No decision made to sell AIA: Macau branch executive

Saturday, September 20, 2008
Issue 472, Page 4
Word count: 818
Published in: Macau Daily Times

By Poyi (Natalie) Leung

Following the US Federal Reserve Board’s US$85 billion loan to American International Group (AIG) in response to its recent liquidity crisis, some foreign financial experts predicted that the wholly-owned insurance subsidiary AIA could be sold in order for AIG to repay the lump sum in a two-year term.

AIA, or American International Assurance Company (Bermuda) Limited, is one of the biggest life insurers in Southeast Asia and also runs operations in Hong Kong, Macau, Taiwan and mainland China.

However, vice president and general manager of AIA Macau Office, Chris Ma, yesterday told the Macau Daily Times it is the industry’s “complete speculation” that the non-insurance parent company AIG will sell its core and profitable business.

“AIG will thoroughly consider if they’re going to sell any of its businesses. But at the moment no internal decisions have been made and as a member of AIA I’m not worried about what the market predicts,” Mr Ma said at his office in the AIA Tower.

Last Wednesday, Sandy Praeger, president of the National Association of Insurance Commissioners (NAIC) in the US said in a news release that “it will likely be the insurance subsidiaries – or their valuable blocks of business and high quality assets – that will be sold in an attempt to return the AIG parent company to a more stable financial position.”

An UBS analyst also said that one of the assets AIG would possibly sell was its foreign life insurance business particularly that in Asia, according to The Liberty Times yesterday.

“Rumours in the market are not worth discussing,” Mr Ma told the MDTimes, adding “analysts are not corporate staff and thus don’t clearly know what is going on internally.”

Being the first registered insurance company in Macau since 1982 and with a staff number that just exceeded a thousand, AIA Macau received a gross premium of more than 788 million patacas in 2007 which accounted for the largest market share of 35 percent, the Monetary Authority of Macau’s (AMCM) annual report showed.

With about 120,000 to 130,000 current policyholders in Macau, Mr Ma said between Tuesday and Thursday 250 applications have been received to terminate policies which are half traditional life insurance and half invested linked.

Normally the insurer only receives 150 to 180 policy withdrawal requests every month mainly due to the owners’ change in financial conditions, the senior executive said, but added that the loss will be set off by about 2,000 new policies signed in the same period of time.

“More applications to terminate policies are understandable as a result of the crisis AIG faced plus unbalanced reports done by some Hong Kong media,” Mr Ma said.

Unconditional reinstatement of policies

In order to show AIA’s on-going concerns for its customers who “might not have thoroughly thought through” before canceling their policies as well as to give confidence to the public, Mr Ma told the MDTimes his Macau Office will “unconditionally” reinstate the about 125 traditional life policies to their holders who applied to terminate this week upon requests for a two-week period.

However, he said the other 125 investment linked policies may not be reinstated as their values are changing day to day.

According to the senior executive, AIA “never needed the US$85 billion loan or had financial problems”.

“There was never a time when Macau’s policyholders were at risk of not being able to receive claims,” Mr Ma pointed out.

“AIG’s short-term liquidity problem was already fixed by the loan and we have to bear in mind that the group still owns US$1 trillion worth of assets,” he added.

Mr Ma said he expected that a drop in policy withdrawal applications would be seen starting yesterday following the restoration of the parent company.

In addition, although a significant number of policyholders have been inquiring about AIA Macau’s current financial conditions, Mr Ma said most of them would give up the idea of canceling their policies after hearing staff’s clarifications which refer to the AMCM’s supportive statement made earlier this week.

The Macau Monetary Authority issued a statement last Wednesday saying that “insurers are required to have their disposal financial compatibilities being able to cover their insurance liabilities, which are in the form of technical reserves and solvency margin.”

“The AIG subsidiary in Macau has sufficiently covered its technical reserve with admissible assets with the cover ratio being over 100 percent, while the solvency margin is in excess of the required minimum under the legal framework for insurance activities in the SAR,” the AMCM went on.

Thus the authority said it considered the economic financial situation of AIA Macau is “solid” and liabilities arising from policies issued by the insurer are “adequately guaranteed”.

When asked about what it meant for AIA if AIG collapsed, Mr Ma said it was “meaningless” to comment as “the fact didn’t go this way,” adding “we have always been growing healthily with a strong and stable reserve.”

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