Q+A-How will AIG's Nan Shan sale affect Taiwan M&As?

TAIPEI, Oct 14 - American International Group's sale of its Taiwan insurance unit for $2.15 billion marks the island's biggest acquisition deal and the largest disposal by the troubled U.S. insurer.

Primus and its little-known Chinese partner, China Strategic, edged out Chinatrust Financial to win the bid for Nan Shan Life, ending a five-month auction that involved private equity firms and local players.

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Here are questions and answers about the impact of the deal on Taiwan's insurance market, Asia's fourth largest.

WILL IT GET MORE CHINA-LINKED, FOREIGN FIRMS TO ACQUIRE TAIWAN'S FINANCIAL INSTITUTIONS?

Taiwan and China are expected to sign a financial pact this month that will open up each other's markets.

The Nan Shan deal will help spur more investment in Taiwan from China-linked firms to invest as they seek to build a presence in Taiwan, perhaps aimed at complementing operations in Hong Kong and China. More M&A interest would also come on warming trade ties across the Taiwan strait.

For example, China Life Insurance and Ping An Insurance are seen as future entrants to a market estimated at roughly $60 billion, which is attractive mainly for its wealth and government pension funds.

However, non-China-linked companies might still leave the Taiwan market. MetLife, a small player in Taiwan with market share of less than one percent, could dispose of its assets by selling to Chinatrust, which lost the Nan Shan bid.

"Foreign firms are getting out of the Taiwan market because of their own problems at home and not because they are bearish on Taiwan," said Rayming Yu, chief investment officer at Prudential Financial Securities Investment Trust.

"If AIG can sell Nan Shan at such a price, then there is some attraction in Taiwan market. The Taiwanese are quite wealthy, compared to most of Asia and also, some of these firms would want to use Taiwan as a springboard to the Chinese market."

HOW DO FOREIGN INVESTORS SEE THE VALUE OF TAIWAN INSURERS?

Foreign investors remained overall neutral on the value of Taiwan insurers. Their outlooks were mixed as the prospects of expanding into the Chinese market are capped by declining insurance business in the mature, competitive home market. Taiwan's insurance industry grew 1 percent last year after an 18 percent jump in 2007 and 6 percent growth a year earlier.

WILL THE DEAL POSE A THREAT TO NAN SHAN'S BIGGER RIVALS?

The Nan Shan sale is seen having little impact on rivals Cathay Financial and Fubon Financial, whose insurance units are the two biggest in Taiwan.

Nan Shan's 10 percent market share trails behind the 25 percent held by Cathay and the 14 percent of Fubon. Both are dominated by the wealthy and influential Tsai families.

WHAT IMPACT DOES THE DEAL HAVE ON BANKING AND INSURANCE SHARES?

The deal provided support for shares of Chinatrust Financial after it lost the bid to Primus, because a successful bid would have diluted values for the firm's shareholders, which had planned help fund the acquisition by selling shares to raise at least $1.4 billion.

The Nan Shan sale also sparked concerns Cathay and Fubon stocks were overvalued. The deal priced Nan Shan at about one time its price to book value, below the 1.9 times for Cathay and Fubon, analysts said.

IS THE NAN SHAN SALE A DONE DEAL?

The deal, pending regulatory approval, is widely expected to be closed in the next few months, though there is a slim chance Taiwan's financial regulators might disapprove due to concerns Primus and China Strategic are backed by China-related firms.

Taiwan's government worries about Chinese money entering its financial markets because of national security concerns. Despite close trade ties between China and Taiwan, communist China sees democratic self-ruled Taiwan as territory as its own.

Primus executives have repeatedly met Taiwan regulators to try and convince them the company is not backed by a China-sourced fund. (Additional reporting by Joan Hsu)