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FSA to Check Life Assurers For Insolvency Protection Print E-mail

The Times - 15 October 2008

The City watchdog is to closely examine the solvency levels of the UK's assurers amid concerns they are under pressure

The City regulator has stepped up its scrutiny of leading life assurers amid concerns that crumbling investment markets are putting their solvency levels under pressure.

Supervisors at the Financial Services Authority (FSA) are also concerned that insurance companies are not stress-testing their exposures hard enough to take account of market shocks.

FSA officials will visit life company offices for a case-by-case analysis of the way they protect themselves against their investments going wrong. Aviva, which owns Norwich Union, Legal & General, Friends Provident and Prudential have all been contacted by the regulator over the past fortnight.

Despite sustained falls in the equity and property markets and the volatility of bonds, there is no suggestion that any UK insurer is in danger of becoming insolvent.

Recession Looms For Singapore: Economists Print E-mail

TEP – 9 October 2008

Singapore appears headed for its first recession since 2002 as the city-state suffers from a US economy wilting under its worst financial crisis since the Great Depression, economists say.

Southeast Asia's wealthiest economy in terms of GDP per capita is heavily dependent on trade, which makes it sensitive to hiccups in developed economies, particularly key export markets the US and Europe.

The crisis that began last year in the US subprime, or higher-risk, mortgage sector is now infecting European shores, and Singapore may very likely find itself in an extended downturn, economists said.

Gross domestic product expanded an annualized 0.3 pct from the second quarter, after shrinking 6 pct in the previous three months, according to the median estimate of 11 economists in a Bloomberg survey. Four of the economists expect a second quarter of contraction, marking a recession.
Fall-Out From Lehman Brothers Explained Print E-mail

TEP - 8 October 2008

Q: I have noticed that shares in banks have fallen steeply since the news that Lehman Brothers had filed for bankruptcy protection. Is there a danger that a UK bank could collapse?

A: Shares in banks have been hit by concerns that they could have exposure to Lehman Brothers through credit derivative contracts. These are complex and it could be months before the full extent of their liabilities is known. A “fire sale” of Lehman’s risky assets could also lead to lower prices and therefore more write-downs for UK banks.

There are also fears that events at the US investment bank will lead to a renewed tightening in wholesale money markets, where banks raise their funds, and an increase in Libor rates, making borrowing more expensive. All of these factors have hit banks’ share prices.

But the City watchdog Financial Services Authority is in close contact with the banks over their funding positions and it is unlikely the Government would allow a major financial institution to go under.

The Credit Crunch Explained Print E-mail

TEP - 6 October 2008

IT was once an arcane term only known to economists, but the phrase "credit crunch" has been so widely used over the past year that it has been added to the latest edition of the Oxford English Dictionary.

What is a credit crunch?

In simple terms, a crisis caused by banks being too nervous to lend money to us or each other. Where they will lend, they charge higher rates of interest to cover their risk.

In the real world, that means more expensive mortgages, dearer credit cards, pain for pension savers and other investors as stock markets fluctuate wildly, and in the worst cases repossession and bankruptcy.

Beware of Some Capital Guaranteed Products which might NOT be Capital Guaranteed actually... Print E-mail
With the news that those that invested into Lehman Brothers mini-bonds and DBS High 5 Notes might lose most of their money, some of my clients get very worried.

One client called me this morning:"I invested in a plan through DBS, it is Capital Guaranteed, should be ok, right?"

I told her, if it is stated as Capital Guaranteed, your capital should be guaranteed. However, if you want, you can email the product information to me, and I help you take a look.

When my client emailed me the information, I discovered that what she invested in, migt NOT be Capital Guaranteed afterall, becos the Capital Guarantee is SUBJECT to condition.

Sharing with you information I discovered about "MyPlan" a 3.5 years single premium Investment-linked insurance plan by AVIVA distributed through DBS bank branches:

The Capital Guarantee is SUBJECT to the Credit Risk of Banque AIG (credit rating of AA by Standard and Poor's and Aa2 by Moody's.

My interpretation: if the credit rating of Banque AIG falls below AA by Standard and Poor's then, this investment is NO longer Capital Guarantee.

I'm not sure how to disclose this TRUTH that I discovered to my client... 

On the other hand, for UK Traded Endowment policies, it is very simple and straightforward.

The Cash Value of the Policy, which makes up of sum assured and bonus already declared are 100% Capital Guaranteed by the UK Insurer. And even in the worst case scenario of the collapse of the UK Insurer, 90% of the Cash Value is Guaranteed by a UK government backed Financial Services Compensation Scheme.

I think by now my client wished that she had invested more of her money into UK Traded Endowment instead of all these complicated products distributed out there.
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