News reports yesterday reported the first runs on offices of AIG, the stricken US insurer.
One agency report said hundreds of worried policyholders, some hoping to terminate their agreements, lined up yesterday outside AIG’s Singapore office.
Lines of worried customers were reported in Hong Kong, outside the offices of the local AIG branch.
The report said the people were unmoved by the US Federal Reserve’s bailout and takeover of AIG for $US85 billion.
In Australia, our three biggest insurers, Insurance Australia Group (IAG), Suncorp and QBE said they had no exposure to AIG.
And AIG’s Australian office again said the local operations were well capitalised and within regulatory guidelines.
Insurance Australia Group (IAG) told the market in a statement: "We wish to advise that Insurance Australia Group has no material exposure to American International Group Inc."
The Federal Reserve said in a statement it was making the huge loan to AIG because it "had determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
QBE Insurance Group Ltd has no direct exposure through its investment portfolio to American International Group, Lehman Brothers or Merrill Lynch.
QBE has "immaterial" exposure to reinsurance recoveries on paid, outstanding and incurred claims to AIG, mainly through the US insurance giant’s subsidiaries Transatlantic Re and Lexington, the Sydney-based company said in a statement.
There is no exposure to reported claims, QBE said. QBE shares jumped 89 cents to $24.30, or 3.8%, in a market that swung from gain to a late 0.6% loss.
IAG shares also firmed in the same market, up 7 cents at $4.17, which is sharply up from the levels around the insurer’s final year loss and revamp announcements.
Suncorp said that "Following a number of market enquiries, Suncorp today advised it has no material exposures to Lehmann Bros or AIG."
However, its shares fell 3.1%, or 29 cents to $8.86. That was despite Standard and Poor’s maintain its credit rating.
The local businesses of AIG operate in life and general insurance and have around 1.3 million policyholders in the life business.
The other is a property and general insurer, AIG Australia.
It said in a statement that local business continued as usual.
"The liquidity of AIG Australia remains strong and our ability to pay claims and its commitment to writing challenging risks is undiminished," said Chris Townsend, CEO of AIG Australia in a statement.
"More than 80% of AIG Australia’s investments are held in fixed interest securities with the remaining 20% in realty, equities and cash."
The company said AIG Australia has assets of more than $1.6 billion, and employs 500 people around Australia.
But the local businesses are an asset for the companies and other advisers who will divide up the AIG carcass and sell it off after the problem derivatives are accounted for.
That’s will create opportunities for IAG and QBE, if they are of a mind to, although QBE, being bigger and better capitalised, might be more interested in AIG’s US and other international insurance businesses.
It was a very busy day for the US Federal Reserve yesterday: it didn’t cut interest rates; instead it bailed out AIG with a two year loan of $US85 billion ($A106 billion).
At one stage this year, in fact only a few months ago, AIG was the biggest US insurer by assets and a major global force.
It had a market value earlier in the year of close to $US95 billion ($US180 billion a year ago): yesterday morning its shares traded at $US3.50 ($US2.60 in after hours trading).
That compares with the peak over the past year of more than $US70 a share. Its value at the close of trading was just over $US10 billion, but for all intents and purposes, it was worthless.
The Fed offered the insurer a one way form of insurance (it will be terminal for AIG) to underwrite the global financial system. It is larger than anything so far attempted in the credit crunch and far more complex.
In the space of three days Lehman Brothers has failed with debts and other claims of $US613 billion (but less one claims are netted out), Merrill Lynch has been forced into the arms of Bank of America in a all share offer worth around $US50 billion, and now this incredible bailout of AIG.
It’s a highly expensive deal; the Fed will take a margin of 8.50% (850 basis points) over the relevant London Interbank Offered Rate, according to its statement. Seeing LIBOR jumped to over 6% Tuesday night, it’s going to be an expensive loan.
The Fed said under the two-year facility the US government will receive a 79.9% equity interest in AIG and has the right to veto payment of dividends to common preferred shareholders in the deal, which had the full support of the Treasury Department.
"The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in the statement.
"The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an
