AIG had hoped to offer early distributions to policy holders in its protected recovery fund of up to half the fund by 2012 through twice-yearly payouts but it has now warned that it may not be possible.
By the deadline of mid-December last year 95 per cent of investors had transferred half their assets into the protected recovery fund, ahead of the enhanced fund’s closure, with the other half taken as a cash lump sum. AIG Life says it guarantees the size of the investment as at when the enhanced fund was suspended on September 15,2008, as long as capital is held for three years.
AIG has also confirmed that maximum returns will be “greatly reduced” if interest rates remain at current levels.
The February AIG Life newsletter states: “The low interest rate environment we now find ourselves in does present some challenges to the PRF. The first is that the coupons received by the fund will be much lower and this means that the maximum returns from the fund will be greatly reduced if interest rates remain at current levels.
“Also, with poor returns available on fixed interest investments we will now need to invest a much higher proportion of the funds liquidity until the fund maturity date to ensure that the guarantees can be achieved. This in turn has a knock on effect to the distributions and will mean that we will have much less to distribute prior to maturity on 1 July 2012 – it could mean that distributions are modest or possibly nil, although the actual amount we distribute will depend on a number of factors including future interest rates, default rates, withdrawals and market valuations.
“It remains an objective of the fund to distribute as quickly as prudently possible but it is appropriate to warn policyholders that the current economic climate limits the scope quite dramatically. We will be able to update you as to our expectations for a distribution in May in the next newsletter.”