MetLife Makes Bid To Buy AIG's Alico

Published: Fri 22 Jan 2010

Lucas Eichmann

MetLife is trying to step up its presence in Japan while helping American International Group (AIG) pay back the money it owes the U.S. government.

The insurer would accomplish both if it buys AIG's American Life Insurance, known as Alico, for $14 billion to $15 billion. Negotiations are ongoing and could be done within the next few weeks.

If the deal is made, a minimum of $9 billion would be paid to the Federal Reserve Bank of New York to redeem preferred stock. Other money would help pay for some of the $35 billion in a separate New York Fed credit facility.

MetLife, the largest life insurance partner in the United States, is relatively unknown in Japan. By comparison, competitor Aflac gets 70 percent of its revenue from Japan.

With an aging population in the country, the purchase would offer great potential for MetLife. Like Aflac, 70 percent of Alico's revenue is traced to Japan.

Nearly everyone in the country knows the Alico name. One reason it has become one of the top insurers in the nation is traced to its marketing its products on television in the 1980s, which was unusual for an insurance company at the time. Its business has centered on selling medical and cancer policies.

Alico sells its products through agencies and consultants, mail-order service, financial institutions and online. In the second quarter of 2009, Alico had about 200 offices, 4,600 consultants or employees, and 10,000 agencies in Japan.

Although Alico is one of AIG's best assets, the publicity about its parent's financial problems and the related rescue funds it received in the United States has impacted the brand in Japan.

In 2008 and 2009 AIG was forced to channel additional capital into Alico because the parent's liquidity problems forced down its credit ratings as well as the price of its stock. Many of the units in Japan are eliminating the AIG brand on business cards and other documentation to curb the impact in Japan.

If MetLife is successful in its effort to take over Alico, it indicates American insurers are intent in taking their knowledge of various insurance products across the globe. That could be a challenge for MetLife in Japan. For example, conservative shoppers are not fans of variable annuities because of concerns about the volatile equity markets.

Hartford Financial Services Group can attest to that. The Japan division of the American company had been selling annuities there until it stopped doing so last year.