Mr McCARTHY - 2008-09-17
Can you outline to the House the level of the Territory’s exposure to the current upheaval in world financial markets?
ANSWER
Madam Speaker, it is a very good question from the member for Barkly. The global financial market has been hit heavily by the volatility that we have seen in the US financial market. The US sub-prime credit crisis first arose in June of last year and, in just that year since, only two of the top five US investment banks that existed at the start of 2008 still remain. Financial problems experienced by American International Group, known as AIG, which, until recently was the world’s largest insurer, led to its downgrading by the major rating agencies yesterday. However, it appears that, earlier today, the US Federal Reserve has agreed to intervene to prevent the failure of AIG. In the Australian market, the fallout has seen the top 200 companies index drop by 3.1% since the close of business last Friday, although there has been a modest improvement.
While the Northern Territory Treasury does invest in international financial markets, I can report to the House there is no exposure to any of the US investment banks through the Territory’s cash balances or to the Treasury Corporation. While the share markets continue to be volatile, the Conditions of Service Reserve will be affected, as the majority of investments, like most share funds, are in growth assets such as equities. The Conditions of Service Reserve has had an average return over the last five years of 11.66% per annum. The benchmark for similar funds over this period is 8.98%.
We will continue with our medium-term investment strategy for the Conditions of Service Reserve, which will involve some short-term volatility. The Territory Insurance Office also invests funds in international markets on behalf of its members and the Northern Territory government, through the insurance and through the Motor Accident Compensation, or MAC, portfolios.
The Chief Executive of the Territory Insurance Office, Mr Richard Harding, advises me that the insurance portfolio has no direct exposure to either Lehman Brothers or AIG Credit. The MAC portfolio has exposure of approximately $320 000 to Lehman Brothers Credit, and some analysts suggest that creditors will receive around 60 in the dollar. MAC also has exposure of approximately $750 000 to AIG Credit and, at this time, consensus appears that these funds are not in jeopardy. The total exposure of MAC to both Lehman Brothers and AIG Credit of $1.07m represents just 0.28% of MAC’s total assets of $375m.
It is also important to note that, over the last eight months, the insurance and MAC portfolios have undergone a measure of restructuring, in part prompted by the volatility of equity and credit markets, providing greater weightings to cash and other defensive assets. While the challenges of the US markets will continue to create volatility in international financial markets, the Territory is well placed to absorb any impact of the latest US bank collapse.
ANSWER
Madam Speaker, it is a very good question from the member for Barkly. The global financial market has been hit heavily by the volatility that we have seen in the US financial market. The US sub-prime credit crisis first arose in June of last year and, in just that year since, only two of the top five US investment banks that existed at the start of 2008 still remain. Financial problems experienced by American International Group, known as AIG, which, until recently was the world’s largest insurer, led to its downgrading by the major rating agencies yesterday. However, it appears that, earlier today, the US Federal Reserve has agreed to intervene to prevent the failure of AIG. In the Australian market, the fallout has seen the top 200 companies index drop by 3.1% since the close of business last Friday, although there has been a modest improvement.
While the Northern Territory Treasury does invest in international financial markets, I can report to the House there is no exposure to any of the US investment banks through the Territory’s cash balances or to the Treasury Corporation. While the share markets continue to be volatile, the Conditions of Service Reserve will be affected, as the majority of investments, like most share funds, are in growth assets such as equities. The Conditions of Service Reserve has had an average return over the last five years of 11.66% per annum. The benchmark for similar funds over this period is 8.98%.
We will continue with our medium-term investment strategy for the Conditions of Service Reserve, which will involve some short-term volatility. The Territory Insurance Office also invests funds in international markets on behalf of its members and the Northern Territory government, through the insurance and through the Motor Accident Compensation, or MAC, portfolios.
The Chief Executive of the Territory Insurance Office, Mr Richard Harding, advises me that the insurance portfolio has no direct exposure to either Lehman Brothers or AIG Credit. The MAC portfolio has exposure of approximately $320 000 to Lehman Brothers Credit, and some analysts suggest that creditors will receive around 60 in the dollar. MAC also has exposure of approximately $750 000 to AIG Credit and, at this time, consensus appears that these funds are not in jeopardy. The total exposure of MAC to both Lehman Brothers and AIG Credit of $1.07m represents just 0.28% of MAC’s total assets of $375m.
It is also important to note that, over the last eight months, the insurance and MAC portfolios have undergone a measure of restructuring, in part prompted by the volatility of equity and credit markets, providing greater weightings to cash and other defensive assets. While the challenges of the US markets will continue to create volatility in international financial markets, the Territory is well placed to absorb any impact of the latest US bank collapse.
Last updated: 09 Aug 2016