AIG Australia insulated from US woes
Wednesday, 17 September 2008 11:40am
While the US Fed has offered to provide AIG Life $100 billion in liquidity funding, AIG's Australian customers are well insulated from any fall-out.
"Acting to avert a possible financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an [US]$85 billion bailout that would give the government an ownership stake in troubled insurance giant American International Group," reported the New York Times this morning.
The US Fed has just confirmed the arrangement. "The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers," they said.
Regardless of the bail-out however, AIG in Australia is a separate entity with separate prudential structures that are fully funded. It reports to the regulator, APRA, as an independent entity.
"The insurance policies written by AIG companies are direct obligations of its regulated subsidiary insurance companies around the world. These companies are well capitalised and meet or exceed local regulatory capital requirements. The companies continue to operate in the normal course to meet obligations to policyholders," said AIG International in a statement issued in New York.
AIG Life (Australia) managing director, Stuart Harrison, said, "I want to assure customers and business partners that AIG Life in Australia operates as a completely separate legal entity within the stringent Australian regulatory regime.
"We continue to comply with regulations concerning capital adequacy and solvency. AIG Life in Australia has more than sufficient capital and reserves to meet our obligations to policyholders."
Interest in AIG's home country liquidity crisis is sparked by the mega insurer being Australia's largest super fund group insurer with major clients including pension fund and platform heavy weights ARIA, REST, GESB and BT.
According to the Rainmaker super fund Benchmarking Report analysis of the 2008 group insurance market, AIG is the biggest insurer measured by total members covered for death-only and income protection insurance with more than 20 per cent of the market. For death and TPD insurance they are ranked number three with 18 per cent of the market.
Benjamin Ong, director of economics and investments for the Financial Standard Intelligence Unit, said, "If the US Treasury or Fed agrees to bail-out AIG, they would be most likely be forced to revise aspects of their operations as they will be trying to reduce their expenses so that AIG becomes profitable again. The size and significance of AIG's business means this in itself will have economic consequences for the market."
Alex Dunnin
This story was found at: http://www.financialstandard.com.au/news/view/24041
Printed: Friday, 12 March 2010 7:01pm