AIG Injects Capital into Nan Shan

AIG has injected US$1.36 bil in fresh capital into Nan Shan Life Insurance Co.

We previously reported that AIG would sell stake in its 95% owned Nan Shan.

Source: CNN Money

AIG to sell Nan Shan

AIG is apparently renegotiating with the Government for a lower interest rate and possibly a higher loan package of $150 bil instead of $123 bil. The initial credit line by the Government has a 2-year term and an onerous interest rate above 10%.

Meanwhile, it was also reported that AIG would sell stake in the 95% owned Taiwan's Nan Shan Life Insurance.

Source: The Star 1, The Star 2, Alibaba

No Bonuses for Some AIG's Executives

The executives of AIG Financial Products will not have their bonuses. AIG Financial Products was the particular business responsible for AIG's heavy losses, and the unit and its staff are now paying the price through the bonus freeze.

Source: Insurance Daily

ING Interested in AIG's Asian Businesses

More companies have expressed interest in buying AIG's Asian businesses. We reported previously that Tata Sons and Prudential were interested. The latest is India's Reliance Anil Dhirubhai Ambani Group (ADAG) and ING are eyeing AIG's Asian businesses as well.

Source: Insurance Daily

Prudential to acquire AIA?

Prudential apparently is in talks with investors in the Middle East and Asia to raise capital to buy parts of AIG's operations in Asia. It is estimated that this will cost US$15 bil.

We reported earlier that AIG wanted to retain a majority interest in the AIA companies. If this is still the case, it would be very surprising for Prudential to take a minority stake. Prudential is already present in most markets along side with AIA, and most regulators will not allow a company to hold 2 insurance licences in the same market.

The remaining possibility is there is a change in mind in AIG, they may now want to sell off some AIA's units to repay the loan from the Fed. If this is the case and Prudential turns out to be the successful bidder, we will see Prudential replacing AIA as the largest insurance player in Asia.

Source: Telegraph

Tata Sons Interested in AIA

Tata Sons, the holding firm of India's 2nd largest conglomerate, is reported to be interested in acquiring a 49% stake in AIA. However, both Tata Sons and AIG have not provided confirmation on the M&A talks.

Source: Business Times

AIG Getting Another US$37.8 bil

AIG has requested another $37.8 bil loan from the Federal Reserve, in addition to the $85 bil loan facility from the central bank.

"The existing $85 billion New York Fed loan facility has been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities", according to Federal Reserve.

Source: Insurance Daily, Federal Reserve

What Went Wrong with AIG?

Interesting findings from the probe into AIG's saga so far:

• AIG's executives were sent on a $440,000 retreat to posh California resort, less than a week after the federal government bailed out the Group
• AIG executives hid the full range of its risky financial products from auditors as losses mounted

On what went wrong, you will hear Greenberg blaming his successors, and his successors in turn blaming mark-to-market accounting rules. Read for yourself the following 2 news articles which are similar, I think good risk management lessons can be learnt from there.

Source: The Star 1 & 2

AIA's Next Generation Strategy

Targets:

• Doubling new business (NB) premiums over the next 3 years!
• Maintain at least 20% growth in NB premiums in 2008

Details of Next Generation Strategy:

• Inject "younger blood" into the group sales force to reach a younger group of customers (existing agency force: 9,000, target by November 2008: 10,000)
• Target 20 to 30-year-old age group customers
• Set up Next Generation Centres in Kuala Lumpur, Penang and Johor Baru (budget: RM8 to 10 mil for the 3 centres)

Source: The Star

Philamlife will be Sold

Philamlife (Phillippine American Life and General Insurance Co), the Phillippine unit of AIG is to be sold. Philamlife has been a leader in the industry for past 61 years.

Earlier, we reported 3 Japanese business units of AIG are to be sold as well.

Source: The Star

Minority Shareholders for AIA

AIA has decided that it would introduce minority strategic investors.

"AIG would retain a majority interest in the AIA companies but would seek out minority strategic investors that would ensure the AIA companies' ability to grow to their full potential in future years."

Source: The Star

AIG to Sell 3 Life Businesses in Japan

AIG plans to sell its 3 life insurance businesses in Japan (American Life Insurance Co., AIG Star Life Insurance Co and AIG Edison Life Insurance Co) but to retain the property & casualty unit.

The combined price for the sale could top $9.5 bil.

Source: Reuters

Which Regulator to be Blamed for AIG's Crisis

With AIG's crisis resulted in $85 bil federal bailout, who should be blamed, the state or federal regulators?

