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Prudential in Advanced Talks to Acquire Japanese AIG Units

|Includes:AIG, Prudential Financial, Inc. (PRU)

Although a sale of its two remaining Japanese life insurers – AIG Star Life and AIG Edison Life – represents a change from AIG CEO Bob Benmosche’s November 2009 statement that retaining and operating the two was the way AIG would “obtain the greatest value” from them, the sale makes sense, and the rumored $4.8 billion price Prudential will reportedly pay for them is in line with the $5 billion price bandied about when rumors of the sale emerged in July 2010. It also makes sense in the context of the government and AIG’s recent push to accelerate the insurer’s exit from government control.

Through the acquisition, Prudential will add to its already strong franchise in Japan. Prudential was the first to wholesale insurance products to external sales channels in the mid-1990s, and by now – through its two Japanese subsidiaries Prudential of Japan and Gibraltar Life – is the fifth largest life insurer in Japan, and the largest foreign one, as measured by new business in face amount (around $53 billion). The acquisition of Star and Edison should suffice to move it into fourth place, above Sumitomo Life, and should keep it larger than rival MetLife once the latter’s acquisition of AIG subsidiary ALICO is completed.

With #1 Japanese life insurer Dai-ichi having raised $11 billion March in what was at the time 2010’s largest IPO (since eclipsed by those of China’s AgBank and Brazil’s Petrobras), pressure may mount on other large Japanese life insurers to raise capital or otherwise bulk up to become more aggressive.

Disclosure: index funds only

Stocks: PRU, AIG