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March 10, 2009

News Digest

ING sells Canadian general insurer ... Shenandoah Life falls prey to financial crisis.. Serious Fraud Office launches AIG probe...

By Verdict Staff

ING sells Canadian general insurerShenandoah Life falls prey to financial crisis.. Serious Fraud Office launches AIG probeLincoln Financial wins tussle with Aegon..

COMPANIES

ING sells Canadian general insurer

In a deal that will net it C$2.163 billion ($1.72 billion), Dutch bancassurer ING has sold its 70 percent stake in ING Canada. The sale is in two parts, one of 60 percent to an unnamed group of institutional investors and the balance to a syndicate who were to underwrite a public placement of the remaining 10 percent stake.

ING chairman and CEO-designate Jan Hommen said: “As we announced on 26 January, we will increase our focus on businesses and regions where we have a strong and sustainable position in savings and investments.”

Hommen added that proceeds from the transaction will be used to strengthen ING’s capital position.

ING Canada, Canada’s largest vehicle, business and home insurer, generated C$620 million in cash in 2008 and ended the year with C$427.5 million and no debt. Following closure of the deal, ING Canada is to be rebranded as Intact Insurance Company.

 

REGULATION

Shenandoah Life falls prey to financial crisis

The financial crisis has claimed another victim, this time US mutual insurer Shenandoah Life Insurance Company which has been placed into receivership by the Virginia Commissioner of Insurance (VIG).

According to the VIG, Shenandoah Life’s financial problems were sparked by a $50 million loss on investments in home mortgage lenders Fannie Mae and Freddie Mac.

The decision to place Shenandoah Life into receivership followed an announcement Indiana-based insurance conglomerate OneAmerica that it would not proceed with its mooted acquisition of Shenandoah Life.

Shenandoah Life was founded in 1914 and is licensed to do business in 31 states plus the District of Columbia. The failed insurer joins two Indiana insurers, Standard Life Insurance Company of Indiana and Indiana Medical Savings Insurance Company, which were placed into receivership in December 2008.

 

REGULATION

Serious Fraud Office launches AIG probe

Already the subject of probes by US authorities and the UK’s Financial Services Authority, American International Group’s Financial Products (AIGFP) unit is to be investigated by the UK’s Serious Fraud Office (SFO).

“It is right for us to look into the UK operations of AIG Financial Products to determine if there has been criminal conduct,” said SFO director Richard Alderman in a statement.

“We will use our full range of powers to seek information and to speak to those with an inside knowledge of the company’s operations,” he added.

In a statement responding to the SFO’s announcement, AIG promised its full cooperation and noted that some 370 employees in AIGFP worldwide are working on the winding down of the business.

A major factor in AIG’s financial devastation, AIGFP recorded pre-tax losses of $11.5 billion in 2008 and $22.3 billion in the first three quarters 2008.

 

LEGAL

Lincoln Financial wins tussle with Aegon

US insurer Lincoln Financial Group (LFG) has scored a victory in a legal battle with three units of Aegon USA, the US operation of Dutch insurer Aegon.

At issue was an alleged infringement by Transamerica of a patent held by LFG relating to a computerised method for administering variable annuity (VA) products that combine guaranteed minimum payment features with systematic withdrawal programmes.

In addition, the patent includes data processing methods used to administer VAs in the payout phase and withdrawals from mutual funds, particularly systematic withdrawals from funds.

In its verdict, the jury found that Lincoln’s patent was valid and determined that a reasonable royalty for its infringement was $13.1 million. The Aegon USA units involved were Transamerica Life Insurance, Transamerica Financial Life Insurance and Western Reserve Life Assurance.

 

BANCASSURANCE

UK bancassurance boost for Axa

Implementation of an alliance agreement between French insurer Axa’s UK unit Axa Life and Glasgow Scotland headquartered Clydesdale and Yorkshire Banks (CYB) announced in November 2008 has been completed.

