New Delhi: The financial crisis at American International Group Inc (AIG) does not pose any immediate threat to its Indian operations, but may have an impact in a year’s time if there is a disruption in capital flow to the insurer’s local joint ventures, says a top official at the nation’s insurance regulator.
AIG has partnered with the Tata group to launch insurance business in India and holds 26%—the maximum a foreign partner can hold in Indian insurance operations at present—in their joint ventures, Tata AIG Life Insurance Co. Ltd and Tata AIG General Insurance Co. Ltd.
“Currently, the solvency margin of the company (Tata AIG) is quite comfortable at 2.3 against the required level of 1.5. Moreover, business projections and capital infusion plan of the company are of small amounts of which AIG has to provide only 26%,” said R. Kannan, member actuary of Insurance Regulatory and Development Authority, or Irda.
“We have asked for operational report from the life and general insurance businesses of Tata AIG. If the company keeps maintaining its solvency ratio, there will be no problem,” he added.
The solvency margin is the extent to which an insurance company’s assets exceed its liabilities. This margin is maintained to ensure that the companies meet insurance claims.
The two companies are likely to submit the report in next two days about their plans. “We are keeping a close eye on the company and won’t be hesitant of any action to protect the interests of the policyholders,” he said, but added that it was quite premature to talk about its future now.
AIG lost $18 billion (Rs83,880 crore) over the last few quarters due to its exposure to mortgage securities and derivatives. Though it got a $20 billion funding lifeline on Monday, rating cuts by credit assessment agencies have created more worries for the New York-based company.
An official of Tata AIG Life said the interest of policyholders would not suffer in any case. The official, who didn’t want to be named, said since AIG holds only 26% the company, the Tata group would not have any problem in either buying out the minority stake or in meeting funds for its expansion plans. He said it was too early to comment on the future structure of the ventures. Sunil Mehta, the country head and chief executive of AIG, couldn’t immediately be reached for comment.
Web Extra | AIG stakes in Indian firms & how they performed today
According to BSE data, American International Group Inc has exposure or more than 1% in 8 firms, namely Mindtree Ltd (3.27%), Sun Pharma Advanced Research Company Ltd (2.39%), Gayatri Projects Ltd (2.07%), Nucleus Software Exports Ltd (1,58%), Ipca Laboratories Ltd (1.4), AIA Engineering Ltd (1.3%), Bharti Shipyard Ltd (1.14%) and Federal Bank Ltd (1%).
AIG Holdings (PDF)
In this pack, AIA Engineering fell the most 6.9% to close at Rs1486.6, next to follow, Nucleus Software with 6.73% to close at Rs146.1, Bharti Shipyard losing 5.44% to close at Rs240, Federal Bank fell 2.26% to close at Rs209.7, Gayatri Projects lost 2.17% to close at Rs214.05, SPARC lost 0.59% to close at Rs84.95 and to fell the least was Mindtree Ltd with 0.58% to close at Rs332.
The only to gain from this pack is, Ipca Laboratories gaining 4.32% to close at Rs582.45.