Insurance giant American International Group (AIG) said yesterday it intends to acquire a 9.9 per cent stake in China's PICC Property and Casualty Co (PICC), a Hong Kong listing candidate.

Financial terms of the planned investment were not disclosed.

But according to one market source, Reuters reported, PICC's offering is being marketed at one to 1.5 times its book value. Its book value is US$2 billion, which means a 10-per-cent stake could cost US$200-US$300 million.

AIG also said its subsidiary will co-operate with PICC - wholly owned by China's largest property insurer PICC Holding - in the development of the market for accident and supplemental-health insurance (A&H) products in China. AIG's subsidiaries will receive some reinsurance business related to A&H products from PICC.

The co-operation combines PICC's extensive distribution network in China and AIG's long experience and technical expertise in A&H products, AIG said. PICC is running 4,300 branches nationwide, with 26,000 internal sales people and 65,000 independent agents.

It will also give AIG, which was founded in China in 1919, a larger access to the restricted but huge Chinese market.

"We look forward to a long and fruitful co-operation," said Tang Yunxiang, chairman of PICC Holding.

The deal came before PICC's planned listing in Hong Kong, which could take place as early as in November.

PICC and its bankers are pre-marketing its initial public offering (IPO), which could raise US$500 million to US$750 million. Bookrunners for the IPO are Morgan Stanley and China International Capital Corp.

PICC plans to sell 25 to 35 per cent of its enlarged share capital for the stock listing.

PICC is expected to post a 57.9 per cent jump in earnings next year as investment income and net-earned premiums rise.

The company is estimated to earn about 2.35 billion yuan (US$283.13 million) next year, up from an expected 1.49 billion yuan (US$179.52 million) net profit this year, according to Morgan Stanley.

PICC recorded a net profit of 1.32 billion yuan (US$159.04 million) in the first half of this year, compared with 278 million yuan (US$33.49 million) profit for the entire 2002.

PICC is expected to be the first of the three Chinese insurers to go public. China Life Insurance, China's largest life insurer, and Ping An Insurance, the country's No 2 life insurer, are expected to follow.

Ping An is 23.74 per cent held by HSBC, Goldman Sachs and Morgan Stanley.

China limits foreign insurers to operating on a city-by-city basis, with foreign players such as AIG, ING, Prudential and Manulife Financial already in the market.

(HK Edition 10/10/2003 page7)

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