Monday, September 15, 2008

Is your money safe with AIA ?

Several AIA policyholders have asked my advice. They are worried that AIA may be affected by the collapse of AIG. They asked if they should surrender their AIA policy now and receive the surrender value now.

My advice is:

> AIA has a separate policyholder's fund covering its liability to its policyholders in Singapore.
> To my knowledge, this fund is solvent and is not affected by the problem faced by AIG
> There is no need to panic and surrender the AIA policies at this time
> Even if this fund is in trouble, there is a Policyholder's Guarantee Fund managed by MAS that can take care of most of the liability (maybe 90% or more).
> It is better to wait for any official announcement from MAS

I hope that my comments are correct and can help to allay the fears of AIA policyholders.

31 comments:

ym said...

over the weekend :
- leh files bankruptcy protection
- mer sold to BoA
- aig approaches fed for help

the great american finance crumbles like cookies..

and tony tan warns of japan type global deflation..

what is wrong with the financial system?.. read www.mises.org

Sky Juice said...

Appreciate that you have come out quickly and gave a good advice to the market. There are just too many rumours spreading in the Forums that do nothing but harms. Hope that MAS will come out as quickly to give some advice and clarification. We pray that everything will be fine.

Tan Kin Lian said...

Hi ym

You have been right in your postings during the past two months, that more bad news were to be expected. Your prediction has turned out to be correct. Well done.

ym said...

hi Mr Tan, cant take credit as i'm just following the greatest economists (mises and roubini)..

btw, china central bank reduced their reserve requirement and lending rate..

this is a typical central bank response to a ponzi/pyramid economy - print more fake money to TRY to support asset prices..

zhummmeng said...

Today is the defining moment for the financial markets. It is also the beginning of the financial Armageddon.Brace yourself for bigger
ones. Not just one but you will see many epicentres....that is the Armageddon itself.

Collin Yeo said...

Just when you think subprime and credit crunch is bad enough, this 2nd round of massive selling seems more severe.

george said...

The concerns of the AIA policyholders are real. I am also concern of the ripple-effects coming from this financial turmoil in US. Lehman Brothers is not a small investment bank, and AIG is one of the biggest insurer. If AIG collapses, more banks and insurers are affected. Hope that AIA or MAS can issue statements on the liability to assure the policyholders.

ym said...

aig is insolvent, they have a book of 450bil bond protection.. say 20% claims severity = 100bil.. where to find 100bil?.. all the funding is just wall street's shell game..

singapore ins funds are protected but the ripple will be severe.. this is a global credit contraction of FAKE money.. dont be surprised how fast it will hit asia..

what do you expect MAS (a central bank) to sayy??.. of coz they will say, everything is fine.. dont panic, our system is sound, flushed with capital.. ie like wat paulson and premier-bush said lastnite..

ym said...

http://www.nytimes.com/2008/09/16/business/16aig.html?pagewanted=1&_r=1

this is a major development, aig wants to sucker the insurance funds ie u give me good assets, i give you some dubious assets..

thats bankers for you - playing find a dummy to pick up the bill after a heavy nite of drinking.. decendants of charles ponzi!

Jill said...

I feel like it's 9/11 of the financial world.

Anonymous said...

with all these gloomy doomy, where should we invest our money? Any opinion?

zhummmeng said...

If policyholders make a run on their insurance company, all hell will break loose.. blood will spill on to the roads. This is a terrible time. Unless we stay cool , but how to stay cool, the market jitters are massive and we can't help but to treat every rumour as truth...
Is it an Armageddon?

zhummmeng said...

2 more notches down in the credit rating AIG is a goner. It will be far worse than Lehman because of its ubiquitous presence; Will AIA kenna?

zhummmeng said...

This brings to mind of the bonus reshaping by ntuc sometime ago. I like to ask, what has happened to the money saved from paying the annual bonus and pushed to the special bonus has become? Has it grown bigger or has it made the loss bigger? Are we expecting better bonus or cut?
With the current massive meltdown, what do think of the scenerio?
Should we ask the new management if the their new strategy has worked to the advantage of the policyholders. Or a ponzi strategy is in the offing.

Blue said...

Below is the official statement from MAS in regards to concern on AIA financial standing.



http://www.mas.gov.sg/news_room/letters_to_editors/2008/Comments_by_MAS_Spokesperson_on_AIA.html



MAS' Response to Queries on AIA :

"MAS has received queries from the public on the regulatory requirements which insurance companies have to meet, in particular, AIA Singapore.

As with all insurance companies in Singapore, AIA is required under the Insurance Act to maintain statutory insurance funds, including an investment-linked fund. These funds are segregated from its head office and other shareholders’ funds. Within these insurance funds, AIA must maintain sufficient assets to meet all its liabilities to policyholders, which include participating policies and investment-linked policies. The value of these assets is not linked to AIA's or AIG’s financial condition, but like all investments, their value may be affected by general market conditions. MAS requires all insurance companies in Singapore to manage their investment risks carefully and we are monitoring the situation closely.

There are also queries on whether the financial condition of AIG would have an impact on AIA. AIA currently has sufficient assets in its insurance funds to meet its liabilities to policyholders. Policyholders should, therefore, not act hastily to terminate their insurance policies with AIA as they may suffer losses from the premature termination and lose the insurance protection they may need. "

Anonymous said...

Hi Mr Tan,

I agree with what you said on AIA. Our policies should be quite safe even if AIG collapses.

But what about the AIG unit trusts bought in Singapore ? Are these investments also safe ?

Namely -
AIGIF Acorns of Asia Balanced Fund & AIGIF Singapore Bond Fund

Thanks !

Audrey said...

