Australian Arm At Arm's Length

The Age

Wednesday September 17, 2008

Eric Johnston And Vanessa O'shaughnessy

THE Australian arm of insurance giant American International Group has attempted to distance itself from the problems of its parent, which is struggling to secure more than $US70 billion ($A86billion) to replenish capital.

Analysts and traders fear the collapse of AIG, the world's biggest insurer, would have dire implications for global markets - given its holdings of investments and backing of bonds and other financial instruments.

Efforts to raise funds became tougher after AIG's credit ratings were downgraded by Standard & Poor's and Moody's.

The ratings reductions occurred as Goldman Sachs and JPMorgan Chase were attempting to organise the emergency fund-raising.

AIG, which operates a life and general insurance business in Australia, attempted to reassure customers last night the woes of its parent were not affecting its operations.

"AIG Life in Australia operates as a completely separate legal entity within the stringent Australian regulatory regime," said AIG Life managing director Stuart Harrison.

"We continue to comply with regulations concerning capital adequacy and solvency. AIG Life in Australia has more than sufficient capital and reserves to meet our obligations to policyholders."

AIG is Australia's eighth-biggest life insurer and provides general insurance mostly to business, including some of the nation's top 200 companies.

Ernst & Young insurance industry leader Graeme McKenzie said, if AIG were to collapse, it would have a knock-on impact in Australia, forcing Australian insurers, including QBE Insurance or Insurance Australia Group, to refuse cover or charge higher prices.

But Mr McKenzie said that besides the indirect effects from AIG's troubles, Australian insurers were in a different situation. "In Australia, post the collapse of HIH Insurance, there's been some quite significant regulatory changes which means each of the Australian insurers really has to stand on its own two feet from a capital perspective," he said.

© 2008 The Age

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