It maintains separate insurance funds for policies
By GENEVIEVE CUA 16 September 2008
(SINGAPORE) The troubles dogging the American International Group Inc (AIG), the US-based parent of life insurer AIA and non-life insurer American Home Assurance here, will not affect policy contracts, say the group’s executives.
News yesterday that AIG Inc is seeking US$40 billion from the Federal Reserve in short-term financing raised questions on the possible ripple effect on its Singapore units. The fresh capital is to stave off ratings downgrades, which could force AIG to post up to US$14.5 billion more in collateral, Reuters reported.
The news agency added that a downgrade could also hurt the insurance business as some policies carry clauses that nullify a contract in the event of downgrades below a certain level. AIG has been hit by US$18 billion in losses from guarantees that it wrote on mortgage derivatives.
In Singapore, BT understands that AIA, as with other insurers here, maintains separate insurance funds for policies. Any sub-prime losses that may be borne by AIG at the group level are understood to have no impact on Singapore policyholders.
AHA president Kevin Goulding said that AHA here is one of AIG’s premiere insurance operations in the region. ‘Our capital adequacy ratio (CAR) stands at 176 per cent compared to the published CAR requirement per the (Monetary Authority of Singapore) of 120 per cent. In layman terms, this ratio demonstrates that we have sufficient capital in Singapore to pay our claims.’
He added that it was premature to comment on potential downgrades. ‘But at this juncture, we do not anticipate an impact on AHA’s premiums. Our underwriting practices are at the heart of the AIG culture and remain unparalleled; they are one of the core competencies that differentiate us from our competitors.’
MAS said that it is unable to comment on AIG Inc’s position. ‘As a Singapore registered insurer, (AIA Singapore) is required under the Insurance Act and regulations to maintain sufficient financial resources to meet all its liabilities to policyholders at all times. AIA currently meets these regulatory requirements. MAS will continue to monitor the financial position of AIA,’ it said.
Last Friday, S&P placed its rating on AIG Inc and subsidiaries on ‘CreditWatch with negative implications’. It said that it believes that AIG has ‘sufficient capital and liquidity to meet its policyholder obligations and potential collateral requirements, which are significantly greater than the expected cash losses on mortgage-related assets’.
But additional market value losses will place some strain on AIG’s resources, said S&P. ‘Given the movement in the share price, we now believe AIG’s potential access to the capital market may be more restricted in the short term,’ it said.
THE world’s largest insurer, New York-based American International Group (AIG), is rushing out details of plans to turn around the firm, which has been hit by the United States financial crisis.
But Singapore policyholders of its subsidiaries AIA and American Home Assurance Singapore (AHA) have been reassured that their policies will be honoured - irrespective of the turmoil.
When contacted, the Monetary Authority of Singapore (MAS) said yesterday that AIA Singapore is required under the Insurance Act and Regulations to maintain sufficient financial resources to meet all its liabilities to policyholders at all times.
‘AIA currently meets these regulatory requirements. MAS will continue to monitor the financial position of AIA,’ MAS stated in an e-mail reply.
MAS added that it has the legislative power to establish a fund to protect policyholders.
AIG said yesterday that it had brought forward the announcement of its reorganisation plans from Sept 25 to last evening. Details were unavailable by press time, but in the works are a major reorganisation and disposal of some assets to raise capital and stave off credit downgrades.
AIG had its rating cut to AA minus in May by Standard & Poor’s (S&P) after it reported larger than expected losses in the first three months of this year. As at end-June, AIG’s losses amounted to US$13.2 billion (S$18.9 billion).
When contacted, AIA - one of the largest insurers here with 4,000 agents - was unable to comment as it needed clearance from its head office. However, The Straits Times obtained an internal memo, used by staff to respond to customer queries on the issue.
It stated that AIA, as with all other life insurers here, maintained separate insurance funds for policies issued here. ‘Any sub-prime losses that may be borne by AIG at the group level have no impact on policyholders here,’ it said.
A check on its latest participating life fund report indicated it does not hold any sub-prime securities.
AHA’s president Kevin Goulding said it was premature to discuss potential downgrades, but that AHA does not anticipate any impact on premiums or its ability to pay claims.
This is because its buffer is far above what is required by the authorities - so it has sufficient capital here to pay claims. Still, financial experts say that a credit downgrade may cause a perception issue with new and existing policyholders.
‘It would create doubts in the minds of policyholders as to whether they should deal with a company that may not be financially secure and whether they should withdraw their existing savings (even at a loss) to prevent it being frozen should the company fail at the later stage,’ said former president of the Singapore Insurance Institute Stanley Jeremiah.
The head of a financial advisory firm, who declined to be named, said the impact of a credit downgrade on policyholders’ perceptions could not be discounted. ‘If people misperceive that there are problems with any financial institution, there will be a run on the bank,’ he said.
AIG used to enjoy the highest AAA credit rating awarded by S&P. Such a rating is currently awarded by S&P to Canadian Manulife Financial which has a subsidiary here. Local insurer NTUC Income is rated AA by S&P whilst Great Eastern Life does not subscribe to a rating service.
