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Noyes, Hall & Allen Blog

AIG's Wild Week

September 18th, 2008     Noyes Hall & Allen

It's been quite a week in the insurance business. Industry behemoth AIG saw its stock price drop from over $14.00 to about $2.00 in three days. AIG has been one of the world's largest and most successful financial institutions over the past 20 years, led for years by Maurice R. "Hank" Greenberg

On Wednesday, The Federal Reserve Bank of New York was authorized to implement an $85 billion liquidity line, in essence giving the Federal Government control of nearly 80% of the company. 

While this is startling news inside and outside the insurance business, it's important to note the following:

  • AIG's insurance operations remain well-capitalized. The National Association of Insurance Commissioners (NAIC), a regulatory body, said in a September 17 press release  "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."
  • By all accounts, AIG's trouble stemmed from its financial holding company assuming more risk than they could handle when investing in complex transactions involving mortgage-backed securities. These investments are financial products, not regulated insurance products. When the housing market took a downturn, these risky investments lost lots of money for AIG's holding company.
  • Non-insurance operations are not held to the same high standards as insurance companies. Think about that when you choose the insurer you trust to protect your assets.     

Even insurance professionals were shocked by how quickly AIG's A.M. Best rating dropped from "A+ (excellent)" to "A (excellent)" , with "negative implications". If insurance people were surprised, how could individual clients keep up with it all? To make matters more confusing, AIG owns over 70 U.S. based insurance companies, with names such as Lexington, New Hampshire Insurance Company, and AIU. Many clients who are insured by them probably don't even know that they're insured by an AIG company. 

Bottom line: find a local insurance professional you trust, and rely on them for advice. These days, they are worth their weight in gold – which, not coincidentally, is an extremely hot commodity .
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