AIG Still Showing Significant Weakness Even After Rescue

CNBC ^ | 7/31/2009 | Staff

[Red in Blue PA]

The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows.

Over time, the weaknesses could mean trouble for AIG’s [AIG 13.13 --- UNCH (0) ] policyholders, and they raise difficult questions for regulators, who normally step in when an insurer gets into trouble. State commissioners are supposed to keep insurers from writing new policies if there is any doubt that they can cover their claims. But in AIG’s case, regulators are eager for the insurers to keep writing new business, because they see it as the best hope of paying back taxpayers.

Source: TheTruthAboutMortgage AIG Headquarters --------------------------------------------------------------------------------

In the months since AIG received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound—that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives.

But state regulatory filings offer a different picture. They show that AIG’s individual insurance companies have been doing an unusual volume of business with each other for many years—investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.

More ominously, many of AIG’s insurance companies have reduced their own exposure by sending their risks to other companies, often under the same AIG umbrella.

[Slapshot68]

I dropped them as our term insurance provider. I’m sure that hurt.

;)

[allmost]

Too big to fail might mean too big to fix as well.