Protective Life joins approved TARP queue…
AIG puts property unit on the selling block…
BNP Paribas extends its reach in Taiwan…
Two more UK property fund doors slam shut…
Chinese insurers paint a gloomy picture…
Protective Life joins approved TARP queue
Protective Life Corporation (PLC) has become the third US life insurer to gain approval to change its regulatory status to that of bank holding company, a prerequisite to become eligible to participate in the US Treasury’s $700 billion Troubled Assets Relief Program (TARP).
Approval was granted by the Federal Reserve Board (Fed).
PLC is seeking assistance under the TARP’s Capital Purchase Program for which $250 billion has been made available for the Treasury to purchase senior preferred shares of US-controlled banks and savings associations (thrifts).
The shares will pay an annual dividend rate of 5 percent for the first five years and 9 percent thereafter.
Facilitating PLC’s change to bank holding company status was its acquisition of Florida-based Bonifay Holding Company and its subsidiary bank, The Bank of Bonifay.
Non-banking giant Bonifay has total assets of $220 million and is Florida’s 143rd largest depository institution, according to the Fed. Protective has total assets of some $41 billion.
PLC joins The Hartford Financial Services Group and Lincoln National which have received approval from the Office of Thrift Supervision to change their regulatory status from that of insurer to thrift holding company. The Hartford acquired Florida-based thrift Federal Trust Bank while Lincoln National acquired Indiana-based thrift Newton County Loan & Savings.
AIG puts property unit on the selling block
AIG Global Real Estate (GRE) the property arm of US insurer American International Group (AIG) has placed its fund management unit on the selling block. For sale is a business with total assets under management of $12.4 billion at the end of September 2008.
New York headquartered, the unit has operations in Europe, Japan, Latin America and Asia and committed equity capital funded or to be funded by GRE as sponsor or co-investor.
Committed equity capital totaled $5.2 billion at the end of September 2008.
Progressing with a mammoth sale of assets to fund repayment of an $85 billion US federal government loan, AIG has already sold two significant units.
First to go was The Hartford Steam Boiler Inspection and Insurance Company, a provider of equipment breakdown and engineered lines insurance and reinsurance, sold in late-December for $742 to German insurer Munich Re.
Gone too is AIG Canada Life (AIGC), sold to Canadian financial services company, BMO Financial Group (BMO) for C$375 million ($308 million) in mid-January.
Offering products such as life and critical illness insurance and immediate annuities, AIGC has 400,000 customers and markets through 5,000 advisors. For BMO, which has over 7 million customers in Canada, acquisition of AIGC marks its first move into life insurance.
BNP Paribas extends its reach in Taiwan
Taiwan’s highly competitive life insurance market will soon have another player jostling for position following an agreement between BNP Paribas Assurance (BPA) and Taiwan Cooperative Bank (TCB) to form a joint venture (JV) life insurance company, BNP Paribas Assurance TCB Life Insurance Company.
BPA, a unit of French bank BNP Paribas, is France’s third largest life insurer.
Signaling that the partners have aggressive ambitions for the new venture, BPA’s head of international operations Jean-Bertrand Laroche said: “In Taiwan, our goal is to leap into the top three bancassurance companies.”
TCB, which will have a 51 percent stake in the JV, is Taiwan’s largest commercial bank and operates a network of 295 domestic branches. TCB’s largest shareholder is Taiwan’s Ministry of Finance which holds a 40 percent stake.
BPA entered the Taiwanese market 10 years ago and has two existing units: Taiwan’s eighth largest life insurer Cardif Assurance Vie (CAV) and general insurer Cardif-Assurances Risques Divers.
In 2007, CAV reported gross written premiums of NT$28.3 billion ($838 million) and, according to BPA had the second-largest number of channels for investment-linked insurance products in bancassurance. BPA and TCB have had a bancassurance arrangement in place since 2006.
