Philamlife assures it is insulated from parent AIG's woes

Posted at 09/16/2008 5:22 PM | Updated as of 09/17/2008 7:42 AM

The head of the Philippine American Life & General Insurance Co. (Philamlife) assured its policy holders Tuesday that the troubles facing its parent firm, American International Group Inc. (AIG), will not affect the local operations of the insurance company.   

“While AIG is our parent company, we are separately capitalized so we have our own capital base," said Philamlife president Jose Cuisia Jr. in an ANC interview. 

Cuisia stressed that Philamlife has “strong capital base and we have always maintained a very conservative investment policy.”  

Considered the a Goliath in the Philippine insurance industry, Philamlife has a capital base of P1.65  billion as of December 2007, topping all 36 insurance companies operating in the Philippines, a report in the website of the Insurance Commission said. 

US-based AIG is struggling to survive after losing 92 percent of its value this year as ratings agencies downgraded the insurer's debt and the global financial sector meltdown spread.

Reports said AIG plunged nearly 61 percent on Monday and the US Federal Reserve hired investment bank Morgan Stanley to review its options. 

AIG's ratings downgrade could also force it to post more collateral and nullify insurance contracts, possibly setting in motion a chain reaction that could threaten its survival.

Biggest in the Philippines

The Philippines is the AIG’s oldest market. AIG’s American founder, C.V. Starr, established Philamlife in 1947 on the heels of the devastation of World War II to provide an alternative to traditional foreign aid. It grew rapidly. Philamlife's endowment policies mobilized savings from the local population and provided funds to promote national development. In the 1950’s, when there was a acute housing shortages, Philamlife was involved in developing middle income housing. 

Philamlife is currently the largest life insurance company in the Philippines and a household name. Its total assets of P108.3 billion as of December 2007 account for one-third of the entire industry’s P367 billion. 

Trailing behind are Sun Life of Canada (Phils) Inc. (P67 billion), Filipino-owned Insular Life Assurance Co. Ltd (P57 billion), Philippine AXA Life Insurance Corp (P33 billion) and Manufacturers Life Insurance Co (Phils) (P20 billion).

Philamlife also has the highest capital base (P1.65 billion), most investments (P86 billion), and highest networth (P21 billion). 

With Philamlife’s size, prospects of its instability could send chills to the entire industry. 

But the industry’s regulator issued a statement to assure the public that Philamlife is financially safe and stable.  

Insurance Commissioner Eduardo T. Malinis said in the statement that “Philamlife is adequately capitalized and its customer' and policyholders' interests are protected with the company's financial strength. With its vast resources, Philamlife is capable of meeting its commitments and obligations to its clients."

"Philamlife remains to be the largest insurance company in the Philippines with the strongest balance sheet in the industry,” Malinis wrote. 

 Separate companies

Karen Liza M. Roa, President & CEO of Philam Asset Management, Inc., said in a statement that each financial product--the Philam Bond Fund, Philam Dollar Bond Fund, Philam Managed Income Fund, Philam Fund, Philam Strategic Growth Fund, GSIS Mutual Fund, and the AIG Global Bond Fund Philippines—are legal entities on their own since "each Fund is an investment company registered with the Philippines ' Securities and Exchange Commission, with separate and distinct Board of Directors."

“The [investors] are shareholders of the fund [where they invested]. The Board of Directors are separate and independent. The fund will follow investment restrictions of the Securities and Exchange Commission and the Philippine’s Investment Company Act. [The investors’] money is not co-mingled with AIG. They do not capitalize our funds.”

Unlike bank depositors whose P250,000 are covered by deposit insurance, policy holders or investors in insurance companies are not. However, the Insurance Commission provides guidelines on where the insurance companies could invest the funds they accept from the public. 

These guidelines take into consideration how easily these investments could be converted to cash. For example, the Insurance Commission puts a cap on how much of an insurance company’s assets could be invested in real estate, which are not considered liquid. 

“Every investment we make is approved by the regulator and precisely they make sure that these investments are intended to meet the obligations of the local company to its policy holders,” Cuisia said. 

Thus, Cuisia said he is confident that Philamlife “can meet all our obligations to our policy holders and our clients.” 

Roa said Philamlife's investments are concentrated in marketable Philippine government securities, corporate bonds, and blue chip equities.

Roa added that their financial products “are invested in Philippine Government securities, fixed income securities of strong local corporations and blue chip stocks. Our newest fund the AIG Global Bond Fund Philippines is invested in low risk, investment-grade global fixed income securities.”

Thus, while the financial health of the US-based parent company, AIG, is in peril, the Philamlife officials are more focused on the performance of their current investments.

The officials are basically monitoring the impact of the goings on in the US financial market on the capital markets where their investments are currently placed. 

The local stock market was down by 144 basis points Tuesday, in tandem with the bloodbath in most Asian and European bourses.

With Lehman Brothers filing for bankruptcy protection and rival Merrill Lynch agreeing to be sold to Bank of America for $50 billion, Cuisia admitted that investors would now be more wary to take risks amid US financial crisis. 

Cuisia acknowledged that Asian stock markets could not be insulated from the US crisis although he noted that the economies in the region, including the Philippines, are doing quite well compared to more developed countries.