Under the agreement CYB, a subsidiary of National Australia Bank (NAB), has transferred £1.2 billion ($1.75 billion) of funds under management by NAB’s wealth management division MLC to Axa’s Architas multi-manager unit and 129 branch-based financial planners to Axa.

The exclusive alliance gives Axa Life access to CYB’s 2.3 million retail banking customers which are served by the bank’s network of 342 branches which are located primarily in Scotland and the north of England.

CYB has, however, retained a separate team of senior financial planners, who have moved from a multi-tie arrangement to a whole of market approach.

 

COMPANIES

Eureko gets e1bn capital injection

With its balance sheet hammered by a €2.1 billion ($2.7 billion) net loss in 2008, Dutch composite insurer Eureko has turned to its major shareholders, Dutch financial services cooperative Achmea Association and Dutch bank Rabobank Group, for a much-needed €1 billion capital injection.

Of the total new ordinary capital, Achmea will contribute €600 million and Rabobank €400 million, partially offsetting the €2.9 billion decline to €7.5 billion in Eureko’s capital position in 2008.

Achmea and Rabobank have stakes of 54.4 percent and 39.5 percent, respectively, in Eureko.

Based on unaudited figures, the equity market collapse did major damage to Eureko’s results with the insurer reporting a €1.054 billion impairment to its equity portfolio, partially offset by a €251 million hedging gain. Realised losses on equity and fixed income investments totalled €429 million and €71 million, respectively.

Other significant damage to Eureko’s results was done by impairments totalling €796 million to investments in associated companies, a €462 million fair-value adjustment to its annuity portfolio and €136 million to make good minimum guaranteed returns on segregated investment accounts.

Euroko’s unaudited results release came five days after the announcement that Willem van Duin will succeed Maarten Dijkshoorn as CEO.

Dijkshoorn stepped down on 2 January.

 

COMPANIES

Taiwanese deal gives Prudential a big capital boost

For a nominal amount of TWD1 ($0.03), Taiwanese insurer China Life Insurance Company of Taiwan (CLI) is to the assets and liabilities of UK insurer Prudential’s agency distribution business and agency force in Taiwan.

Based on international financial reporting standards (IFRS) the business being transferred had gross assets of £4.5 billion ($65 billion) at the end of 2008 and represents 94 percent of Prudential’s in-force liabilities in Taiwan.

Despite the negligible price the sale is “enormously value-enhancing for Prudential Group on several levels,” said Prudential group chief executive Mark Tucker.

Specifically, after a one-off IFRS negative impact of £595 million including restructuring costs, Prudential’s economic capital as defined by the European Union Insurance Group Directive increase by £800 million and its embedded value under European Embedded Value principles will increase by £90 million.

The transaction with CLI, Taiwan’s fourth-largest life insurer, does not spell Prudential’s exit from Taiwan.

Under the agreement, Prudential will invest £45 million to purchase a 9.95 percent stake in CLI through a share placement and will, in addition, continue to pursue its bancassurance relationships with Taiwanese financial services group E-Sun and UK bank Standard & Chartered’s Taiwan unit.

Prudential is also active in asset management in Taiwan via its PCA Securities Investment Trust unit.

 

INDUSTRY TRENDS

Axa UK ups protection age limit

French insurer Axa’s UK unit has raised the age limit on life cover from 70 to 85 in response to increased longevity which has delayed what it terms “some of the key milestones in life”.

For example, Axa noted that women over the age of 35 have the fastest-growing birth rate in the UK, while the average first-time home-buyer’s age has risen to 34.

People of retirement age are also staying in work for longer, added Axa.

In addition to increasing the age limit on life cover, Axa announced that customers offered standard rates now have 180 days from when the terms are offered in which to take up the offer without completing a declaration of health, an increase from 90 days previously.

Consumers offered rated premiums now have 90 days from when the terms are offered in which to take up the offer, an increase from 30 days previously.

