AIG in South Africa grows profits 63%; operating as normal
• Underwriting profit of US$99 million and a combined ratio of 96.7% for American International Underwriters (AIU)
• Business as usual for AIG in South Africa
• AIG SA continues to be AAA (ZAR) rated
Despite American International Group Inc.’s (“AIG Inc.”) New York announcement today of a third quarter loss of US$24.47 billion, the results show that the group’s separately capitalised American International Underwriters (AIU), which include AIG South Africa Limited and AIG Life South Africa Limited (AIG South Africa Companies), continue to be highly profitable and are operating as normal.
AIU said its insurance operations grew 11.5% in the third quarter of 2008 with a profit of US$99 million at a combined ratio of 96.7%. Excluding catastrophes such as Hurricanes Ike and Gustav, the underwriting profit was US$232 million at a combined ratio of 92.97%.
AIG South Africa Limited and AIG Life South Africa limited combined posted a profit for the third quarter of R63.7 million (up 63% from the corresponding third quarter of 2007) and a profit for the year to date of R197.2 million (up 39% from 2007). These businesses have historically delivered consistent, profitable results.
Wayne Abraham, COO of the AIG South Africa Companies which have been operating in the country for 46 years, said: “For AIG in South Africa its business as usual; we are in a very strong financial position and continue to pay claims and underwrite new business. AIG Inc.’s challenges in the United States are localised and are not impacting our operations here.”
“We remain tightly regulated and we are required by local law to maintain specific levels of solvency in order to maintain trading licenses,” said Abraham.
AIG South Africa Ltd. continues to enjoy a AAA (ZAR) rating by Fitch Ibca and Global Credit Ratings.
AIG Life SA Ltd. continues to enjoy AAA (ZAR) by Fitch Ibca.
The solvency margin for AIG South Africa Ltd. is 61% compared to a statutory requirement of 15%, while the capital adequacy ratio (CAR) for AIG Life South Africa is 28 times compared with a minimum statutory requirement of 2 times.
The AIG South Africa companies are wholly owned subsidiaries of American International Underwriters Overseas Limited, a member of the Foreign General Insurance operations which are AIG’s International insurance operations.
AIG Inc. announces comprehensive solution with the U.S Treasury and Federal Reserve (“Fed”)
AIG Inc. in New York also announced today an agreement with the US Treasury and Federal Reserve to establish a more durable capital structure for AIG Inc., and revamped facilities designed to resolve the liquidity issues experienced at AIG Inc. on its credit default swap portfolio and its U.S. securities lending program.
The actions include ongoing financing facilities and one-time transactions. Ongoing financing facilities include:
• The US Treasury will purchase $40 billion of newly issued AIG perpetual preferred shares and warrants to purchase shares of AIG equal to 2% of the portion of the Fed’s credit facility
• The existing credit facility will be revised to $60 billion, with a decreased interest rate of LIBOR plus 3% rather than the original LIBOR plus 8.5%, with the term of the loan extended to 5 years from the original 2 years and a reduced fee of 0.75% as opposed to 8.5% on undrawn commitments.
One time transactions involve the creation of two financing entities capitalised with loans from AIG Inc. and the Fed. These include:
• A $22.5 billion senior funding from the Fed with $1 billion subordinated funding from AIG Inc. to enable the transfer of residential mortgage-backed securities from its securities lending collateral portfolio. This financing entity together with the other AIG Inc. funds, will eliminate the need for the US securities lending liquidity facility established in October 2008.
• AIG and the Fed will create a second financing entity that will purchase up to US$70 billion of Multi-Sector Collateralised Debt Obligations (“CDO”) exposure on which AIG has written Credit Default Swaps (“CDS”) Contracts. AIG will provide $5 billion in subordinated funding and the Fed will provide $30 billion in senior funding to the financing entity. Approximately 95% of the write-downs on the CDS portfolio were related to Multi-Sector CDOs.
Commenting from New York AIG Chairman and CEO, Edward M. Liddy noted: “Today's actions send a strong signal to our policyholders, business partners and counterparties that AIG is on the road to recovery. Our comprehensive plan addresses the liquidity issues that threatened AIG, and gives us the financial flexibility to complete our restructuring process successfully for the benefit of all of our constituencies."