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US storm won’t hit AIA policyholders
It maintains separate insurance funds for policies
By GENEVIEVE CUA
16 September 2008
(SINGAPORE) The troubles dogging the American International Group Inc (AIG), the US-based parent of life insurer AIA and non-life insurer American Home Assurance here, will not affect policy contracts, say the group’s executives.
News yesterday that AIG Inc is seeking US$40 billion from the Federal Reserve in short-term financing raised questions on the possible ripple effect on its Singapore units. The fresh capital is to stave off ratings downgrades, which could force AIG to post up to US$14.5 billion more in collateral, Reuters reported.
The news agency added that a downgrade could also hurt the insurance business as some policies carry clauses that nullify a contract in the event of downgrades below a certain level. AIG has been hit by US$18 billion in losses from guarantees that it wrote on mortgage derivatives.
In Singapore, BT understands that AIA, as with other insurers here, maintains separate insurance funds for policies. Any sub-prime losses that may be borne by AIG at the group level are understood to have no impact on Singapore policyholders.
AHA president Kevin Goulding said that AHA here is one of AIG’s premiere insurance operations in the region. ‘Our capital adequacy ratio (CAR) stands at 176 per cent compared to the published CAR requirement per the (Monetary Authority of Singapore) of 120 per cent. In layman terms, this ratio demonstrates that we have sufficient capital in Singapore to pay our claims.’
He added that it was premature to comment on potential downgrades. ‘But at this juncture, we do not anticipate an impact on AHA’s premiums. Our underwriting practices are at the heart of the AIG culture and remain unparalleled; they are one of the core competencies that differentiate us from our competitors.’
MAS said that it is unable to comment on AIG Inc’s position. ‘As a Singapore registered insurer, (AIA Singapore) is required under the Insurance Act and regulations to maintain sufficient financial resources to meet all its liabilities to policyholders at all times. AIA currently meets these regulatory requirements. MAS will continue to monitor the financial position of AIA,’ it said.
Last Friday, S&P placed its rating on AIG Inc and subsidiaries on ‘CreditWatch with negative implications’. It said that it believes that AIG has ‘sufficient capital and liquidity to meet its policyholder obligations and potential collateral requirements, which are significantly greater than the expected cash losses on mortgage-related assets’.
But additional market value losses will place some strain on AIG’s resources, said S&P. ‘Given the movement in the share price, we now believe AIG’s potential access to the capital market may be more restricted in the short term,’ it said.
AIA policyholders get assurance
By Lorna Tan
16 September 2008
THE world’s largest insurer, New York-based American International Group (AIG), is rushing out details of plans to turn around the firm, which has been hit by the United States financial crisis.
But Singapore policyholders of its subsidiaries AIA and American Home Assurance Singapore (AHA) have been reassured that their policies will be honoured - irrespective of the turmoil.
When contacted, the Monetary Authority of Singapore (MAS) said yesterday that AIA Singapore is required under the Insurance Act and Regulations to maintain sufficient financial resources to meet all its liabilities to policyholders at all times.
‘AIA currently meets these regulatory requirements. MAS will continue to monitor the financial position of AIA,’ MAS stated in an e-mail reply.
MAS added that it has the legislative power to establish a fund to protect policyholders.
AIG said yesterday that it had brought forward the announcement of its reorganisation plans from Sept 25 to last evening. Details were unavailable by press time, but in the works are a major reorganisation and disposal of some assets to raise capital and stave off credit downgrades.
AIG had its rating cut to AA minus in May by Standard & Poor’s (S&P) after it reported larger than expected losses in the first three months of this year. As at end-June, AIG’s losses amounted to US$13.2 billion (S$18.9 billion).
When contacted, AIA - one of the largest insurers here with 4,000 agents - was unable to comment as it needed clearance from its head office. However, The Straits Times obtained an internal memo, used by staff to respond to customer queries on the issue.
It stated that AIA, as with all other life insurers here, maintained separate insurance funds for policies issued here. ‘Any sub-prime losses that may be borne by AIG at the group level have no impact on policyholders here,’ it said.
A check on its latest participating life fund report indicated it does not hold any sub-prime securities.
AHA’s president Kevin Goulding said it was premature to discuss potential downgrades, but that AHA does not anticipate any impact on premiums or its ability to pay claims.
This is because its buffer is far above what is required by the authorities - so it has sufficient capital here to pay claims. Still, financial experts say that a credit downgrade may cause a perception issue with new and existing policyholders.
‘It would create doubts in the minds of policyholders as to whether they should deal with a company that may not be financially secure and whether they should withdraw their existing savings (even at a loss) to prevent it being frozen should the company fail at the later stage,’ said former president of the Singapore Insurance Institute Stanley Jeremiah.
The head of a financial advisory firm, who declined to be named, said the impact of a credit downgrade on policyholders’ perceptions could not be discounted. ‘If people misperceive that there are problems with any financial institution, there will be a run on the bank,’ he said.
AIG used to enjoy the highest AAA credit rating awarded by S&P. Such a rating is currently awarded by S&P to Canadian Manulife Financial which has a subsidiary here. Local insurer NTUC Income is rated AA by S&P whilst Great Eastern Life does not subscribe to a rating service.
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