Tata AIG Customers Have No Reason to Worry
Tata AIG policy holders have zero cause for concern and all obligations that company has outstanding can and will be honored. The two joint venture companies, Tata AIG Life and Tata AIG General Insurance are both fundamentally sound, well capitalised and have no exposure to the global credit contagion. Both The companies are a 74% to 26% joint venture between Tata & Sons which has deep pockets of its own to begin with and AIG. “Currently, Tata AIG Life’s capital stands at $293 million and the company’s solvency margin is 304% against the IRDA’s stipulation of 150%” the company said. IRDA is the Indian Insurance regulator and by their standards the company is very solvent.
Solvency is the ability of an insurer to pay claims. It refers to excess of assets over liabilities that an insurer maintains, as a prudential measure in the interest of policyholders. The company’s stake holders infused about US$20 million in equal proportion to their stake in the company as recently two months ago. The majority of the infusion coming from Tata & Sons.
If you build it they will come
If Tata AIG wishes to grow over the next few years however it will require capital infusions from both its joint venture partners and if AIG is to remain a major shareholder with no change in ownership structure, then its commitment to new equity over the next two years is a little less than US$15 million. Even after being quasi nationalised, it is highly unlikely that AIG will not be able to meet this obligation; the amount in question is tiny for a company of its size.
A source within the company who spoke on the condition of anonymity said “In the next 12-18 months, we would like to add a further 100 offices to our existing 400 offices across the country,” the company also wants to raise its employee strength to 9,000 over the same period, from the current 8,500. “We remain committed to our expansion plans, notwithstanding market speculations,” the source said.
If necessary Tata & Sons itself, could provide the additional capital required to fund future Tata AIG expansion in the country. Government sources when questioned said “given Tata AIG Life’s business projections of the JV for the current fiscal, we do not foresee any problems in the domestic partners infusing additional capital.” On its part, IRDA last Tuesday also made it clear that both Tata AIG Life and Tata AIG General Insurance have the ability to settle claims, going by an analysis of their accounts as on March 2008. IRDA is awaiting a report from these companies on the implications of the recent developments in AIG.
The US insurer had to be bailed out last week from possible credit downgrades, with the Federal Reserve providing a $85 billion stimulus package — a revolving credit facility for two years — to ensure that the company can meet its liquidity needs.
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