Thursday, 25 September 2008

Will AIA Bankrupt? - Part 2

Even much assurance from the media and MAS, client who holds AIA policies is still very concern. I decided to post a follow-up topic on this issue. Please bear in mind that this is only my personal opinion and might not be suitable for your circumstances.

I personally hold AIA policy and I am not surrendering due to the following reasons:

1. I normally will not act when the dust is not settled which I think is the most dangerous thing to do. It is like lost in the Jungle and the more you panic, the more lost and wrong decision you will make. But, now is pretty clear that I will not surrender because AIG is bailed out by US govt and US govt is the biggest stake holder now which means unless US govt is also collapsing, else the company is safe.

2. You may also lost faith in the US economy and government, but there are still many countries holding a lot of US currency, so they cannot allow US to fail too. It will take time for the rest of the countries to find an alternative solution with their US currency.

3. Now knowing the chance of AIG collapsing is minimum, let's also discuss what is the worst case scenario if AIG really collapse.

First of all, MAS explained that there are regulatory requirements, ensuring that all insurance companies maintain statutory insurance funds, including an investment-linked fund. This fund is segregated from its head office and other shareholders' funds.

If you are surrendering your Term policy, no issue because there is no cash value anyway meaning you do not get back any money if there is no claim. (Read my blog to know more about Types Of Insurance), your only concern will be "Are you be still insurable?" or "Do you still need the coverage?". If the answer for is NO, you can terminate your Term Policy.

However, when it comes to your Participating Policy (e.g. Whole Life, Investment-Linked and Endowment) meaning you will get back some money in the event of no claim, then you should consider if your cash value had breakeven? Participating Policy normally took 20 to 25 years to breakeven from your premium paid. If not your plan had not breakeven, you will not get back your capital anyway so what is there to hurry into a lose-lose situation? Perhaps you might be thinking that if you surrender now, you can still get back some instead of none in the event of AIA goes bankrupt. Well that is a valid reason but again let's consider my point 1, 2 and 3 to evaluate the chances. If you still feel uncertain, I rest my case because nothing is more important than peace of mind and to be able to sleep well at night.

4. I am not AIA agent and I do not need to put in good words for them. I am just a policyowner of AIA which I still have faith in and most importantly I am a believer of diversification. I own insurance from various company for their different coverages and features, which also provide diversification of insurance fund performance. That could be another reason why I am not as worried compare to those who only own AIA policy.

P.S. I have found this interesting link from MAS website where they post all their replies to the media as follows:

You can also read the Insurance Act put in place to protect the consumer in the following link to see if you are comfortable:

If any of the link is broken, you can inform me or do a google search yourselves.

*Revised 5 Oct 2008*

Found this interesting link where Dr Money commented on this issue in The New Paper on Sun, Sep 21, 2008 Titled "One in a Billion"

*Revised on 3 May 2008*

Found this interesting link from Mr Tan Kin Lian's blog on this topic:

Tuesday, 16 September 2008

Will AIA Bankrupt?

As the recent financial market is tensing up, I decided to put on hold my 5 Part series on Insurance for the time being and address the more pressing financial issue.I have receive a few call from my client on the outlook of AIA (although I am not an AIA agent) which I have explained as per the following article I found in Channel NewsAsia so I decided to post it here instead of repeating myself. :-)

MAS urges AIA policyholders not to terminate policies hastily

In summary:

MAS explained that there are regulatory requirements, ensuring that all insurance companies maintain statutory insurance funds, including an investment-linked fund. This fund is segregated from its head office and other shareholders' funds. Within these funds, insurance companies must maintain sufficient assets to meet all its liabilities to policyholders, which include participating policies and investment-linked policies.

My conclusion:

AIA is just going through a downgrade of rating but even if they are rated A or worst still to B rating is still consider financially strong. The reason why many people panic is because this news is place together with Lehman Brother declaring Bankrupt and Merrill Lynch sold to Bank of America, so subconsciously everyone think that AIA is also near to bankrupt which is no where found in the news. In fact one of my friend from AIA recommend me that this might be a good time to buy AIG share at discount. However my take is in current market condition, nothing is impossible with the two financial giant in such a bad shape. :-)


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