The Tata group may exercise its option to buy out AIG’s 26% stake in the life and non-life insurance ventures if the US government sells AIG’s business to other insurance companies. The joint venture agreement contains provisions that allows the Tatas to buy out their foreign partner if it gets acquired by any other company.

When contacted, a Tata Sons spokesperson refused to comment on whether it would buy AIG’s stake in Tata AIG Life and Tata AIG General. He said: “We do not respond to speculative enquiries or comment on artnership/ joint venture matters.”

But insiders admit that there is indeed a clause in the JV agreement which says the Tatas can buy AIG’s stake in case of a change in management control in the foreign company. Industry officials feel that there is every possibility of the Tatas buying their partner’s stake if AIG’s business is taken over by another insurer.

There is a strong likelihood that the US government will sell AIG’s international business entirely or in parts to rival insurance companies. “The right to buyout the foreign partner in the event of a takeover is a standard condition in all joint venture contracts,” said an insurance official.

He added that given the surge in valuation of life insurance companies operating in India it made sense to exercise that option in the first instance and subsequently sell a stake to a new partner if required. Another reason why a buyout by the Tata Group is possible is that almost all the companies being talked about as suitors for AIG’s Asian business are present in India.

IRDA regulations does not allow a foreign insurer to hold stakes in more than one company in the same business. Any insurance company that purchases AIG’s business in Asia will require the approval of IRDA for acquiring a stake in the Indian insurance company.

Potential suitors for various parts of AIG’s insurance operations include European insurers Allianz, Axa, Generali, Prudential and Zurich Financial.Apart from Zurich Financial, all the other insurance companies are present in India. Besides the European insurers, there is a feeling that cash-rich Japanese insurance companies may make a bid. There is talk that Australia’s largest insurer QBE is interested in AIG’s Asian business. QBE too is present in India.

At present the management of Tata AIG’s business in India is in the hands of AIG. The head of the life company Trevor Bull is from AIG and the head of non-life Gaurav Garg was earlier in AIG New York. Unlike European insurers where various lines of business come under a country head, AIG’s operations are structured in such a manner that several product lines report to headquarters in New York. This structure would require a change if various businesses were sold separately, and local businesses could lose some of the advantages of the AIG Franchises.