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Tata-AIG policy holders need not worry

Posted by Manish Agrawal on Wednesday, 17 September, 2008

NEW DELHI: Trouble at American Insurance Group in US will have a bearing on its business in India, particularly its insurance business, which it is running in collaboration with Tata.

However, sources in the industry say that the policy holders need not worry as the financial conditions of insurance subsidiaries of AIG in India is stable, and they can meet all the liabilities arising out of the claims from the policy holders.

Insurance watchdog, the Insurance Regulatory and Development Authority has also expressed concern over the recent developments in the US Financial Markets. AIG, which is a leading insurance group of US, has sought financial support from the Federal Reserve.

AIG is operating in both life and non-life insurance sector. In both the companies, Tata owns 74% stake each and AIG holds the rest 26%. With AIG facing the heat in US, IRDA has asked for a report from both Tata AIG Life Insurance Company and Tata AIG General Insurance Company on the development regarding one of its promoters AIG in the US.

In a statement, IRDA said accounts of life insurance and general insurance companies promoted by Tata Sons and AIG as on March 31, 2008 indicate that both companies have satisfactory solvency margins, which suggest that it has enough assets to meet their liabilities. The IRDA further clarified that the life insurance and general insurance companies promoted by Tata Sons and AIG are companies registered under the Indian Companies Act and are bound by the provisions of the Insurance Act and other Regulations.

Sources said that policy holders should wait for clarification and dust to settle down before taking any decision. “AIG in US has a liquidity issue, but in India there is no solvency issue due to IRDA regulations. So there may not be a crisis in the Indian insurance market,” a company official of a leading insurance player said.

Though across many countries, policy holders are rushing to redeem their policies, it does not make sense to take any such step in India, industry experts said, adding that there is no need to panic and policy holders should keep invested.

Tata AIG general insurance is among the top five general insurance company and has earned a premium of Rs 813 in 2007-08. Tata-Aig Life Insurance is also one of the leading private sector companies and has earned a first year premium of Rs 969 crore.

The company source said that if AIG does not survive in the US and is forced to file for bankruptcy, Tata will chip in and buy out the 26% stake of AIG in both the companies. And the customers’ interest will remain unaffected. Later, Tata may find some other foreign partner to offload 26% stake that it will acquire from AIG.

A senior IRDA official said that in any circumstances, if the promoter is found wanting in meeting the liabiliies, the regulator will find a new promoter, who will protect the interest of the customers. In either case, whether Tata buys out the stake or not, the policy holders’ interest in both the companies will remain protected.



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