Would the crisis have been avoided if the US adopts a centralised federal regulation?

What risk management lesson do we learn from here?

I suggest you read the source article and draw your own conclusions.

Plenty of Buyers for Philamlife

There is no shortage of buyers for AIG's unit in the Philippines: Philamlife. However, AIG has not decided whether it is selling the unit.

Philamlife has interests in insurance, asset management, banking and outsourcing.

Source: Insurance Daily

What Will AIG Sell?

To repay the US$85 bil government loan quickly, what will AIG sell?

There is no final decision yet but apparently the international life insurance unit and the US pension businessess will not go.

Source: The Star

Greenberg Plans to Sell AIG Stock

Maurice "Hank" Greenberg said he plans to sell shares of AIG for "liquidity and other purposes". He will sell the stock in the open market.

Greenberg owns 10% of AIG and he plans to "decrease his holdings materially".

It is estimated that Greenberg's AIG shares have lost US$2.4 bil in value since October last year.

Source: The Star

Further Assurance from AIA

AIA's CEO in Malaysia has given further assurance on meeting commitments to policyholders and other financial obligations. The company is well-capitalised and has a substantial solvency margin surplus.

Other notable facts:

• 60% increase in recruitment of agents in 1st 9 months of the year
• New business premium growth in 1st 6 months: 17% compared with industry 4.5%

Source: The Star

Munich Re Wants to Increase Rates

I need the assistance of our readers to help me in understanding this.

Munich Re "sees opportunities to push through double-digit price increases following the rescue of American International Group (AIG) by the US government".

I do not know whether this applies to a specific class of reinsurance, and if so, which one.

For most other reinsurance classes such as Mortality, Critical Illnesses, Disability, Fire, Marine, Personal Accident, I do not see the justification of increase in reinsurance rates following the rescue of AIG by the US government.

Perhaps our readers who work in reinsurance company can help to explain?

AIA's Takaful Licence is in International Currency Business

It is confirmed that AIA obtained the international takaful licence, not takaful licence to operate Ringgit business as claimed by the Edge Weekly.

Under the licence, AIA Takaful International Bhd is allowed to offer family and general takaful and retakaful policies in international currencies.

Source: Business Times

Namlifa and MFPC Give their Assurance

Both Namlifa (The National Association of Malaysian Life Insurance and Financial Advisors) and MFPC (Malaysian Financial Planning Council) have given their assurance that the local insurance industry remains resilient.

They cited reasons such as stringent regulatory requirements, separate reserves and assets and separate structure between local subsidiary and parent company. Both are confident that the insurance companies would be able to fulfil obligations to policyholders.

Source: Business Times

AIA Gets Takaful Licence?

The Edge Weekly (September 22, 2008, page 20) seems to think that AIA has obtained a takaful licence to operate Ringgit businesses. It claimed that AIA is 1 of the 9 takaful operators in Malaysia.

While to my knowledge it is true that there are 9 takaful operators in Malaysia, my list of 9 operators does not include AIA.

I understand that AIA has obtained a licence to do non-Ringgit takaful business quite some time back, has the Edge got mixed up?

Your comment is most welcomed.

Article in The Star on AIA Quite Damaging

I find this article in The Star by Danny Yap on AIA quite damaging.

With due respect, the author may not understand well how insurance funds work. While a layman may have fear that the recent AIG's events may affect the security of their insurance policies, it is the responsibility of those (including reporters covering financial stories) who understand how insurance funds work to highlight the concept of separation of life funds and shareholders' fund.

For those who are not in insurance industry reading this post, briefly, insurance funds are created to hold policyholders' moneys and to meet liabilities to policyholders. Shareholders are not allowed to transfer money out of insurance funds unless there is a surplus in the fund and unless such transfer is recommended by the appointed actuary and approved by the Board. So even if shareholders run out of money, as long as insurance funds are solvent, policyholders should not be overly concerned that their policy liabilities will not be met. The rush to cash out their policies is therefore unneccessary.

A reporter would do a better job if he consults some experts in the industry before publishing an article purely highlighting one side of the story (in this case, highlighting the fear of those panic policyholders).

