Global insurance giant AIG to exit Sri Lanka

Friday, 13 June 2014 02:02 -     - {{hitsCtrl.values.hits}}

  • Says move was after close examination and part of global policy of withdrawing from markets that no longer fit into strategic growth plans
  • Staff and industry regulator IBSL informed of decision verbally on Wednesday; AIG asked to submit close of business plans and procedure in writing
  • AIG was a small player with less than 1% share but post-war Sri Lanka loses an influential American brand
Global giant American International Group (AIG) is closing business in Sri Lanka, with staff and insurance regulator informed of preliminary measures verbally on Wednesday. In a statement to the Daily FT, AIG said: “As AIG continues to streamline and simplify as an organisation, we have been closely examining those business segments within those countries in which products and services are not meeting the needs of our customers or are not a current focus of AIG and may no longer fit into our strategic growth plans. After careful consideration and an in-depth review, we have decided to withdraw from the Sri Lanka market.” The move however has caused anxiety among staff and some of its customers as the announcement was sudden. AIG also suspended selling policies with immediate effect. The staff early in the week was informed of a Town Hall meeting, which was addressed by a Regional Head. At this meeting the decision to close the Lankan business was revealed but no questions were entertained. Employees were asked to leave office and were assured of due compensation. Prior to the Poson holiday, a handful of senior staff manned the AIG office at BOC Merchant Tower at Colombo 3. AIG conveyed its decision to the industry regulator also on Wednesday during a meeting with Insurance Board of Sri Lanka (IBSL) Chairperson Indrani Sugathadasa. At the meeting reasons for the exit were asked and AIG has said it was deploying capital in markets which are offering higher growth. Focused on ensuring stability and wellbeing of policy holders and staff, AIG was requested to submit its planned closure of business in writing by IBSL. AIG was one of the 19 General insurance providers in the market and its share (0.3% by end 2012) was insignificant. The latter has made industry analysts emphasise that AIG’s exit won’t have any impact in the market, though others noted post-war Sri Lanka was losing a valuable US brand whose global revenue in 2013 was $ 69 billion and has a customer base of 88 million. AIG’s history in Sri Lanka hasn’t been all smooth sailing. Operating in over 130 countries, AIG entered Sri Lanka in 2000 via a joint venture with Hayleys Ltd. In 2005, the then Hayleys AIG stopped selling Life or long-term insurance business after divesting it to Sri Lanka Insurance Corporation in 2009. In late 2012, AIG was re-launched yet again after functioning as Chartis Insurance. AIG’s exit also comes when the Lankan insurance industry is preparing to segregate Life and General business from 2015. At present composite insurance companies are required to have minimum capital of Rs. 500 million. In a segregated industry, Life and General companies will be required to build a capital base of Rs. 500 million over a period of time. In contrast to AIG’s lack of optimism, Asian giant AIA in late 2012 in one of the biggest foreign investment deals completed the $ 109 million acquisition of a 92.3% stake in the then Aviva NDB Insurance. Insurance penetration and density in Sri Lanka is relatively low in comparison to other Asian countries. According to Central Bank data, insurance penetration, that is total premium as a percentage of GDP, was 1.14% in 2013, while insurance density, that is the ratio of premium to total population, was Rs. 4,807 million ($ 37 million) in 2013. The Gross Written Premium (GWP) in the General insurance sector, which accounted for 56.3% of total GWP, recorded a growth of 7% for 2013, compared to the growth of 15.1% in 2012. The profit before tax of the overall insurance sector rose by 11.4% to Rs. 13.5 billion in 2013 in contrast to the decline of 2% in the previous year. Return on assets in General insurance was 5.1% in 2013 (down from 5.3% in 2012) but higher in comparison to 3.1% in Life insurance. Claims ratio in General insurance is 58.7% in 2013, down from 62% in the previous year. Retention ratio was 83.5%, up from 82.5% in 2012. In a separate global development, AIG this week named Peter D. Hancock as President and CEO from 1 September 2014. He currently serves as Executive Vice President, AIG, and Chief Executive Officer of AIG Property Casualty, and will succeed Robert H. Benmosche, who is currently AIG President and Chief Executive Officer. In the announcement, AIG Board of Directors Chairman Robert S. Miller said: “AIG today is a far stronger company than it was five years ago, and with the crisis well behind us, AIG now is focused on its core mission: to help people and businesses around the world prepare for the future, recover from loss, and retire with confidence.” President and CEO designate Hanckock who joined AIG in 2010 said: “Today, a far stronger AIG has the opportunity to extend our industry-leading positions as we continue to set new standards of quality for our customers and distribution partners worldwide.” AIG went to the brink of collapse in 2008 during the height of the financial crisis and required a bailout of $182 billion. Wall Street reported that in terms of employees and total assets, AIG is roughly half the size it was before the crisis, thanks largely to divestitures of two international Life insurance units and sales of numerous other businesses. The company, with a market capitalisation of almost $80 billion, returned to profitability and in 2012 finished repaying taxpayers the aid it required in the bailout. Employing over 64,000 people in more than 90 countries AIG serves 98% of the Fortune 500 companies, 96% of Fortune 1000, and 90% of Fortune Global 500, and insures 40% of Forbes 400 Richest Americans. AIG was ranked 40th largest company in the Fortune 500 list published by Fortune magazine in 2014. According to the 2014 Forbes Global 2000 list, AIG is the 42nd-largest public company in the world.