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Bailed out insurer American Insurance Group and China Strategic Holdings have agreed to extend the deadline for completing AIG’s planned $2.2 billion sale of its Taiwan unit

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While the extension could help AIG and its buyers address concerns from Taiwanese regulators, the longer the transaction is stretched out the less likely it will succeed.

The delay in selling Nan Shan Life adds to the frustration of AIG, which had to abandon the $35.5 billion sale of its Asian life insurance business to Prudential Plc (PRU.L) earlier this month following opposition from Pru shareholders.

China Strategic said in a statement on Monday that the deadline for the Taiwan unit sale had been extended by three months to October 12.

China Strategic and Hong Kong investment firm Primus Financial agreed to buy the unit, Nan Shan Life Insurance Co Ltd, in October 2009. But they have been unable to seal the deal because of concern in Taiwan over their political connections with mainland China and their lack of expertise in the insurance business.

“They keep on asking questions and we have been submitting supplementary information. Some of their questions will need time to solve such as information of our future investors …” China Strategic Chief Executive Raymond Or told Reuters. “We will try our best to address their requests but some issues are out of our control.”

Despite booming business ties, many in Taiwan are suspicious of China’s intentions toward the island, while concerns have also been raised over what might happen to Nan Shan’s more than 4 million policyholders, nearly one-fifth of Taiwan’s population.

The buyers and AIG moved to ease some of those concerns by offering to put $325 million of the purchase price in escrow for four years to beef up the insurer’s capital, but they may consider rejigging the deal.

“The extension of the date of the purchase agreement underscores the commitment of both parties to the successful close of the transaction,” AIG said in a separate statement.

AIG was saved from a near collapse through a $182.3 billion U.S. taxpayer-funded bail out at the height of financial crisis. As a result, AIG is now nearly 80 percent owned by the U.S. government and the insurer is selling assets to repay billions of dollars owed to taxpayers.