AIG: The Giant Stumbles
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Everyone has read about or heard newscasts related to the
financial problems being experienced by AIG Insurance Group. Insurance companies and financial institutions have failed relatively regularly in the
last few years, so why is AIG’s problems causing so much turmoil.
One reason is probably that AIG is one of the giants in
international insurance and financial matters. AIG has always brought to mind
images such as the giant who is not afraid to walk through the valley of the
shadow of death, but fears no evil, because he is the biggest and “baddest”
giants in the valley. AIG has always been one of the companies by which all
others have been measured. If AIG can be in $75 billion in trouble, what may
happen to the rest of these industries?
The other reason is probably just the failure of Lehman
Brothers, the save of Merrill Lynch, and the government bail out of Bear
Stearns. One could fairly say that these are tremulous times.
So should AIG policyholders panic? Not yet. The feds have
agreed to bail AIG out with a two year, short term loan of $75 billion. Furthermore,
AIG reports that their assets remain strong and they appear to have reasonable
liquidity. The AIG umbrella also includes many different companies; many of
which are sufficiently capitalized and have sufficient liquid assets to respond
to demands.
In Florida,
AIG has 46 subsidiary companies that operate; 34 selling property &
Casualty insurance and 12 selling life insurance. Florida’s insurance commissioner, Kevin
McCarty advises:
“We have been told the insurance
companies are solvent and will be able to pay claims. It is important that
policyholders continue to pay their premiums to ensure that their coverage does
not lapse,” McCarty said. “I assure you that, if it should become necessary, we
will immediately intervene if we feel that any one of the AIG companies
operating in Florida
will be unable to pay its claims and fulfill the promises made to its
policyholders.”
Most individual states have guarantee funds that will stand
in the shoes of insolvent insurers, up to a certain limit that is usually
$100,000 to $300,000 per policyholder. All of this good news said, should the
condition of AIG worsen, it is quite possible that all the guarantee
associations together may not have sufficient assets to fill the shoes of this
giant.