatching firms.

3. (SBU) AIG's Japan operations employ about 26,000 of its
116,000 worldwide direct employees and its life insurance
operations constitute about one-quarter of its global
insurance business. With more than 10 million policyholders,
its Japan life and non-life insurance operations generated
about $24 billion (at 105 yen/dollar) in direct premium
income in FY2007, according to the Japanese business press.

...But Questions Remain About Financial Health and Value
--------------------------------------------- -----------
4. (SBU) Local media have characterized AIG's insurance
operations in Japan as healthy, with good revenue and stable
management. Due to insurance regulations, each of AIG's
insurance subsidiaries maintains a capital reserve for its
own products.

5. (SBU) AIG has announced it will clarify the company's
"direction" on potential sales during an October 3 conference
call for analysts and investors. Domestic insurers are
showing interest in acquiring AIG subsidiaries, should they
be put on the auction block. However, that interest is
tempered by the unknowns surrounding the bailout. Some
subsidiaries carry AIG stock on their balance sheets, for
example, which has led to press speculation about how the
companies' values may have changed with AIG's stock tumble.
Those concerns were heightened September 30 when Alico Japan
announced it had received 90.7 billion yen (about $870
million) from its U.S. parent, prompting questions about
Alico's solvency margin ratio.

6. (SBU) AIG's business is being hurt in other ways as well.
Japanese consumers put an extremely high premium on safety
and security, which means AIG's bailout has damaged AIG's
brand. To reassure consumers, AIG has taken out full-page
advertisements in Japanese newspapers, but as one company
executive told an Embassy official, "No one wants to do
business with us right now." Media report some distributors,
such as Resona Bank, have decided to stop recommending AIG
products.

7. (SBU) Moreover, significant questions remain about the
details of the bailout, both for potential buyers and Japan's
regulators. One company executive shared that the Financial
Services Agency (FSA) has been calling AIG repeatedly with
questions about the company's plans, but, lacking direction
from New York, the company has no answers for the regulators.

TOKYO 00002744 002 OF 002

Industry Rumor Mill
-------------------
8. (SBU) Executives of international and domestic insurers in
Japan were tracing out possible industry acquisitions within
hours of the September 16 announcement of the New York Fed's
$85 billion line of credit to AIG. No offers have surfaced
in public, but some in the industry have floated the idea AIG
Edison or AIG Star Life might be offered for sale. Both
companies bought out Japanese firms that went bankrupt when
Japan's insurance industry fell on hard times, and they are
seen as less integrated into the rest of AIG Japan's complex
legal structure than a subsidiary like Alico. Other
insurance executives suggested to Emboffs that the sheer size
of AIG's life insurance operations make a buyout from a
domestic insurer unlikely. They point to AIG's non-life
businesses and recent international acquisitions from
Japanese non-life insurers as a more promising pairing.

Damage Not Limited to AIG
-------------------------
9. (SBU) While the Fed's $85 billion line of credit appears
to have kept pressure off the company and possible suitors to
rush into deals, AIG's otherwise healthy Japan business has
been damaged -- along with that of other U.S. insurers.
Aflac even saw a need to publish its own full-page
advertisements proclaiming its financial health and subtly
reminding the public it is not part of AIG.
SCHIEFFER

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