Hedge funds fail their big bear market test
Investors, many insurers among them, who looked to hedge funds as an alternative asset class that delivers reliable absolute returns were sorely disappointed in 2008.
Based on investment research firm Morningstar’s 1000 Hedge Fund Index, a global, broadly representative benchmark for hedge fund performance, fell 10.3 percent in the last quarter of 2008 taking the total decline in 2008 to 22.2 percent, wiping out the two previous years’ gains.
“In 2008, hedge fund managers generally failed to deliver,” said Morningstar analyst Nadia Papagiannis.
“The average hedge fund may have lost less than the stock market, thanks in part to large cash allocations, but this level of performance was not why investors agreed to pay 2 percent management fees and 20 percent performance fees.”
Emerging markets was the worst performing hedge fund class in 2008 with Morningstar’s Emerging Market Equity Hedge Fund Index falling 45.6 percent, not far short of the MSCI Emerging Markets Index almost 55 percent fall.
According to Morningstar, hedge fund inflows peaked in June 2007 and bottomed in October 2008, when more than $21 billion left the industry. In November 2008, another $19.4 billion flowed out of hedge funds taking outflows in the 11 months to November to $44 billion.
ISLAMIC FINANCIAL MARKET
Already a significant force in global Islamic financial markets, Dubai-based Dubai Group has announced its entry into the Takaful (Shariah law-compliant) life and general insurance markets. Spearheading Dubai Group’s move is its Noor Investment Group (NIG) unit.
The new Takaful insurance operations headquartered in Dubai will initially focus on the emirates of Abu Dhabi, Dubai and Sharjah. The aim is to expand in the Middle East and North African region.
Entry into the Takaful market is in line with the Dubai Group’s strategy to capitalise on what it termed the Gulf region’s “flourishing Islamic insurance sector.” Dubai Group noted that according to independent industry research, the regions insurance industry is anticipated to grow at a rate between 20 percent and 25 percent annually.
Among Dubai Group’s extensive interest in the Islamic financial sector are wholly-owned units Dubai Bank and Noor Islamic Bank, a 40 percent stake in Bank Islam, Malaysia’s oldest and largest Islamic bank, and an 18.8 percent stake in Bank Islami Pakistan, the first Pakistani bank to receive an Islamic banking licence.
According to Dubai Group, through its subsidiaries and affiliates it has business interests in 26 countries employing 13,000 individuals, over 4 million customers and 748 branches.
Indian newcomer on brand-building drive
Launched in August 2008 Indian life insurer Aegon Religare Life Insurance (ARLI) has set out to establish its brand with a series of marketing campaigns aimed at educating Indian consumers on the importance of insurance.
In its multi-media launch campaign which featured Indian acting icon Irrfan Khan, ARLI focused on the dangers of under-insurance, garnering for its efforts some 45,000 enquiries.
In ARLI’s follow-up campaign, also featuring Khan, focus is on retirement, backed by its launch of a number of relevant products.
“The opportunity for retirement solutions is huge,” said ARLI chief marketing officer Yateesh Srivastava.
He added that though a shift in Indian culture is resulting in people wanting to become less dependant on their when retired only 13 percent of Indian workers are covered by some kind of retirement or pension plan.
ACLI is a joint venture between Dutch insurer Aegon, (26 percent stake), Indian financial services company Religare (44 percent) and Indian media company Bennett & Coleman (40 percent).
According to India’s Insurance and Regulatory Authority ACLI had recorded total premium income of INR84.6 million ($1.73 million) as at 30 November 2008.
Americans turn to life insurance for security
With their investment portfolio values hammered by slumping equity and property values Americans are increasingly turning to life insurance as a safe haven. This is the experience of the Paul Goebel Group (PGG), a 75-year old Michigan-based independent life and general insurance agency.
PGG has experienced what it terms a “spike” in life insurance inquiries from clients who had previously relied on their investment portfolios to maintain their family’s standard of living should an untimely death occur. These clients are now reassessing the adequacy of their life insurance cover to ensure their family’s standard of living continues.