I was worried sick when I read news over the WEEKEND... (really like 9/11 of financial market)

luckily I found this site which has given me a bit of assurance...

but when I read:
AIA currently has sufficient assets in its insurance funds to meet its liabilities to policyholders...
what does it mean by currently??

hmmm... are all the policies 100% safe? :X

-=sorry tt i am like so negative, but i am worried sick. dont want to see my family saving to pay for life but only end up with papers...

zhummmeng said...

Safe for the time being. AIG was rescued by an $85 billn loan from Fed in exchange for an 80% equity stake.
For those with AIA policies you can sigh a relief.
Hope the rating agencies don't sabo by adjusting credit rating otherwise the 85Billn will sink and disappear below the water without a splash.
In the meantime insurance agents from other companies are delighted over the whole saga.They see this as source to their advantage.They are exploiting the opportunity and are confusing and coaxing the AIA policyholders to terminate and switch to their companies' products.
These despicable agents have no qualms to kick these consumers in the side. Once again the insurance agents rear their ugly heads. Their greed and genetic unethicalness and unscruples are put to work. Their conscience is dead and they are looting the dead.

zhummmeng said...

There are many notes and mini bonds which had Lehman as the arranger. I wonder what would happen to them.
OF course i would expect the banks to come out to say that they have little exposure and not to worry about credit default.
The question is would the banks pay in full the capital or just 45% recovery rate to the investors?
That would be another crisis, this time the banks who were the issuers or distributors of these notes and bonds.
Just thinking aloud.

zhummmeng said...

Banks and insurance companies here have exposure to Lehman Brothers but how much is left to them to "decide". As you will expect many will claim small exposure even it is big. They will try to hold until cannot 'tahan' .
Do you not see the systematic slow disclosure ? None has the honesty to own up and come clean.HOping for white knights? Only Uncle Sam will but by printing more money ?

Everlearning said...

Most of the banks and insurance companies will not be spared by the closure bank and the troubled insurance company... and more such happenings are revealing as time goes by.
If they don't keep mum, queues and chaos like what happened to AIA buildings could be seen at other buildings. This surely will not be allowed to happen because we are an orderly, abiding citizens.
We must bear the loss and pain silently.

Loh Hon Chun said...

Capital Adequacy Ratio of Insurance Companies Operating in Singapore

http://hongjun.blogspot.com/2008/09/capital-adequacy-ratio-of-insurance.html

Cheers
hongjun

Dennis said...

Dear Mr Tan,

as far as I know, MAS CURRENTLY does NOT yet have a Policyholders' Protection Fund in place.

Thus, I think the infomration you provided is wrong. Please double check and rectify the wrong information posted on your blog.

Regards.

Dennis Ng, Certified Financial Planner

Tan Kin Lian said...

Hi Dennis,
The Policyholder Protection Act is already in place and can be activated at any time, when the need arises. So far, MAS has not found it necessary to activate it - as the policyholders of AIA are fully covered by their insurance fund.

zhummmeng said...

Dennis Ng,
It is already in place and correctly known as POLICY OWNER PROTECTION FUND(PPF).

WY said...

Hi Mr. Tan,

Thanks for your informative blog.

I am an AIA policyholder, worrying about the status of my policy. Hopefully you can help shed some lights on the following questions :

1. Can AIG, the mother company be able to tap the resources/assets of AIA Singapore ?
If yes, can MAS stop the tapping of resources ?

2. Insurance works when there is a large enough pooled fund to cover for future events insured. If more and more peoples cancel their policies and redeemed the cash value, will it affect the service quality of remaining policies ?
Another worrying trend will be peoples may lose confidence on AIA Singapore and reluctant to buy AIA policies.

3. Is there a way to know at what % of cancellation of policies that will render remaining policies at criticaly dangerous level ?

4. Is there a place to check the updated Capital Adequacy Ratio of AIA Singapore or liability/”statutory insurance fund” ratio ?

Thanks in advance.

Loh Hon Chun said...

CAR for AIA is reported to be at 254.18% for year 2007.

For a list, look for my earlier comment in this post.

Cheers
hongjun

WY said...

thx Hon Chun.

I saw your post.
But wonder whether there is a way to get an "updated" ratio.
Preferably monthly at least :-)

If more peoples are cancelling their policy, CAR may drop until critical stage.

Loh Hon Chun said...

I have emailed MAS but then their reply is just telling me "We are happy AIA is 'healthy'.. blah blah blah". I replied and told them "I conceded MAS is not keen to update the public..". They just kept quiet and did not reply me.

MAS su*ks big time.

hongjun

WY said...

Hi Hon Chun,

I saw this news “N.Y. Will Let AIG Borrow $20 Billion From Its Own Subsidiaries”.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/15/AR2008091501213_2.html

Excerpt:
[…New York's move would allow the AIG parent company to swap assets that could take months to liquidate for assets of subsidiaries that could more readily be sold, such as municipal bonds.
"It sounds like you're sacrificing the policyholders of those subsidiaries potentially for the parent company," said Donn Vickrey, founder of the financial research firm Gradient Analytics, which has been warning of trouble at AIG for months.
New York officials said they will not put policyholders of the AIG subsidiaries at risk.
……]

Just wonder whether the subsidiaries mentioned means overseas subsidiaries for e.g AIA.
“swap assets that could take months to liquidate for assets of subsidiaries that could more readily be sold”: swap toxic assets with good liquid asset ?

More worrying,
will this be able to be done in click of buttons, unnoticed ?
can MAS freeze the asset to prevent swap of assets ?

Loh Hon Chun said...

Money is just one click away.. It seems to be.

If you are in trouble, save yourself. Why care about others? Will policyholders suffer?

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