Manulife seen eyeing AIG assets in U.S. upheaval

By Lynne Olver

TORONTO (Reuters) - Canadian life insurance company Manulife Financial Corp (MFC.TO) could be well placed to pick off some business lines from American International Group (AIG.N) 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.

But at the same time, analysts are scrambling to estimate Manulife's investment exposure to the securities of AIG, whose stock plunged again on Tuesday, and to Lehman Brothers Holdings LEH.N, which filed for bankruptcy protection this week.

Manulife has been mum about its exposure to either U.S. financial company, as has fellow Canadian life insurer Great-West Lifeco (GWO.TO). Calls to the companies seeking details were not immediately returned.

Their smaller competitor, Sun Life Financial (SLF.TO), disclosed its Lehman holdings on Monday.

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.

Genuity Capital Markets analyst Mario Mendonca said on Tuesday that he was "increasingly uncomfortable" about Manulife's silence on AIG and Lehman. But he said Manulife might not be able to comment if it is bidding for some AIG assets.

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, 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.

Manulife's shares fell 3.1 percent to $33.50 on the New York Stock Exchange on Tuesday, giving it a market capitalization of $50 billion.

AIG's share price has shriveled about 80 percent in the past month on liquidity concerns, as the company is obliged to guarantee complex debt securities.

After a wildly volatile session, AIG stock closed down 21 percent at $3.75 on Tuesday, putting its market cap at just $10 billion.