States May Help AIG; Also Assure Policyholders Claims Will be Paid

September 16, 2008

State insurance officials from Pennsylvania and New York, where troubled American International Group’s insurance subsidiaries have a an estimated $120 billion in assets, are offering to assist AIG in raising much-needed cash by swapping its insurance subsidiaries’ liquid assets for those that are difficult to convert into cash held by the parent company.

State insurance regulators are also reassuring policyholders of AIG that its insurance operations are solvent and the compnay can pay its claims.

Bloomberg News reported that the Federal Reserve may come up with some type of rescue plan after all. Bloomberg said the Fed was weighing a conservatorship for AIG under which an outsider would be brought in to run the giant company.

The Wall Street Journal also had a report that the Fed has some kind of aid under consideration but offered no details.

Meanwhile, AIG also issued a statement that its insurance subsidiaries are fully capaable of meeting policyholder obligations in the U.S. and around the globe.

National Association of Insurance Commissioners (NAIC) President and Kansas Insurance Commissioner Sandy Praeger said that AIG’s insurance subsidiaries are being asked to provide liquid assets to the financially distressed non-insurance parent company in exchange for non-liquid assets.

She said the New York State and Pennsylvania Insurance Departments are working with AIG to review the transaction.

“State insurance regulators will only approve this type of action if they are assured it is part of a total resolution of the liquidity issue at the parent company and fairly compensates its insurance company subsidiaries,” she said.

New York state has already given AIG approval to shift $20 billion in funds from its insurance subsidiaries to the parent company.

As a holding company, AIG is a federally regulated legal entity that is distinct from its subsidiary insurers. The subsidiary insurers are governed by state laws.

Praeger also sent a message to policyholders of AIG.

“We have a very strong message for consumers: If you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims. Our job is to ensure that they continue to have the ability to pay,” said Praeger.

“The No. 1 job of state insurance regulators is to make sure insurance companies operate on a financially sound basis. If needed, we would immediately step in if it appears that an insurer will be unable to fulfill the promises made to its policyholders. This includes taking over the management of an insurer through a conservation or rehabilitation order, the goal being to get the insurer back into a strong solvency position,” Praeger said.

She added that in the “unlikely event” that assets are not enough to cover claims, there is still another safety net in place to protect consumers: state guaranty funds. If an insurance company becomes unable to pay claims, these guaranty funds that are in every state will provide coverage, subject to certain limits.

Late Tuesday, AIG issued its own statement to policyholders maintaining that its life insurance, general insurance and retirement services businesses, including its extensive Asian operations, “continue to operate normally and remain adequately capitalized
and fully capable of meeting their obligations to policyholders.”

AIG said it continues to pursue alternatives to increase short-term liquidity in the parent company. Those plans do not include any effort to reduce the capital of any of its subsidiaries or to tap into Asian operations for liquidity, the statement continued.

The insurance policies written by AIG companies are direct obligations of its regulated subsidiary insurance companies around the world. According to AIG, these companies are “well capitalized and meet or exceed local regulatory capital requirements.”

Source: NAIC
www.naic.org

AIG
www.aig.com

Topics Carriers Claims New York Policyholder AIG

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