The Central Bank of Ireland has fined former AIG unit Alico Life International in Ireland 3.2 million for its securities lending programme. The firm failed to ensure receipts from the programme were carried to the life assurance account of the business in its regulatory filing and thus breached the Insurance Act 1989.
The firm entered into a securities lending agreement in July 2007 whereby through an investment agent it loaned securities held within the firms portfolio to various borrowers.
From April 2007 to 24 July 2009, the agent on behalf of the firm, loaned securities representing approximately 500 million of the life assurance fund assets supporting unit linked policies.
The board of the firm was unaware of these investments until April 23 2008 by which time significant unrealised losses on securities lending had already accrued, said the Central Bank.
Approximately 138 million of collateral provided by borrowers was invested by the firms agent in mortgage backed securities. This decision was made without having regard to certain aspects of the firms investment policy, said the regulator.
Alico sustained losses of approximately 42 million in respect of these investments. As a result of these losses, the firm received non-refundable capital contributions from its parent totalling approximately 50 million.
Without the capital contributions from its parent,said the regulator, the firm would have been in breach of its solvency margin requirements in 2008.
AIG sold Alico to Met Life in March 2010.
(JDC)