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Insurance survey 2010: Insurers weigh benefits and risks of consolidation

The insurance industry needs to consolidate as regulatory pressures build and margins shrink. Yet last year M&A activity in the sector was at a record low. The beginning of 2010 looked promising, but if the Prudential/AIA deal does not succeed, will it signal to the market that it’s still not time? Helen Avery reports.

IF TIDJANE THIAM, UK insurer Prudential’s chief executive, manages to buy the highly prized AIA, it will be something of a miracle. As part of AIG’s plan to pay back the $180 billion of US taxpayer money that it had to borrow during the crisis, the firm has been considering the sale or IPO of its Asian life insurance unit, AIA, which has $60 billion in assets under management and is regarded as AIG’s "jewel in the crown". In February, Prudential stepped forward – the only competitor willing to pay the $35.5 billion that AIG was demanding for the Hong Kong business. However, UK regulator the Financial Services Authority (FSA) was unimpressed. After hacking it out with Prudential about whether the firm was putting itself at risk by making the purchase, the regulator finally relented.

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