HONG KONG - For handlers of AIG's massive IPO of its Asian life insurance unit, getting investors to recognize the name and the size of the business is the easy part.

A more difficult task will be assigning the right valuation to the company, and to do so before the region's equity markets fall further.

The planned size of American International Assurance's (AIA) Hong Kong IPO has ballooned, from around $5 billion a year ago to more than $10 billion. Some reports say it may raise $20 billion.

AIA's IPO plans grew as Hong Kong and China's stock markets surged in the second half, boosting valuations of the region's insurance companies with them.

While AIG suffered a near collapse and a U.S. government bailout, AIA has kept its crown jewel reputation intact.

Hong Kong-based AIA manages more than $60 billion of assets and provides coverage to about 20 million customers throughout Asia, or close to a third of AIG's total customer base.

But putting an exact price tag on AIA may be more difficult than it looks.

TOUGH COMPS

As a regional insurer, AIA stands apart from other IPOs in the industry. Still, for Asia focused investors wanting to bet on the industry's growth prospects, they're spoiled for choice at the moment.

Korea Life, the country's No.2 life insurer, plans to raise up to $2 billion next month, while Dai-ichi Mutual Life Insurance is set to kick off an offering that could value Japan's second-largest life insurer at up to $22 billion.

Markets are also working against AIA's IPO timing. MSCI's index of Asian stock markets outside Japan .MIAPJ0000PUS is down 6.5 percent this year. That means selling IPOs is only getting tougher, as seen in the dismal openings lately of some highly touted Hong Kong deals.

With markets down, will AIA attract a valuation on par with China's top insurers? That's the $10 billion question.

Asia is home to just a handful of big listed insurers, led by China Life Insurance and rival Ping An Insurance -- the world's two most valuable life insurers by market capitalization -- and Taiwan's Cathay Financial Holdings.

Whether using embedded value -- the life insurance industry's most important measuring stick -- or price to earnings multiples, AIA's Chinese peers trade at lofty levels. That will be a key factor for investors when determining the IPO price and the total worth of the company.

AIA appears to be on track to earn $1.2 billion after taxes, Credit Suisse said in a research note. Emerging market Chinese insurers trade at a multiple of 27 times price to earnings (P/E), while developed market insurers trade on average at a 15 times P/E multiple. Using a blended multiple of 22 times for AIA, the bank says AIA could be worth a total of around $30 billion.

Companies usually sell around 25 percent of themselves to public shareholders in an IPO.

Despite AIA's move to break free from AIG, Credit Suisse and others are also factoring in concerns investors may have with associating the Asian life insurance group with its troubled parent.

AIA declined to comment for this article.

CHINA PRICE

China represented about 10 percent of earnings in AIA, according to the Credit Suisse report. Overall, the mix between developed markets, including Hong Kong, Singapore and Korea and growth emerging markets, including China and Malaysia, is about 55 percent and 45 percent, respectively, the report said.

The growth rate of AIA in developed markets, such as Hong Kong, Singapore and Korea, will slow down as the penetration rate of life insurance in these countries is already high, said an insurance industry analyst who was not allowed to be identified.

Given AIG's long history in the region and AIA's leading position as a pan-Asia insurer, the company will have little trouble attracting institutional and retail investors.

But some analysts wonder about AIA's growth prospects in China's insurance market, where domestic competition is extremely fierce, and business development is famously slow.

Though AIA is the only foreign life insurer to operate a 100 percent-owned unit in China, it had only 1 percent market share in 2008 while No.1 China Life Insurance had 42.7 percent market share, according to China Insurance Regulatory Commission data. AIA is also the largest foreign insurer in China.

AIA faces tough domestic competition in other markets too, battling bank backed-life insurance firms with extensive networks.

There is little doubt AIA has a great story to tell. The question is whether the company's valuation and growth prospects match the region's other top insurers, and whether Asia's stock markets can hold up until the IPO hits.

(US$1=HK$7.75)

(Editing by Michael Flaherty and Lincoln Feast)

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