Thursday, September 18, 2008

Worried Over AIA Insurance Policies?

With the rumblings on AIA's holding company, AIG, many are worried about their insurance with AIA.

For example, the following news article was posted two days ago.

  • Queue forms at AIA branch at Raffles Place as policy holders seek answers
    By Channel NewsAsia Posted: 16 September 2008 1542 hrs

    SINGAPORE: Some Singaporeans are concerned that AIG, one of the world's largest insurers could be the next financial giant to fall after Lehman Brothers.

    They have formed a queue at AIA Singapore's customer service centre at Raffles Place.

    AIG is the parent of AIA Singapore.

    Some long term AIA policy holders told Channel NewsAsia that they wanted to surrender their policies, even though there was a penalty for that.

    Some have waited for up to three hours to be attended by staff who have been overwhelmed by requests since the office opened this morning.

    Others said they have turned up at the AIA office to find out more.

    AIA Singapore has yet to comment.

    It has five buildings at Robinson Road, Alexandra, Changi, Tampines and Tanjong Pagar, and has over two million policies in force.

    Singapore's Monetary Authority (MAS) has said that AIA Singapore, as a registered insurer, is required to maintain sufficient financial resources to meet all its liabilities to policyholders at all times.

    It added that AIA Singapore currently meets these regulatory requirements.

    MAS said it has the legislative power to establish the policy owners' protection fund, under the Insurance Act.

    However, it said that it is unable to comment on parent company AIG, which is the "ultimate parent" of AIA as it is not regulated by MAS.

Here are couple of interesting postings which should help one understand better.

Why AIG matters to you

This article is good for it explains things in a rather simplistic but yet precise manner.

  • I have insurance through AIG. How worried should I be about the problems at the company?

    At least in the short term, you probably don't need to be worried at all.
    The problems are with the AIG holding company, not the individual insurance company subsidiaries that you do business with, according to a source with New York State's insurance regulator.

    Even if AIG's holding company is forced to file for bankruptcy court protection, there's a good chance that the subsidiaries will continue to operate normally with no disruption in claims payments. That has happened in the case of other insurance holding companies' bankruptcies in the past, such as Conseco (CNO).

    What guarantees that my claims will be paid?

    Typically, if an insurance company falls into financial distress and is at risk of having claims that exceed the assets it holds to make those payments, the insurance regulator in its home state will take control of the firm and make payments.

    The state regulator will not only use the firm's own assets to make those payments but, if necessary, can also make payments out of a state fund into which all insurers in the state are required to pay.

    This guarantee applies not just to traditional insurance policies but also to retirement products that have a promised payout, such as annuities.

    But there are limits to the payments that will be made to customers that vary depending on which state a particular AIG subsidiary is based, according to Joseph Belth, professor emeritus of insurance at Indiana University and editor of The Insurance Forum, a newsletter often critical of the industry.

    Should I be thinking about changing my policy away from AIG to another insurer?

    While credit rating agencies downgraded debt held by AIG (AIG, Fortune 500) on Monday, AIG's ratings are still considered investment grade and the company's insurance subsidiaries are considered to be secure, at least for now.

    Belth said changing insurers is not a simple decision.

    "A lot depends on what kind of insurance you talk about," he said. "If you're talking about life insurance, you have to think about whether you can qualify with a new insurer, if your health has changed. But it's something you have to consider if the ratings decline into the vulnerable range."

    Why should I care about problems at AIG if I'm not a customer?

    AIG is by far the world's largest insurer and its stock is found in many mutual funds, including any S&P 500 index fund. It is also a component of the Dow Jones industrial average. All by itself, it's been responsible for dragging the Dow down more than 400 points so far this year.

    AIG is also active in the business of credit default swaps, complicated financial instruments used by investors to protect themselves from bond defaults. Lehman Brothers (LEH, Fortune 500) was another major player in that field. If both go away, it would create a tighter credit market for consumers and businesses trying to get loans.

    AIG is an insurer, not a lender. Why do I keep hearing about its problems with subprime mortgages?

    All insurers take money they collect in premiums and invest them in different forms of assets. The idea is to make money on those investments so that the insurer can keep their premiums low and attract more clients.

    But AIG made a bigger investment into securities that were backed by subprime mortgages than most other insurers. As defaults and foreclosures of those loans rose, the value of those securities fell, creating big problems for the firm.

    In the past nine months, AIG has reported net losses of more than $18 billion, largely due to its exposure to bad mortgages.

See also States' back-up plans protect life, auto, homeowner policyholders

On the Malaysian front, AIA: Local ops strong, well capitalised

  • "We are a locally incorporated insurer, with more than 96 per cent of our total assets invested in Malaysia," AIA chief executive officer Khor Hock Seng said in a statement yesterday.

    AIA has a long history in Malaysia and is one of the largest insurers in the country.

    Khor said that insurance policies underwritten by the company were direct obligations of its regulated business and subjected to local regulatory and capital requirements under Bank Negara Malaysia's Insurance Act and Regulations.

    He said AIA was well capitalised and maintained separate reserves in Malaysia in line with the regulations to meet obligations to policyholders.

And AIA: Turmoil in US will not hurt Malaysian ops

  • Meanwhile, Bank Negara, when asked if it would scrutinise the disbursement of loans of AIA and other financial institutions, said it would “closely monitor all financial institutions under our purview and would take all the necessary actions to maintain the stability of our banking and insurance industry”.

    AIA started operations in Malaysia in 1948 and had grown rapidly over the past 60 years. Currently, it has 23 branches nationwide, supported by over 8,000 agents serving more than 1.5 million policyholders.

An interesting forum thread on Wallstraits: AIA