Malaysia’s insurers unfazed by US turmoil

The Edge Daily, 19 September 2008, PETALING JAYA: Bank Negara Malaysia (BNM) has asked local insurance players to submit details of their reinsurance exposure to American International Group (AIG), in light of the bankruptcy threat the world’s largest insurance company was facing until the US Federal Reserve (Fed) came to its rescue.

However, the exercise is not expected to produce any dramatic results as none of the players have any meaningful exposure to AIG, which nearly collapsed under the weight of the subprime mortgage crisis in the United States.

When contacted, several insurers said that they were verbally told by BNM to report on their exposure to AIG.

“However, nearly all have replied that the development in the US has no bearing on their operations here and it is business as usual as the exposure to the US market is minimal or non-existent,” says a source.

The Fed had, on Tuesday, provided an unprecedented US$85 billion (RM294.95 billion) loan to AIG in return for a 79.9% stake in the insurance giant. The bailout came only two weeks after the US government took over two chartered mortgage finance companies, Fannie Mae and Freddie Mac, for a combined package worth US$200 billion to prevent the collapse of the real estate market.

An official from Malaysia Life Reinsurance Group Bhd (MLRG) said the latest development in the US should not have much impact on Malaysia’s insurance companies as the assets of locally incorporated insurers are protected by BNM under the Insurance Act 1996.

“All the 16 life insurers in Malaysia reinsure with us, and we have no business dealing with any company in the US. In terms of our exposure to AIG’s Malaysia unit, American International Assurance Bhd (AIA), it is less than 3% of our total portfolio,” said the official.

Total reinsurance amount in Malaysia stood at RM283 million at the end of 2006, according to data from BNM, and MLRG collected RM135.7 million in reinsurance premiums in 2007. There are a total of 18 insurers in the country — 16 life insurance companies and two life reinsurance companies.

The near-collapse of AIG has had an impact in Singapore where thousands of policyholders have been queuing outside AIG’s Singapore unit, AIA Singapore Ltd, since Tuesday to cash out their policies.

In a separate response, Manulife Insurance (M) Bhd president and chief executive Peter Robertson said the company had no offshore reinsurance, and less than 1% of its premium was reinsured.
“Majority of the company’s premium is invested in Malaysia. We impose very strict credit requirement on investment and have very limited exposure in the United States,” he said, adding that the insurer’s capital position is strong upon the full implementation of the risk-based capital framework.

In the case of Hong Leong Assurance Bhd (HLA), the insurance arm of Hong Leong Financial Group, its managing director, Charlie E Oropeza said that close to 100% of the company’s total assets are invested in Malaysia, and its products are not tied to or affected by market movements in the US.

“All insurance policies underwritten by HLA are direct obligation of a regulated business, governed by regulatory and capital requirements as stipulated by the Insurance Act and under tight surveillance of BNM,” he said.


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