Tata AIG Troubles: Solvency Payment Obligation

It appears that Tata AIG has a tough task ahead. First, it was the partner firm AIG which was in a delapidated state and hence the effect is seen over the Indian venture of Tata AIG, which is a joint venture between the Tata Group and American International Group Inc.
As per the news that has just come in, it seems that TATA AIG would require a new & fresh capital requirement of 250 Crore Rupees, if it has to continue its operations. This has been communicated by a senior government official who is looking after the development. This may mean that the Troubled AIG has definitely cast its shadown on its Indian joint venture. IRDA or Insurance Development Regulatory Authority of India is closely monitoring the developments at Tata AIG. Tata's have assured IRDA that all the payment obligations of TATA AIG will be met, but there are rumors in the market about the trouble and fresh capital infusion that may be required by TATA AIG, which is cited to be to the tune of 250 Crore just for continuing its operations. ET

Tata AIG Life’s capital stands at $293 million (over Rs 1,300 crore) and the company’s solvency margin is 304% against the IRDA’s stipulation of 150%,” Tata AIG Life managing director Trevor Bull mentioned. 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 promoters also infused about Rs 90 crore, in equal proportion of their stake in the company, two months ago.

Going by the equation of the joint partnerships between TATA and AIG, AIG has a 26% stake in the JV with the Tatas and will have to bring in a proportionate share. Hence, AIG will have to infuse Rs 65 crore in Tata AIG Life over the next two years, while the balance will be infused by the Tatas.

The US insurer has been bailed out 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.
But the US insurer, with over $1 trillion of assets, today maintained, "Policyholders of AIG companies around the world can rest assured that AIG’s commitments will continue to be honored."

IRDA on 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. But since this is based upon the March 2008 account data, IRDA is still waiting for detailed reports from TATA AIG with its current situation.

The insurance policy holders of TATA AIG are getting worried about the insurance policies and investment schemes which they have purchsed, especially the ones who have invested for long term horizon and paid a heavy charge in the name of fund management and administration charges. Their primary questions are along these lines, Is my money safe with them? Would I get adequate returns on my investment? Do I still hold on to the policy or withdraw it, even if I lose out on returns?