Peru’s 2nd largest insurer says it expects no harmful fallout from AIG crisis

Pacifico Seguros, Peru’s second largest insurance company, said it does not expect the financial problems facing its minority shareholder, American International Group Inc (AIG), to affect its operations, according to a statement issued by the company yesterday.

AIG, the world’s third largest insurance group, was rescued this week by the U.S. Government with a $85 billion loan from the U.S. Federal Reserve, following a liquidity crisis caused by the collapse of the subprime mortgage market in the United States. The FED loaned the $85 billion for a period of 24 months in exchange for 79% of AIG’s shares.

“There was obviously some uncertainty yesterday,” stated Guillermo Garrido-Lecca, general manager of Pacifico Seguros, “but considering that our main shareholder, Credicrop, is very solvent, this situation should not affect Pacifico Seguros’ operations.”

AIG, through its subsidiary Alico, has a 20% stake in Pacifico Seguros Generales and 28% in Pacifico Seguros Vida, the first and largest life insurance company in Peru. Pacifico also operates a health services company. Rated BBB- by Fitch in June this year, 75% of Pacifico’s capital is in the hands of the Credicorp Group, a financial conglomerate that includes the Banco de Credito, the country’s largest commercial bank.

The crisis that weakened AIG also caused the implosion of Lehman Brothers and led Merrill Lynch to accept an emergency buyout by Bank of America for $50 billion. Ten days ago, the US government virtually nationalized the Freddie Mac and Fannie Mae mortgage finance companies, whose stocks plummeted to half their value in July.

Following the crisis on Wall Street and in sync with markets worldwide, the Lima Stock Exchange index fell 3.59% yesterday for the third consecutive day, to reach the lowest general index since November 2006. The Volcan zinc mining shares were the hardest hit, plummeting 12.9%.

Kurt Burneo, a former director of Peru’s Central Bank, told La Republica daily that the US financial crisis will have a dual effect in Peru – although there will be a drop in fiscal revenue because of the lower metals and petroleum prices, the upside is that the drop in oil prices will mean lower subsidies by the State. He did say, however, that “the Lima Stock Exchange will not recover, because half of its shares are in the mining industry.”

Julio Velarde, present of the Central Bank, said in a statement issued Tuesday that “Peru shows financial strengths, as well as greater prospects for growth and lower inflation in the region, which will allow us to face the current, highly volatile international situation.”

“Peru is now in a better position to face this type of crisis than it would have been before,” Tania Quispe, a partner at the Peruvian office of Deloitte, told daily La Republica, and is in a better position than most countries in the region.

Peru’s international net reserves stand at $35 billion but export income will drop, particularly because of the lower prices being quoted for metals, and the economic slow-down will mean the world markets will be buying less textiles, less agricultural products and less travel and tourism options.

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