AIG Malaysia’s Growth on Track
(THE EDGE) KUALA LUMPUR: Rob Ryan, AIG General Insurance (Malaysia) Bhd’s new chief executive officer, has assumed the crucial task of an effective communicator and salesman at a crucial time of the insurance giant’s history.
This comes at a time when it is not unusual for market chatter to swirl around the fate of its parent company American International Group Inc (AIG).
The US-based parent has been hogging the limelight in recent months, no thanks to the woes surrounding the company as a meltdown in global financial markets dragged the firm into the throes of near-collapse.
News on the massive US$180 billion (RM651.6 billion) rescue package by the US government to prevent the insurance heavyweight from filing for bankruptcy, planned disposals of AIG Inc’s operating units, and fat bonus pay cheques for AIG executives have been splashed across the media in recent months.
Ryan told The Edge Financial Daily in a recent interview: “The key message to all the staff here in Malaysia is that our core activity in general insurance has nothing to do with the financial products division in the US.
“We (AIG Malaysia) have not received a single cent of the US federal taxpayers’ money. All the assets within AIG Malaysia cannot be used to meet the debts or liabilities of AIG Inc,” said Ryan who assumed the CEO post in January, taking over from former CEO Brad M Bennett.
AIG Inc had announced a fourth-quarter (4Q) net loss of US$61.7 billion, which translated into a full-year loss of US$99.3 billion.
AIG’s woes were due to its credit-default swaps sale, and subprime mortgage-backed securities holdings. Credit defaut swaps are insurance-like contracts which guarantee against companies’ failure to settle their debts.
During the quarter, AIG Inc wrote down US$25.9 billion in the value of its assets, including mortgage-backed securities and credit-default swaps. Its general insurance unit lost US$2.8 billion compared to a profit of US$2.1 billion a year earlier.
In Malaysia, AIG is represented by two insurance units — composite insurer American International Assurance Bhd (AIA Malaysia) and AIG Malaysia.
Ryan made it clear that AIG Malaysia was insulated from the woes of its parent company in the US. This is by virtue of the fact that AIG Malaysia is a locally-incorporated firm regulated by Bank Negara Malaysia, albeit not totally autonomous from AIG Inc.
The insurance veteran’s 25 years of experience will come in handy to grow sales against the backdrop of a tougher business landscape for the sector.
Ryan said AIG Malaysia was targeting a 5% growth in gross written premium for the current financial year ending Dec 31, 2009 (FY09). The firm hopes to achieve its target through sales of packaged insurance policies to small and medium enterprises.
Gross written premiums rose 8.2% to RM479 million in FY08 from RM442.6 million in FY07. The general insurer, represented by some 2,500 agents, has over RM220 million worth of liquid assets in the form of cash, or cash equivalents.
“It is going to be tough because we are a service industry. If we get 5% growth in 2009, I will be a very happy man.
“We are happy to acquire rivals, but we don’t like paying RM10 for RM5 assets. It can be very disruptive and diverting, bringing two companies together,” said Ryan who hails from the UK.
In view of the current operating enviroment, Ryan foresees insurers here raising prices to restore profit margins.
According to BNM, the combined impact of a weaker credit landscape, besides waning demand for loans and other financial products, has posed challenges for financial institutions to sustain their revenue base.
Insurers, for example, are expected to face an uphill task in sustaining gross premium amid expectations of higher claims. The expected decline in vehicle sales essentially translates into less earnings for general insurers.
“Premiums are also likely to be affected due to an increase in surrender rates and lower sums insured as a result of policyholders’ efforts to reduce costs during this difficult period.
“In addition, claims are expected to intensify due to higher incidences of theft and fraud as well as less regular maintenance,” the central bank said in its recently-released financial stability and payment systems report.
AIG Malaysia will have its work cut out, given perception issues affecting the global insurer.