HONG KONG, April 19 (Reuters) - Siam Commercial Bank (SCB) has entered into exclusive talks with Hong Kong insurer FWD Group to sell its life insurance arm, which could raise $3 billion for Thailand's third-biggest lender, people with direct knowledge of the matter said.
A successful deal would rank as the largest insurance M&A transaction in Southeast Asia, and the biggest in Asia since the merger of two insurance companies in India valued at $3.2 billion in August 2016, according to Thomson Reuters data.
FWD, owned by Hong Kong tycoon Richard Li, the youngest son of Asia's richest man, Li Ka-shing, entered into exclusive talks last month, and a decision is likely by the end of May, three people said.
If the deal were to fall through, SCB could consider new bidders, the people told Reuters.
Southeast Asia has emerged as a battleground for foreign insurers attracted by the region's lower insurance penetration levels and faster growth rates for life insurance premiums than in their home markets.
The acquisition will help FWD expand its existing wholly owned insurance business in Thailand, which started in 2012 and had total assets of about 74.7 billion baht ($2.2 billion) at the end of 2015, data on its website showed.
Aaron Pan, a spokesman for FWD Group in Hong Kong, declined to comment on "market rumour or speculation", while a spokeswoman at SCB had no immediate comment.
All the sources spoke to Reuters on condition that they not be named as they were not authorised to speak to the media.
Five years after selling out of Asian insurance, FWD founder Li returned in 2012 by paying $2.14 billion in cash for ING Groep NV's Hong Kong, Macau and Thai insurance operations.
Since then, FWD has grown its presence in the region's fast-growing and under-penetrated insurance sector, expanding into markets including Indonesia, the Philippines and Vietnam. It now has more than 11,000 insurance advisors and over 1.1 million customers in Asia.
In its most recent Asian deal, FWD agreed in November to buy American International Group Inc's Japan life insurance business AIG Fuji Life Insurance Company Ltd for an undisclosed sum.
Reuters had reported in January that Hong Kong-based AIA Group, Manulife Financial Corp, and Prudential Plc were among insurers weighing a bid for SCB's insurance business. SCB Life Assurance is among the top insurers in Thailand.
Some quit the process due to a mismatch in valuation expectations, two of the people said. Representatives at AIA, Manulife and Prudential declined to comment on the deal process.
Asian insurance M&A is on the rise, with volumes for the top five announced deals at nearly $3 billion this year, including the sale of Hong Kong Life Insurance Ltd for $914 million last month.
A number of large deals are also in the pipeline, including the sale of Australia and New Zealand Banking Group's life insurance and wealth business valued at more than $3 billion.
Aviva is considering selling its Friends Provident International unit, which offers life assurance and investment products, in a deal that could raise between $500 million and $700 million, Reuters reported last month. ($1 = 34.3000 baht) (Reporting by Sumeet Chatterjee in HONG KONG and Anshuman Daga in SINGAPORE; Additional; Editing by Will Waterman)