Source: Straits Times

By Lorna Tan, Finance Correspondent

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.