RSS Feed MenuShares of the taxpayer ward insurance company AIG fell 15 percent yesterday on an analyst report that the company didn’t have the resources necessary to pay its likely claims in several lines of business.
The news should distress many people beyond the ranks of AIG’s own stockholders. In fact, it provides a strong reason that the government should pull the plug on the company. Some background: because a policy that an insurer can’t pay claims on is worthless, laws in all states require insurers to charge prices and keep reserves sufficient to pay claims. Both before and after its government bailout, competitors accused AIG of under-pricing them by skimping on purchases of reinsurance (insurance for insurance companies), making risky investments generally off-limits to insurers, and taking a hardnosed attitude towards claims payments. While the allegations had a grain of truth, investigations from the Government Accountability Office, National Association of Insurance Commissioners and Pennsylvania Department of Insurance all cleared AIG of lawbreaking.
Now AIG’s apparent lack of adequate reserves and reinsurance to pay its claims could put it in violation of many state laws. These violations, furthermore, do damage far beyond AIG’s own customer base. If more of the companies’ businesses collapse, state taxpayers could be left holding the bag and dumping billions more into the company’s rat hole. (All states have guarantee funds that pay a portion of claims made against insolvent insurers.)
Were AIG a wholly private company, a lengthy, thorough investigation would be in order. As an 80-percent government owned company, however, even the specter of illegal behavior doesn’t deserve toleration. AIG’s continued existence seems likely to destabilize the insurance market and the economy as a whole. The Fed, Treasury, and Congress need to come together and end the farce that AIG has become. The government should call in its loans, break up the company, sell its holdings, and put AIG out of business once and for all.
sinz54 // Dec 1, 2009 at 12:20 pm
Your column has already been overtaken by more recent events:
By Aaron Smith and David Goldman, CNNMoney.com staff writers
Last Updated: December 1, 2009: 9:47 AM ET
NEW YORK (CNNMoney.com) — AIG announced Tuesday that it completed a deal wiping out $25 billion of its debt to taxpayers by selling stakes in two subsidiaries to the Federal Reserve Bank of New York.
The troubled insurer gave the New York Fed preferred shares of two of its international life insurance companies, including $16 billion of American International Assurance Co. and $9 billion of American Life Insurance Co. The deal was originally announced in March.
The deal brings the New York-based insurer’s debt to the New York Fed down to $17 billion. AIG also still owes the U.S. Treasury $44.8 billion from a separate Troubled Asset Relief Program (TARP) loan, so the insurer still owes taxpayers just under $62 billion.
AIG Chief Executive Bob Benmosche said, in a press release, that the debt reduction “sends a clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back.”
It sure does send a clear message:
AIG can’t make it in the marketplace without endless Federal bailouts.
LFC // Dec 1, 2009 at 2:37 pm
I thought they were try to sell off the pieces of AIG that had value, with the thought of shutting down the load of crap that remained.