Axa’s move comes at a time of flagging consumer demand for protection insurance. According to the Association of British Insurers, new regular and single individual protection premium income totalled £413 million ($580 million) in the fourth quarter of 2008, down 14.7 percent compared with the same quarter in 2007.

 

DEVELOPING MARKETS

Chinese insurers off to a positive start

Shrugging off economic gloom China’s insurance industry was a net buyer of shares worth CNY2.1 billion ($31 million) in January, according to China’s official news agency Xinhua, quoting a statement from the China Insurance Regulatory Commission (CIRC). The release was intended to dispel rumours of an “industry sell-off” noted Xinhua.

CIRC data revealed, at the end of January the insurance industry held 83.9 percent of its total investment assets in bank deposits and bonds, 13.9 percent in equities and mutual funds and the remaining 2.2 percent in other assets.

The CIRC also released figures showing that the insurance industry’s total premium income stood at CNY114.8 billion in January, up 8.6 percent compared worth January 2007.

Results from China’s two largest life insurers, China Life and Ping An which have a combined market share of about 55 percent, also indicated continued growth in the life sector.

Compared with January 2008 China Life reported a 19 percent increase in premium income to CNY30.7 billion while Ping An reported a 23 percent increase to CNY33.3 billion.

China’s third largest life insurer, China Pacific Insurance, reported a 15 percent fall in premium income in January to CNY7 billion.

 

COMPANIES

Changing of the guard as ING revamps top management

In another revamp of its top management structure, Dutch bancassurer ING has announced the appointment of Patrick Flynn as its new chief financial officer (CFO).

Flynn who is currently UK bank HSBC’s CFO of global Insurance business, will replace John Hele who is to take up the position of CFO at Bermuda-registered insurer Arch Capital Group on 1 April.

Flynn, a chartered accounted, spent a total of 20 years with HSBC where he held a number of other senior positions including that of senior manager of HSBC Group Finance between 1995 and 1998; head of international finance control between 1999 and 2002; and CFO for HSBC’s banking and insurance operations in South America between 2002 and 2006.

The appointment of Flynn follows ING’s announcement in January that its chairman Jan Hommen was to assume the additional role of CEO from Michel Tilmant who stepped down on 26 January.

 

INVESTMENTS

Standard Life pays up

Bowing to pressure from aggrieved investors, UK insurer Standard Life has announced that it will make immediate payments to customers impacted by a 4.8 percent fall in the unit price of its Pension Sterling Fund (PSF) on 14 January.

“We have listened to feedback and the concerns of our customers and key business partners and have decided to put customers back in the position they would have been before the valuation adjustment,” the insurer said in a statement.

Prior to the price adjustment, PSF had assets totalling £2.1 billion ($3 billion) and some 97,000 investors.

Restoring investors to the position they were in prior to the adjustment will, said Standard Life, result in a pre-tax charge of £100 million against profits in its financial year ended 31 December 2008. The after tax impact is estimated at £72 million.

PSF will continue to investing in bank and building society deposits and floating rate notes, the majority of which are asset backed securities, noted Standard Life.

 

DEVELOPING MARKETS

Marsh makes solid progress in China

In its review of China’s insurance intermediary market, the China Insurance Regulatory Commission (CIRC) has for the second year running ranked US broker Marsh’s Marsh (Beijing) Insurance Brokers unit as the country’s top international broker. The ranking was based on annual invoiced revenue achieved in 2008.

On an overall basis Marsh ranked fourth in China based on its invoiced revenue which increased by 43 percent compared with 2007 to CNY134.03 million ($19.62 million). This represented a 5.1 percent share of the market which recorded total invoiced revenue of CNY2.65 billion, 31.3 percent compared with 2007.

Marsh, a unit of Marsh & McLennan Companies, has been active in China since being granted the first ever Wholly Owned Foreign Enterprise insurance broking license in January 2007.

Based in Beijing, Marsh operates branches in five cities and employs 180 people.

According to the CIRC there were 2,445 insurance agencies in China at the end of 2008.

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