Too Big to Fail: AIG Continues Global Expansion

AIG (NYSE:AIG) is back to spreading its tentacles far and wide. The financial services giant is teaming up with People’s Insurance Company of China Limited (“PICC Group”) and PICC Life Insurance Company Limited (“PICC Life”) to establish a joint venture insurance agency company.

What is the Business Model for the New Joint Venture?

The new AIG insurance venture “plans to distribute life insurance and other insurance products through a specialized agency force on a nationwide basis with a focus on major cities in China and to engage in reinsurance and other related business cooperation.”

Moreover, AIG plans to help PICC Group get some pop — US$500 million worth — from their IPO in Hong Kong. The fine print states: “AIG has agreed not to dispose of more than 25 percent of such shares without PICC Group’s prior consent for a period of five years, except that AIG will be permitted to sell all of its H shares without such consent after six months if definitive legal documentation for the proposed Joint Venture has not been executed by May 31, 2013 or upon the occurrence of certain events in connection with the proposed Joint Venture.”

This is not AIG’s first dealing with these parties. AIG currently owns approximately 9.9 percent of PICC Property and Casualty Company Limited, a subsidiary of the PICC Group with publicly listed shares in Hong Kong.

CHEAT SHEET Analysis: Is This JV a Positive “Catalyst for AIG’s Stock”?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Mergers & acquisitions or joint ventures are always events investors should watch closely. How much money is being spent? How quickly will shareholders recognize a return on investment?

In this case, AIG sees a market opportunity in China and PICC is the vehicle to exploit the market. Any savvy investments made in China with domestic partners should prove beneficial for AIG in the long run. AIG’s stock is already up over 40 percent year-to-date, so don’t expect this single deal to be a huge driver to the upside given the time it will take to execute on the ground.

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