Wednesday, October 15, 2008

AIA Singapore To Be Sold

AIA Singapore To Be Sold

AIG has finally come out to say that it may offload a minority share (up to 49 percent) of its foreign insurance units ie AIA (including its Singapore), a sale that analysts say could bring in US$20 billion to the debt strapped US behemoth. (Weekend Today, 4 October 2008, Strait Times, 7 October 2008).

AIA Singapore SoldAfter denying for the longest time, AIA Singapore’s parent company finally announced plans to sell its profitable life insurance operations in the US, Europe, Latin America, South Asia and Japan in order to raise cash to repay a US$123 billion loan from the Federal Reserve Bank of New York. AIG had drawn down US$61 billion of the facility as at the end of September. The unprecedented Fed loan was given as AIG was deemed to big to be allowed to fail (being the third largest investment pool in the world). AIG incurred US$18 billion in losses over the past 3 quarters from guarantees it wrote on mortgage derivatives.

According to AIA Singapore president of operations, Mark Wilson, the announcement meant that AIG would retain majority interest in the AIA companies, which hold the life insurance business in Asia. AIG operates a general insurance business in Asia under the AIG name. Mr. Wilson said that the introduction of one or more minority investors will ensure the AIA companies’ ability to grow to their full potential in future years”.

Mr. Edward Liddy, CEO of AIG said that he prefers to sell “large slices” of AIG to “brand name” companies because that strategy will hasten sales and benefit customers and employees. AIA Singapore is one of the largest insurers with 4,000 agents and 2.6 million policies. Across Asia, AIA has over 20 million policyholders and over 200,000 agents.

AIA is a wholly owned subsidiary of AIG. If AIG decides to sell its Singapore operation, it would have to seek approvals from the Monetary Authority of Singapore (MAS), which would look at, among other things, the capital structure of the buyer to ensure that AIA's business goes into the hands of a stronger company.

This is a positive news for AIA policyholders. I know this for a fact because I did not suffer any disadvantage when ICS was sold to AVIVA when my policy was three-fourths into maturity.

As AIG had said earlier, its Asian operations are the “jewel in the crown” of AIG. AIA Singapore has total assets valued at $24 billion, including five buildings.

Mr Mark Wilson, regional president of AIG Life Companies and AIA president reiterated that AIA Singapore had a capital adequacy ratio of more than 200 percent, well above the regulatory minimum of 120 percent. What AIA is saying is it has sufficient capital to pay up the guaranteed benefits and cash values of all policies here. Also life funds, which invest the premiums that policyholders pay, are also invested conservatively.

AIA Senior VP, Tan Soo Thiam said about 25 to 28 percent of the assets are in local government bonds that are very liquid. The rest of the assets are held in investment grade securities that have experienced some price volatility in line with turmoil in financial markets.

Sale of AIA: Potential Buyers

India's Tata Sons is said to be in talks with AIG for a stake of AIA which has more than one million customers in Singapore. Tata Sons, the holding company of India's second biggest industrial group. Tata Sons runs two joint ventures with AIG, a life insurance firm Tata AIG Life and a general insurance firm Tata AIG General. Tata Sons owns 74 percent whilst AIG owns the balance.

Canada's Toronto-based Manulife Financial Corp is reportedly another company interested in the Asian assets of AIG. Singapore’s former general manager, Mark O’Dell left AIA Singapore on Sept 18 to head Manulife’s Taiwan operation. O’Dell’s departure from AIA Singapore at the height of the crisis caused a lot of unhappiness and uncertainty among AIA' Singapore’s 1 million policyholders with 2.8 million policies in force.

Other potential suitors includ rival insurers like Britian's Aviva, Prudential and China's China Life and Ping An.

In my opinion, it would be better if the sale of AIA goes to its former Chairman and CEO, Maurice R Greenberg better known as "Hank" who has expressed interest in buying the AIG units. Hank Greenberg, who has been with AIG from 1962-2005 and who was instrumental in building AIG into a leading insurer, is the best person to add value to AIG shareholders and AIA policyholders. After Hank Greenberg left A.I.G., he became chairman of C.V. Starr and Company, a private insurance brokerage firm. (The company was named after CV Starr, the founder of AIG who groomed Hank to succeed him after Starr retired from AIG) Hank however continue to retained his AIG stock, which in 2006 was worth $21 billion until the company’s fortunes started to plummet. According to reports filed with the U.S. Securities and Exchange Commission on Sept. 25, Greenberg and the entities sold 40 million shares of AIG for US$125.9 million (BestWire, Sept. 26, 2008). Greenberg has strong ties with key leaders of the two political parties going back many decades.

Panic in the Streets: AIA Singapore

What a traumatic time it must have been for the poor AIA Policyholders. At the height of the crisis of confidence, there were snaking queues outside AIA's Raffles Place and Finlayson Green offices. About 2,600 policies, or 0.1 per cent of the 2.6 million in force were surrendered from 15-18 Sept 2008.

These people should not have joined the queues as they could have easily contacted their AIA agents and got them to do the paperwork for them. This is what they are there for. For goodness sake, this is not a bank run where you must turn up personally to get your money back! You won't get your money back any faster. In fact, my friends who contacted their AIA agents, got their cheques (they took loans against their policy or cashed out their dividends) within 4-5 days. This is very good service considering the mad rush to the exits by many panicky AIA policyholders.

When AIA offered those who surrendered their policies during the week a chance to reinstate their whole life and endowment policies without penalty, about 20 policyholders had their insurance plans reinstated.

