Martin Lee @ Sg
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Singaporeans Concerned About AIG Spillover Effects on AIA

Our financial markets are facing a severe test as big name financial institutions experience liqudity problems. Just a couple of days ago, we had Lehman Brothers filing for Chapter 11. The next giant facing difficulties is American International Group Inc (AIG).

AIG needs to raise more than $80 billion to keep themselves afloat. According to a latest report from CNBC, The Federal Reserve is negotiating a $85-90 billion secured bridge loan for AIG.

In Singapore, thousands of anxious AIA policy holders were at their office yesterday to make enquiries or to surrender their policies. Someone even put up a video footage of the scene in youtube.

With fear in the markets now, there might be even more people flooding AIA’s office today.

The Monetary Authority of Singapore (MAS) has urged policy holders not to rush to surrender their policies. They issed a statement that AIA currently has sufficient assets in its insurance funds to meet its liabilities to policyholders“. Their assets are also separate from AIG.

In Singapore, insurers are required to maintain statutory insurance funds, including an investment-linked fund. This fund is segregated from its head office and other shareholders’ funds. You can read the previous AIA’s commentary of the performance of their life funds here.

AIA has ensured the public that it has sufficient capital and reserves to meet all its obligations.

I believe this is the case but a “run on AIA” with many policy holders surrendering their policies would mean AIA will have to sell off assets in their life fund in order to pay off policy holders. This is not too good given the current market conditions and is a scenario everyone wants to avoid.

My colleague and insurance expert, Pat Lim, has posted on his blog details on the Policy Protection Fund, something that has been provided for in the Insurance Act. The fund helps to protect policy holders in the unlikely event that an insurer goes under.

I think this entire episode clearly highlights the need for diversification – even for something like insurance. Like all investments, never put all your eggs into only one basket. Personally, I have insurance policies from six different insurance companies covering all my various needs.

If you have any enquiries on your AIA policies, you can talk to your AIA agent or call the AIA hotline at 62488355.

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Leave a Comment:

Braindead says 13 years ago

I’m a life policyholder with AIA and am contemplating of surrendering despite the assurance from AIA & MAS.

With investors losing confidence & its current reputation, the dividends & bonus payout I reckon may no longer be attractive.

Technically I have no loss on surrender as my policy has reached its ‘equilibrium’. To start all over again with another insurer, basically I still have my liquidity from AIA payout & similar or better coverage by having to pay a higher premium based on simple sum calculation. (ie age maturity vs coverage).

I’m at insurable age with clean health record. The agent has also advised that I hang on to my coverage while it takes about 6weeks for their policy to be effective.

Alternatively, I am not sure if I should just opt for paid-up arrangement with AIA? Pls advise.

Lim Cathy says 13 years ago

I have an investment in AIA Asset Growth using my SRS funds. The contract has just been approved and I am still within the 14 days free look period. Should I proceed with the contract or cancel it?

    lioninvestor says 13 years ago

    Hi Cathy,

    Sorry, I missed out your message earlier.

    What was the initial reason why you purchased the policy? Is it still valid?

    Note that the product comes with a 5% bid-offer spread.

lioninvestor says 13 years ago

AIA and MAS has ensured the public they have sufficient assets to pay all policy holders.

However, if there is a mass cancellation of policies that AIA can’t pay with its immediate cash,they will have to sell some assets (equities or bonds) to pay the redemptions.

Selling at current low prices might have an impact on the short term performance of their funds.

If you are thinking of surrendering, you should consider all factors:

1) Whether your dad still needs the policy
2) The cost of surrendering and getting a new policy.
3) Whether your dad is still insurable at standard terms if he is getting a new policy.

Weigh all factors carefully before you make any decision.

AIApolicyholder says 13 years ago

My father has a life policy with AIA.
Dunno should surrender or not.
Don’t think AIA will collapse in Singapore.
but will the dividends and bonus payout suffer?
heard ppl commenting about how all those who cancel their policies at a loss, will help to contribute to those still holding. True?

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