It is reported that only 2600 policies have been surrendered so far, representing 0.1% of AIA's 2.6 million policies. These would mostly be participating (PAR) or investment-linked policies as these are the ones with surrender cash values. Together, these make up 88% of all of AIA's policies.The diagram on the right is taken from AIA's Participating Fund Commentary for Year 2007, which I received as a policyholder with 2 whole life and 1 endowment policies maturing in Yr 2021.
The total par fund assets were valued at S$14.8 billion as at 31/12/07. 74% are in fixed income assets (or bonds), with 21% very safe in SGS. The 15% in equities would have suffered approx 30% drop in values in Yr 2008, in line with local & global decline in stocks.
This week, Mark Wilson, regional president of AIG Life Companies and AIA president, reiterated that AIA Singapore had capital adequacy ratio (CAR) of more than 200 per cent, well above the regulatory minimum of 120 per cent.
That means AIA is saying it has sufficient capital to pay up the guaranteed benefits and cash values of all policies here.
Back on 10/10/07 , Genevieve Cua reported in the Business Times that
AIA's capital adequacy ratio is expected to fall somewhat. "A higher risk exposure will require us to hold more capital or be satisfied with a lower ratio, but our target is to stay at or above 200 per cent which is well within the strongest band. We're easily within the 230 to 240 per cent range." As at end-2005 when AIA's equity weighting was 11 per cent, its capital adequacy ratio was the industry's highest at about 523 per cent, which suggested that it could well afford to take on more risk.
So, given the fall in market values of the par fund, the CAR is probably closer to 200% than 230%.
In reply to queries about asset sales by AIG, Mr Wilson said: “AIA is the jewel in the crown of AIG ... I can confirm that the Asian life and general operations are not one of the things that are being considered for sale.”
Bu, therein lies the problem and future of AIA Singapore. It will have a hard time convincing people to buy its policies as long as it is linked to AIG, which may be saddled with liabilities of up to US$1.42 trillion, compared to assets of US$1 trillion, and whose books appear so bad that no investment companies/banks dared to invest in it, thus triggering its near-collapse.
Its approx 4000 agents, many of whom also represent AHA (the regional operating arm of AIG) will face a double whammy, trying to convince the public to buy/renew either AIA or AHA policies. I expect many AHA general insurance policyholders to turn to other general insurers when their policies fall due for renewal in the coming weeks or even months.
I also expect that AHA and her agents may start using the brand name of AHA rather than AIG when talking to clients.
AHA president Kevin Goulding recently said, '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.'
2 comments:
Given the current distress in the equities markets;the troubles besetting AIG are indeed upsetting.
Even so,AIA,being a life insurer may be sounder than the rest of the subsidiaries.
The small numbers of policies surrendered may not have that much of an impact;although it could take some time before confidence is being restored.
My daughter,ahem,has an endowment policy with AIA maturing next year.Frankly,I'm the least flustered,if at all.
A few years from now,this unfortunate happening is but another unpleasant memory.Time is a great healer,though.
Cheers!
You are right, of course. For a policy maturing next year, there is little to fear. Bonuses declared to date are guaranteed, and there are sufficient reserves to pay all such maturity claims.
The worst that can happen is that AIA hits the solvency margin, whereupon MAS will step in to ensure that the capital reserves are set aside solely to pay all valid claims and liabilities. One that happens however, no bonuses will be further declared, as the reserves are solely to pay all guaranteed values as printed in the policy contracts.
Maturity bonuses, which can be substantial will also be lost but then again, by surrendering now, you also lose out on the maturity bonus anyway.
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