Among PGG’s clients are some 50,000 Michigan professionals, including attorneys, accountants and engineers.
“While people have not overtly mentioned their plummeting portfolio values as the reason for reviewing their life insurance, we are nonetheless experiencing an increase in requests for such an analysis, particularly from existing clients,” said PGG vice-president Jeff Elble.
“Given the current state of the economy, people are looking at their life insurance as a way to ensure that their family and investments are financially secure should the breadwinner or working spouse die,” Elble added.
MassMutual caught in Madoff crossfire
US life insurer MassMutual has found itself one of six respondents – including four of its affiliates – in a class action lawsuit triggered by the Bernard Madoff Investment Securities (BMIS) debacle in which investors sustained losses upwards of $50 billion.
In the lawsuit, supported by advocacy group the Shareholders Foundation, aggrieved investors are seeking damages of $3.1 billion, an amount claimed to have been lost on investments placed by hedge funds manager Rye Investment Funds with BMIS.
Rye is a unit of Tremont Group Holdings (Tremont) which is in turn owned by OppenheimerFunds of which MassMutual is the majority shareholder.
In addition to MassMutual and its affiliates, Tremont’s auditors KPMG are also named in the lawsuit.
In a statement the Shareholders Foundation said that it is alleged that Tremont turned over virtually all capital invested in its Rye Funds ($3.1 billion), to BMIS.
“While relinquishing management to Madoff, Tremont continued to receive management fees from clients and the company provided account statements and other documentation that made it appear as though Tremont Group Holdings had active oversight of clients’ capital, so the lawsuit,” notes the advocacy body in its statement.
Two more UK property fund doors slam shut
Caught between a clamour by investors to redeem their investments and an illiquid property market, Norwich Union (NU) and Standard Life have become the latest UK insurers to impose redemption restrictions from their life and pensions unit-linked commercial property funds.
In both NU’s and Standard life’s funds, execution of redemption requests will be delayed for six months after receipt. Exceptions include policies with a contractual redemption date and death or permanent disability claims.
NU’s closure involves one fund with assets of about £2.9 billion ($4.3 billion) and some 225,000 investors. Standard Life is closing six funds with total assets of about £2.7 billion and some 210,000 investors.
Commenting NU’s marketing director David Barral said the NU fund’s closure would prevent property sales at below market values.
“Despite the current short-term difficulties, we are confident of the long-term prospects for commercial property,” Barral added.
Less reassuring is a prediction made by the Royal Institution of Chartered Surveyors in December 2008 that UK commercial property values, already down 25 percent, will fall by “at least” 16 percent in 2009 and 10 percent in 2010.
NU’s and Standard Life’s funds’ closures follow similar moves by Friends Provident, Axa, Scottish Widows and Scottish Equitable, some of which imposed closures in January 2008.
Chinese insurers paint a gloomy picture
Plummeting equity values in China have taken a heavy toll indicate profit warnings from two of the country’s three largest life insurers.
Based on the benchmark Shanghai Composite Index, equity values in China fell by 66 percent in 2008.
The first profit warning came from China’s largest life insurer China Life which anticipates that its net profit for 2008 will be more than 50 percent below the record CNY38.88 billion ($5.69 billion) recorded in 2007 when profit surged by 95 percent.
China Life’s anticipated full year profit fall represents a worsening of performance since the first half of 2008 when net profit fell 32 percent compared with the first half of 2007 to CNY15.838 billion.
A 50 percent fall for the full-year indicates second half net profit of about CNY3.6 billion, a fraction of the CNY22 billion recorded in the second half of 2007.
Bad new has also come from China’s third largest life insurer China Pacific Insurance (CPI) which warns that its 2008 net profit will be about 80 percent down on the CNY6.89 billion reported for 2007.
Given that CPI reported a net profit of CNY5.51 billion in the first half of 2008 this indicates a second half loss of about CNY4 billion.