Sept. 18 – The turmoil at AIG and subsequent US$85 billion bail out by the U.S. government sent panicked policy-holders to offices throughout Asia yesterday. AIG, the world’s sixth-largest company by assets and the biggest insurer is now facing the possibility of a measured sell-off to pay off the U.S. Federal reserve’s loan within two years.

This could mean significant fall out in Asia, where AIG has extensive holdings. Founded in 1919 in Shanghai, it is China’s largest foreign-owned life insurer by premium. And according to the New York Times, 62,00 of AIG’s 116,000 direct employees work in Asia, and about 40 percent of AIG.’s US$54 billion in life insurance premiums and retirement services fees is from Asia (excluding Japan).

A Shanghai-based official, who declined to be named, told Dow Jones Newswires that AIA China, AIG’s China unit, is still analyzing the impact of the Fed’s rescue package on its operation in China.

She said AIA China had told Chinese clients that it is locally incorporated, with its capital base and solvency meeting Chinese regulatory requirements.

While AIG could still end up in bankruptcy, the short term danger is that if customers continue to walk away from AIG subsidiaries, they will lose value to prospective buyers. The continued chaos at AIG could be on the stock price of the People’s Insurance Company of China Property and Casualty, a listed Hong Kong firm that AIG owns a 9.9 percent stake in.

Chinese insurers also face a greater counter-party risk from the collapse of AIG than from Lehman Brothers. Asia Times quoted Citigroup analyst Bob Leung as saying “if AIG loses it’s a- rating or its situation worsens significantly, we expect the financial impact to affect mainly P&C insurees.”