Dear Mr. Tan Kin Lian:
I'm a journalist. We read your blog and see many AIA policyholders seeking your advice. We are very interested. How big a problem is AIA facing? How are policyholders reacting to the problem? Do you find their worries reasonable or unreasonable?
REPLY
The policyholders of AIA (American International Assurance) were worried about the safety of their insurance savings when they heard about the financial trouble facing AIA's parent company, AIG (American International Group). At that time, they learned that AIG had to be find additional capital of USD 80 billion (not sure about the exact figure), failing which AIG had to declare bankrupcy. They were worried that their savings would be locked up during the bankrupcy or worse still, disappeared entirely.
Many policyholders queued up to terminate their policies and receive the cash values. They are willing to take a loss, as the cash value is less than the premiums that they have paid, and the penalty is quite high for policies that are terminted during the early years of the insurance policy.
A total of 5,000 policies were reported to be surrendered during the first two years. Many of these policyholders formed large queues outside of the office of AIA. This caused other policyholders to be alarmed.
Some of the AIA policyholders sent e-mails to seek my advice. I advised them not to panic and not to surrender their policies. My reasons were given in this blog:
http://tankinlian.blogspot.com/2008/09/is-your-money-safe-with-aia.html
On the following days, the regulator, i.e. Monetary Authority of Singapore, and AIA issued similar statements to assure the policyholders.
There was no need for the policyholders to panic, as their insurance savings are kept in a separate fund for Singapore policies. This fundwas, to my knowledge, solvent and in good financial state. Even if there is financial difficulty facing AIA (and there was none at that time), there is provision in the Insurance Act for the regulator to activate the Policyowners Protection Fund. This fund would guarantee 90 percent of the liability under a life insurance policy. This is much better than taking the cash value, as the penalty is higher for a surrendered policy.
I do my best to educate the public about the actual situation and to help them avoid taking the wrong action that will result in making a loss on their savings.
Sunday, October 12, 2008
New blog for investors of Credit Linked Securities
This blog allows investors to get in touch with each other. Separate sections have been created according to distributor and products.
http://creditlinkedsecurities.blogspot.com/
http://creditlinkedsecurities.blogspot.com/
STI Exchange Traded Fund
The STi Exchange Traded Fund is a fund, like a unit trust. It is an indexed fund, and is invested in the top 30 shares of the ST Index. It is NOT a derivative.
More details can be found here:
http://www.streettracks.com.sg/ssga/jsp/en/pressRelease-article2.jsp
If you wish to buy the this Fund, you have to consult your stockbroker.
More details can be found here:
http://www.streettracks.com.sg/ssga/jsp/en/pressRelease-article2.jsp
If you wish to buy the this Fund, you have to consult your stockbroker.
Investing in difficult times
Dear Mr. Tan,
Is it safe to put money in the bank anymore? If not, where can I invest my money? I am scared even to leave the money in the bank as the banks are no longer safe, and they may ask me to invest in the minibonds and other risky products, without my knowledge.
REPLY
My wife asked me the same question. I advised her to buy the STI Exchange Traded Fund. It is a fund comprise of the top 30 shares in Singapore. My reasons are:
1. These are the 30 largest companies listed in Singapore
2. The dividends paid average about 5%, based on the current price. It is paid in two installments every 6 months.
3. If this is for a long term investment, it does not matter if the share prices comes down further. It will eventually recover (maybe in a few years' time and make a good capital gain)
4. If the recession continues for one or two years and the profits of the companies drop by 50%, these shares will still give a dividend of 2.5% (which is better than bank deposit or government bonds).
5. Invest for the long term. Be bold.
Another alternative is to invest in a few RIETs. Many of them have a dividend payout of 10% now. Even if the rentals fall by 50%, the dividend payout is 5%. Make sure that these REITS do not have high leverage.
Is it safe to put money in the bank anymore? If not, where can I invest my money? I am scared even to leave the money in the bank as the banks are no longer safe, and they may ask me to invest in the minibonds and other risky products, without my knowledge.
REPLY
My wife asked me the same question. I advised her to buy the STI Exchange Traded Fund. It is a fund comprise of the top 30 shares in Singapore. My reasons are:
1. These are the 30 largest companies listed in Singapore
2. The dividends paid average about 5%, based on the current price. It is paid in two installments every 6 months.
3. If this is for a long term investment, it does not matter if the share prices comes down further. It will eventually recover (maybe in a few years' time and make a good capital gain)
4. If the recession continues for one or two years and the profits of the companies drop by 50%, these shares will still give a dividend of 2.5% (which is better than bank deposit or government bonds).
5. Invest for the long term. Be bold.
Another alternative is to invest in a few RIETs. Many of them have a dividend payout of 10% now. Even if the rentals fall by 50%, the dividend payout is 5%. Make sure that these REITS do not have high leverage.
