10 companies vying to acquire Philamlife

Oct 07, 2008 (The Manila Times - McClatchy-Tribune Information Services via COMTEX) -- SMGBY | Quote | Chart | News | PowerRating -- Philippine-American Life and General Insurance Co. (Philamlife) on Monday said that it would make its potential buyers pass through the wringer.

Industry experts said big corporate names that might be interested and have the capacity to acquire Philamlife's assets are San Miguel Corp., Asia's biggest food and beverage company, and the Ayala group.

Its president and chief executive officer, Jose Cuisia Jr., though, ruled out that he was interested in taking over, denying that he was leading a "management buy-out" of the Philippines' largest insurer.

Philamlife's parent company, the troubled American Insurance Group (AIG), earlier announced that it was selling its local unit Philamlife.

After it was driven to the brink of collapse, the New York-based AIG decided to divest some of its prized stakes worldwide to repay an $85-billion emergency facility from the US Federal Reserve.

Divestment was seen to save the world's largest insurer from bankruptcy on the back of massive losses on mortgage derivatives.

Cuisia told a news briefing that he was "surprised" with the decision of AIG, since Philamlife could be considered a "crown jewel" to AIG.

Despite the unexpected decision of the parent firm, he said, Philamlife has already set criteria for short-listing the potential buyers.

Such buyers, Cuisia added, should be reputable and with strong financial standing and can provide employees with more growth prospects.

He said: "Some [potential buyers] will be cut off" from the shortlist if they fall short of the standards.

10 firms interested

About 10 interested entities both foreign and domestic, including another major local insurance player, the Yuchengco group, have shown interest in acquiring AIG's business in the Philippines.

"I would say that these are very respectable groups, also successful groups, which is why it is very encouraging for us," Cuisia also told reporters.

He, however, declined to disclose other interested buyers of Philamlife.

Analysts said Philamlife may be too big for a single entity to digest.

But besides the 10 parties, Cuisia, a former governor of the Philippines' central bank, said there might also be other potential buyers who have separately approached AIG's sale advisers J.P. Morgan Chase & Co. and Blackstone Group.

The advisers would help AIG decide whether to sell Philamlife as a whole or part by part, he added.

"This is an opportunity for local companies to own a trophy company," the Philamlife chief said

In denying that he was leading a management-led buyout of Philamlife, Cuisia said: "I want to make sure that the policy holders' and employees' interest are protected."

While the company will seek to retain all its employees, he conceded that there could be some "rationalization" if a buy-out led to duplication of jobs.

To date, Philamlife has interest in insurance, banking and asset management.

It has total assets of P170 billion and consolidated net worth of P49.5 billion as of last year and employs about 1,500 people.

The bulk of the company's invested assets is concentrated in marketable Philippine government securities, corporate bonds and blue chip equities.

Philamlife subsidiaries and affiliates are Philam Insurance Co. Inc., a merger of American Home Assurance Co. and Philippine American General Insurance Co.; Philam Care Health Systems Inc.; Philam Plans Inc.; Philam Asset Management Inc., which administers three mutual funds, Philam Bond Fund, Philam Fund and Philam Strategic Growth Fund; Philam Financial Advisory Services Inc.; and Philam Properties Corp.

Stronger institution

Finance Secretary Margarito Teves said the government hopes that the sale of Philamlife would have a net positive impact on the domestic insurance industry and result in a stronger institution.

"Philamlife as market leader can very well pay claims and underwrite new policies given its capital strength and fiscal prudence in line with reforms that we have instituted in the local insurance industry," Teves also told reporters in a text message.

He said that the government would continue with the reforms, particularly the increase in capitalization to help ensure that insurance companies are better prepared to tackle unexpected challenges such as the ongoing US financial turmoil.

Insurance Commissioner Eduardo Malinis said his agency would scrutinize all potential buyers of Philamlife and would make sure that terms and conditions of all policyholders will not be changed.

"We're on top of this, we will see to it that the rights of policyholders are adequately enforced," he added.

According to Cuisia, Philamlife has P143-billion worth of insurance policies, translating to over a million policyholders.

In announcing the criteria for potential buyers, he said no timeframe had been set by AIG for the sale of Philamlife.

Cuisia put the Philippine unit's net worth at P49.4 billion ($1.05 billion).

"AIG announced that it will refocus the company on its core property and casualty insurance business to repay its loan from the Federal Reserve Bank of New York," he said.

"AIG is seeking top-rated, financially strong brand names with the capability to continue Philamlife's legacy of leadership, strength, stability and dedication, to its policy holders, employees and shareholders," Cuisia added.

He said Philamlife remains "strongly capitalized" and would be able to meet all its commitments to depositors, investors and policy holders.

Cuisia added that most of Philamlife's investments were tied to government securities and bonds, and that the firm did not have any offshore exposure to troubled American financial institutions.

Michael Khalaf, Philamlife deputy president and chief operating officer, said the company has for decades remained a "net contributor" to AIG.

Yunchengco offer

The Yuchengco Group of Companies earlier launched an offer to purchase Philamlife.

Its officials declined to comment when asked on the progress of talks after AIG announced that it was selling Philamlife.

Lorenzo Tan, the president and CEO of Yuchengco-owned Rizal Commercial Banking Corp., said there was "no word at this time" on the offer to buy Philamlife out.

The Yuchengcos' insurance business includes Great Pacific Life Assurance Corp. (Grepalife), unlisted non-life insurer Malayan Insurance Co. Inc. and Great Life Financial Assurance Corp. They also list Funeraria Paz Sucat Inc. and Lifetime Plans as insurance businesses.

Industry officials doubt the possibility of local insurers forming a consortium to purchase Philamlife as a majority of Philippine insurance firms are mainly family-owned.

When asked if the Yuchengco Group of Companies is qualified to buy Philamlife out, Cuisia declined to comment but said that the group could make recommendations.

--With Francis Earl A. Cueto

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