Timely assurances by Monetary Authority of Singapore (MAS) that AIA has sufficient assets in its insurance funds to meet its liabilities to policyholders and urging customers not to act rashly also helped calm nervous policyholders. MAS said: “Policyholders should not act hastily to terminate their insurance policies as they may suffer from the premature termination and lose the insurance protection they may need".

By 18 Sept, the queues at the AIA service centers dwindled and AIA Singapore had weathered the storm. Phew! What a week it has been. The AIA panic was certainly more exciting than the inaugural Formula 1 Grand Prix in Singapore.

Advice given to AIA policy holders were:

  1. Find out your policy’s cash value. If your policy did not break even, you will lose money. If you have positive cash value, you could take a loan against your policy if you are worried about your profits. If your policy pays a dividend, you could cash it in.
  2. If your health has worsened since you took up your AIA policy, you may not be able to find cover with another insurer. Which is worst? The remote possibility of losing your invested life funds or the coverage for a critical illness or death benefit after a long illness? Your future medical expenses is likely to be more than double the amount you put into your life funds . If you have a serious illness anytime in your lifetime(which is highly likely for most of us), it can wipe out all your lifetime savings and investments if it is under $100,000. If you were to die young, (under 40) your loved ones are likely to miss out on millions of dollars of income. Only insurance can provide some protection against such a loss.
  3. Even if you can find cover, the premiums may be higher due to your health and / or age.

So think carefully. Don’t jump from the frying pan into the fire. Worry about your future medical expenses first. Future medical expenses and your family's future living expenses are more likely to go up rather than go down and most likely to be more than what you have insured for or the premiums paid.


AIA Singapore announced that it has laid off 20 employees and closed its Life Profit Center (LPC) and Accident and Health (A&H) divisions. It is expected that more retrenchments are in the air for some 400 of its employees. LPC used to support AIA's 4,000 life agents in launching new products and producing new marketing materials.

According to advertisements by some property marketers, there seems to be some moves to sell or rent out the AIA Tower in District 1 and the Changi AIA building though this has not be confirmed by AIA Singapore.


AIG is in talks with China's US$200 billion sovereign wealth fund - the China Investment Corp. (CIC) for a 49% stake in AIG's Alico unit which operates in 55 countries.

AIG finally announces it intends to sale whole units rather than 49% stakes of its units. This will probably speed up it divestment to pay back the FED (US$143.8 billion todate at an interest rate of 11.7%) what it had borrow. This will make it more attractive for prospective buyers as they would be acquiring 100% control of AIG's profitable units particularly those in Asia like AIA. This will also ease concerns of policyowners after months of uncertainty if the deal goes through. AIA Singapore had been trimming costs with the merging of its divisions and shedding of staff. There has also been talk that it is looking for buyers of one of its buildings as they trim their workforce and tighten their overheads (though this could not be verified for now).


Four insurance companies, Axa, MetLife, Prudential and China's sovereign wealth fund, China Investment Corporation (CIC) are separately in ongoing talks with AIG. If successful, the deal will net AIG US$10.8 billion (S$16 billion). The ALICO (American Life Insurance Co.) deal is likely to be inked in the new year, sources say.


AIG rejected offers from UK insurer Prudential Plc, Canadian insurer Manulife and Singapore sovereign wealth fund Temasek Holdings to buy the AIA unit citing their offer was too low. There is talk that AIG may float AIA in the US Stock Market or offer part of it to the FED in return for bailout funds.

UPDATE ON AIA - 23 April 2010

Today and The Straits Times  reported on 23 & 25 April 2010 that Prudential is one step closer to sealing its bid to buy over AIA.  Britian's largest insurer plans a secondary listing on the Singapore Exchange (SGX) effective May 11 concurrent to its primary  listing on the Hong Kong Stock Exchange. This involves the migration of shares held on Prudential's principal registers in the UK to HK and SGX. With a market capitalization of US$21 billion, Prudential will be the largest foreign listing since the Jardine Matheson group moved its Asian listing from Hong Kong to Singapore in the early 1990s.

This is the precursor to its plans to get its shareholders to vote on  May 27 for its US$35.5 billion agreed takeover of AIA, the Asian arm of the troubled US insurer the American International Group (AIG).  Prudential's move to Asia  is expected to draw local investors to its US$21 billion rights issue, launched to fund its purchase of AIA.  Details of the rights issue will be released on May 5.

With this deal, Prudential will become the world's largest non-Chinese insurer by market capitalization, overtaking major competitors, Allianz and AXA.  The Singapore government has a 0.5  percent stake in Prudential.  The Government of Singapore Investment Corporation (GIC) last month signed up to underwrite a multi-billion dollar portion of the rights issue, which will be used in part to help fund the take over.  GIC is one of the 30 banks and sovereign wealth funds which have agreed to underwrite Prudential's rights issue.

Once Prudential buys up AIA, whose market value is around US$35.5 billion, the overall entity would be the largest SGX-listed firm by market value - ahead of telco SingTel.  Its listing in SGX will attract mega-funds wanting to invest in Singapore and the region.

Prudential's buy over of AIA may still see AIA policies being sold and serviced by AIA agents.  However, the management will firmly be in the hands of Prudential executives and  the merger could lead to more attractive insurance products being sold in Singapore and elsewhere in Asia by the merged company.

Prudential  has operated in Singapore for over 75 years and in Hong Kong for nearly 50 years.  Pru's acquisition of AIA would increase Pru's new business profit from 47 percent to 60 per cent.

As I said earlier, everything will turn out alright eventually.

NOTE: I am not connected with the insurance or any financial industry.

© - AIA Singapore To Be Sold

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