TAIPEI - American International Group could learn the fate of the stalled $2.2 billion sale of its Taiwan unit Nan Shan Life Insurance as early as Thursday, when Taiwan's parliament will review a report on the deal from the top financial regulator.

The Financial Supervisory Commission (FSC) has set five conditions for the deal, including ensuring the buyers' funding sources meet Taiwan regulations, according to a copy of the report seen by Reuters on Wednesday.

AIG agreed to sell Nan Shan to China Strategic and Hong Kong-based financial services firm Primus Financial in October, but has not been able to close the deal mainly due to concern in Taiwan that the buyers are backed by China-sourced funds, which are prohibited in the island's financial sector.

If lawmakers ask the regulator to go back and 'further understand' the deal tomorrow, that implies it could be rejected, said an official of the Investment Commission, which oversees in-bound and out-bound investments.

If that did not happen, chances are good for the government to approve the deal, said the official, who asked not to be identified as he was not authorised to speak to the media.

The Investment Commission has looked at the deal and has given its findings to the FSC, the island's top financial regulator. The FSC will have the final say after lawmakers have given their views.

Primus Financial declined to comment on the matter. China Strategic was not immediately available for comment.

While relations between Taiwan and China, political foes for decades, have improved since Taiwanese President Ma Ying-jeou took office in 2008 and the two have signed a pact on financial services supervision, Taiwan remains reluctant to fully open industries such as financial services to Chinese investors.

The reluctance stems from concerns that China, which views Taiwan as a renegade province that must be reunified with the mainland, could use its financial muscle to push its political agenda.

LONG-TERM COMMITMENT

The FSC report also said that any buyer must have experience running an insurance business, must give a long-term commitment to Nan Shan and must have the ability to raise money for future business needs.

The FSC has told AIG and the U.S. government about the conditions, which they have fully understood, FSC chairman Sean Chen said later in parliament, where the FSC was formally presenting its report on the Nan Shan deal.

Nan Shan is Taiwan's No.3 life insurer by market share with more than 4 million policyholders.

The report reiterates the part about funding sources, which is exactly what concerns legislators most, said a banking analyst at a local brokerage.

It all boils down to one question: Is the resubmitted application by China Strategic (in January) convincing enough to prove they are not supported by Chinese investors, she said.

The best thing for them to do is probably to keep their mouths shut for now. They would not want to make things more complicated than they already are, said the analyst, who requested anonymity due to the sensitivity of the matter.

In December, Robert Morse, chairman and chief executive of Primus, told Reuters that none of the money backing the acquisition was sourced from mainland China and that he would reassure Taiwan regulators on that issue. [ID:nHKG182972]

He also said he planned to expand Nan Shan's insurance business into mainland China.

AIG has struck two giant deals in March, as it moves to repay tens of billions of dollars to U.S. authorities after receiving $182.3 billion in taxpayer-funded rescue that saved it from collapse in the global financial crisis.

AIG has agreed to sell its Asian life insurance arm, American International Assurance, to Britain's Prudential Plc for $35.5 billion. This week, it sealed a deal to sell its American Life Insurance Co unit to MetLife Inc for $15.5 billion.

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