U.S.-based global insurer and financial services firm American International Group Inc (AIG) said Thursday it has agreed to take a 9.9% stake in PICC Property & Casualty Co, China's largest general insurer.

The two will cooperate in the development of accident and supplementary health insurance products in China.

"AIG will share in the growth of this business through a reinsurance arrangement under which PICC P&C will reinsure certain accident and health risks in China with AIG subsidiaries," the U.S. company said in a statement.

The announcement comes as the Chinese insurer plans to raise about US$700 million through an initial public offering in Hong Kong next month. It is currently at the stage of pre-marketing the share sale.

A source close to the listing process said the 9.9% stake will represent AIG's holding in PICC P&C's post-IPO share capital. The amount AIG pays for the shares will therefore depend on how the IPO is priced.

"That's already about one-third of PICC's share offer," he said. The company plans to offer around 30% of its enlarged share capital, or 2.4 billion H shares, ahead of a Hong Kong main board listing.

From January this year, China began to allow general insurers like PICC P&C to also sell accident and health policies to individuals, a business traditionally handled solely by life insurers.

Industry experts said, however, that this line hasn't yet contributed a significant share of PICC P&C's business, which remains dominated by auto and property policy sales.

And the general insurer hasn't been aggressively expanding this side of its business either.

According to a research report issued by its listing sponsor China International Capital Corp., the company only chose to enter the accidental injury market, not the short-term healthcare one, in order to avoid the false claims rampant in the latter segment.

Still, PICC P&C has China's largest sales and distribution network, given its 70% share of the country's general insurance market. The agreement with AIG will help it defend that dominance, enabling the Chinese company to leverage the foreign insurer's experience and technical expertise.

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