September 16, 2008 / 9:43 PM / in 9 years

Manulife seen eyeing AIG assets in U.S. upheaval

TORONTO (Reuters) - Canadian life insurance company Manulife Financial Corp could be well placed to pick off some business lines from American International Group if the troubled U.S. insurer has to sell them.

Analysts say Manulife, the biggest life insurer in North America by market value, would at least consider acquiring AIG’s U.S. variable annuity business, and Manulife executives have said they would like to enter the Japanese and Chinese wealth-management markets.

Manulife late on Tuesday outlined its own exposure to AIG and to Lehman Brothers Holdings, which filed for bankruptcy protection this week.

For AIG, it had fixed income investments in the holding company with a par value of $38 million, and other exposures of $9 million. It also had fixed income investments with par value of $190 million in AIG subsidiary American General, and $15 million in Sun America.

For Lehman it had fixed income investments with a par value of $383 million and derivatives exposure, net of collateral, of $12 million.

Manulife had said it expected to take a charge in the third quarter, but the amount had not been determined.

Analysts at BMO Capital Markets and Scotia Capital looked at 2007 year-end filings with U.S. insurance regulators to estimate Manulife’s and Great-West Lifeco’s bond exposures to embattled U.S. financial companies, but actual exposures may have changed since then.

A deal for AIG’s U.S. annuity business or certain Asian businesses “would not likely be enormously accretive in the early going,” but given Manulife’s scale in those areas, an acquisition would likely add significantly to its earnings over the long term, Genuity Capital Markets analyst Mario Mendonca wrote in a research note.

For potential deals, Manulife has more than C$3 billion ($2.8 billion) in excess capital it could spend, plus the ability to take on new debt, said Jukka Lipponen, an analyst with Keefe, Bruyette & Woods in Hartford.

“One of the things that has been mentioned as a potential sale candidate is the (AIG) variable annuity business, and I would imagine Manulife would be interested in that,” Lipponen told Reuters.

But the Canadian company has historically been very disciplined about purchases, and there could be “a fair amount of competition” for that business line, Lipponen added.

Manulife, which acquired Boston-based John Hancock Financial Services in 2004 for nearly $11 billion, overtook AIG as North America’s biggest life insurer by market value last month.

AIG was the largest writer of U.S. variable annuities in 2007 with a nearly 12 percent market share, while Manulife was second with 8.6 percent, RBC Capital Markets analyst Andre-Philippe Hardy said in a research note.

Canadian banks and insurers have been doing deals this year to expand their wealth-management units, which are viewed as steady earners.

Analysts have said some might kick the tires of Neuberger Berman, the asset-management unit of Lehman Brothers that was not part of the parent company’s bankruptcy filing.

Great-West’s U.S. money manager, Putnam Investments, or Sun Life’s U.S. subsidiary, MFS Investment Management, could benefit by adding Neuberger funds to their existing distribution capabilities, but many other potential suitors could bring greater cost-savings to the table, Hardy said.

Reporting by Lynne Olver; editing by Rob Wilson

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