Articles on AIG - Part 3

More assurance from the company:

AIG’s Malaysian unit unaffected

Business as usual for AIG Malaysia

Development in Thailand, Hong Kong, Singapore and India:

AIG injects 14b baht into Thai banking unit

I think this one falls into the must-read category:

Where AIG Went Wrong

Other articles:

Why AIG was saved

AIG's new chief plans to keep company in business

Pru and Avivia tipped to benefit from AIG sale

ETF working on AIG-linked funds’ revamp

Insurance Industry Exposure to AIG and Lehman

I will update this as and when more figures are released on the insurance industry exposure to Lehman and AIG.

Exposure to Lehman

Aegon: £211 million
Aetna: $132 million
Aviva: £270 million
Friends Provident: £18 million
Hannover Re: €23 million
Munich Re: €350 million
Swiss Re: $45 million

Exposure to AIG

Aetna: $102 million
Aviva: £148 million
Swiss Re: $178 million

Source: Insurance Daily, Courant.com

Mark O'Dell Resigned from AIA Singapore

Mark O'Dell resigned on Thursday from AIA Singapore. It is believed that he is joining Manulife, Taiwan as General Manager.

AIA said that Mark's resignation is not related to the recent events affecting AIA/AIG.

Source: Reuters

More Articles on AIG

AIA chief: It’s business as usual

AIA: Local ops strong, well capitalised

Insurer's roots run deep in Asia

Fed takes control of AIG in US$85b bailout

Citigroup sees AIG’s mark-to-market loss at US$20b

US stocks tumble after government bailout of AIG

Will AIG plan cost taxpayers money, or just sleep?

Short-term US Treasury demand soars after AIG bailout

News Articles on AIG

We have all been flooded with news articles on AIG in the last few days. These include AIG seeking financing from Fed, rating downgrade, assurance that liabilities in Singapore and Malaysia can be met etc.

We provide the links below for those who want to find out more:

AIG plans US$20b asset selloff: Paper

AIG allowed to borrow from units, shares sink

AIG seeks US$40bil financing from Fed

Fitch downgrades AIG’s debt ratings

AIG seeks up to $75bn from Golman Sachs and JPMorgan

AIA Singapore can meet liabilities

Investors throng Singapore office of AIG unit

Group of AIG investors may come to the rescue

AIA: Turmoil in US will not hurt Malaysian ops

AP Sources: AIG US$85b bailout plan imminent:

Shares on WaMu, Wachovia recover on AIG hopes

Fed confirms US$85b rescue loan for AIG

US Government bails out AIG with US$85bil loan

AIA Malaysia unaffected by US woes

AIG Provides PA to DiGi's Customers

AIG General Insurance (M) Bhd has partnered DiGI to offer 5 mil DiGi's subscribers free PA coverage worth RM10,000.

DiGi commented that it was "looking to innovate beyond telecommunications, especially in traditionally-bound industries such as insurance, to create a new way for people to get insured."

It sounds to me that AIG may explore using DiGi as a new distribution channel or DiGi is interested to talk to other insurers to distribute their products to DiGi's customers. 5 million is a big number, any taker? How about Maxis and Celcom?

Source: The Star

AIG Travel Assist

AIG Travel Assist opened its centre in Kuala Lumpur recently. There are 4 other such centres in the world, 2 in North America and 1 each in South America and Europe.

AIG Travel Assist provides assistance to policyholders who are covered under the travel assist product. The premium ranges from RM6 for domestic holidays to RM300 for annual package and it depends on holiday destination and length of stay.

Source: Business Times

Greenberg: "AIG in Crisis"

I was trying to search the net for the full letter from Maurice Greenberg to AIG but without success. Instead I thought I would compile and post below whatever selected quotes that have been published elsewhere for the benefits of our readers:

"Several top shareholders of AIG have called me expressing deep concern about the persistent and seemingly endless destruction of value at AIG"

"AIG is in crisis"

"The company's shareholders need to absorb the significance of the company's first-quarter losses"

"They (investors) also need time to consider the board's response to the crisis and the issues raised by this letter. "

"For this reason and others, a postponement of this week's annual meeting should be considered, so that all shareholders can give careful thought to how best to move AIG forward"

"AIG hasn't explained properly why it's raising $12.5 billion in new capital, while also increasing its dividend 10%"

"These events have led to a complete loss of credibility with the investment community"

Source: AOL Money, Fox Business, TheStreet.com

US$7.8 bil Q1 Net Loss for AIG

Q1 2008 has been tough for AIG as well, they reported a net loss of US$7.81 bil vs net income of US$4.13 bil for Q1 2007. The poor result is attributed to subprime mortgage crisis.

To strengthen its balance sheet, AIG will raise US$12.5 bil capital.

Source: The Star