Speech at Speaker's Corner: 11 Oct 2008
Courtesy of The Online Citizen:
Part 1:
http://www.youtube.com/watch?v=xskGbufFUAM
Part 2:
http://www.youtube.com/watch?v=14Ln_gtm3KI
Part 3:
http://www.youtube.com/watch?v=1kobyOql3EE
Part 1:
http://www.youtube.com/watch?v=xskGbufFUAM
Part 2:
http://www.youtube.com/watch?v=14Ln_gtm3KI
Part 3:
http://www.youtube.com/watch?v=1kobyOql3EE
Hong Kong: DBS first bank to repay bonds
DBS first bank to repay bonds
By Lillian Liu - China Daily(HK Edition)
Updated: 2008-10-10 07:36
DBS said it will redeem 70 investors' Lehman Brothers-related products sold by the bank, making it the first financial institution in Hong Kong to compensate investors in response to the government's pledge to help the bond holders recover some losses quickly.
Some 21 banks in Hong Kong, according to the Hong Kong Monetary Authority (HKMA), have sold minibonds and similar products backed by Lehman Brothers, which was the fourth-largest investment bank in the US until its collapse last month.
A spokeswoman at DBS said the bank is only responsible for the structural bonds, while other bonds related to Lehman Brothers were issued by another firm.
She said the bank has designated accounting firm KPMG to revalue the products to be bought back and did not rule out the possibility that some bond buyers will be totally refunded.
Analysts said DBS set a good example for other banks having issued Lehman Brothers-related products, but noted that it may be a while before investors actually receive their compensation.
Tens of thousands of Hong Kong people invested a total of HK$15.6 billion in the Lehman Brothers-backed derivatives, and they all face substantial losses.
The number of complaints concerning Lehman Brothers-related products has increased sharply to 7,730 from 5,500, and will grow further, the HKMA said yesterday. The authority has opened an investigation into whether the banks misled investors into buying them, it said.
"But we cannot comment on how long it will take to investigate the problems, because it depends on the capacity of the investigation team and availability of information provided," HKMA Executive Director Raymond Li told reporters at a press conference yesterday.
Y K Choi, deputy chief executive of the HKMA, said that to avoid similar cases in the future, the HKMA - the city's de facto central bank - is studying which risky financial products can be sold to retail investors and which should not be.
Among the total complaints received by HKMA, 6,012 cases are in the initial processing phase, while 1,476 cases require verification, and 242 complaints have been put in assessment for further action.
Li said investors complained they were misled into thinking they were buying a form of corporate bonds and were unaware until recently that the bonds were guaranteed by troubled Lehman Brothers.
They accused the banks of not fully disclosing the risks involved.
Some minibonds consist of high-risk derivatives such as synthetic collateralized debt obligations and credit default swaps.
http://www.chinadaily.com.cn/hkedition/2008-10/10/content_7092404.htm
By Lillian Liu - China Daily(HK Edition)
Updated: 2008-10-10 07:36
DBS said it will redeem 70 investors' Lehman Brothers-related products sold by the bank, making it the first financial institution in Hong Kong to compensate investors in response to the government's pledge to help the bond holders recover some losses quickly.
Some 21 banks in Hong Kong, according to the Hong Kong Monetary Authority (HKMA), have sold minibonds and similar products backed by Lehman Brothers, which was the fourth-largest investment bank in the US until its collapse last month.
A spokeswoman at DBS said the bank is only responsible for the structural bonds, while other bonds related to Lehman Brothers were issued by another firm.
She said the bank has designated accounting firm KPMG to revalue the products to be bought back and did not rule out the possibility that some bond buyers will be totally refunded.
Analysts said DBS set a good example for other banks having issued Lehman Brothers-related products, but noted that it may be a while before investors actually receive their compensation.
Tens of thousands of Hong Kong people invested a total of HK$15.6 billion in the Lehman Brothers-backed derivatives, and they all face substantial losses.
The number of complaints concerning Lehman Brothers-related products has increased sharply to 7,730 from 5,500, and will grow further, the HKMA said yesterday. The authority has opened an investigation into whether the banks misled investors into buying them, it said.
"But we cannot comment on how long it will take to investigate the problems, because it depends on the capacity of the investigation team and availability of information provided," HKMA Executive Director Raymond Li told reporters at a press conference yesterday.
Y K Choi, deputy chief executive of the HKMA, said that to avoid similar cases in the future, the HKMA - the city's de facto central bank - is studying which risky financial products can be sold to retail investors and which should not be.
Among the total complaints received by HKMA, 6,012 cases are in the initial processing phase, while 1,476 cases require verification, and 242 complaints have been put in assessment for further action.
Li said investors complained they were misled into thinking they were buying a form of corporate bonds and were unaware until recently that the bonds were guaranteed by troubled Lehman Brothers.
They accused the banks of not fully disclosing the risks involved.
Some minibonds consist of high-risk derivatives such as synthetic collateralized debt obligations and credit default swaps.
http://www.chinadaily.com.cn/hkedition/2008-10/10/content_7092404.htm
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