The following are statements issued on September 17th by IBA West’s national affiliate, the Independent Insurance Agents & Brokers of America and the California Department of Insurance regarding the Federal Reserve’s announcement last night that the Federal Reserve Bank of New York will make an $85 billion short-term bridge loan for 24 months to American International Group, secured by all the assets of AIG.
“The loan is welcome news in the face of the escalating concern about the potential impact of AIG’s economic challenges, which has dominated the news for days, fueling speculation about the future of the company and debate about the public policy of a government bail-out.
“The complex corporate structure of AIG has resulted in confusion by some about the distinction between the parent company’s financial strength and the ability of its insurance businesses to meet their obligations to policyholders. The loan provides AIG with needed liquidity, averting a crisis that could have set off a cascade of repercussions across the financial markets. On the other hand, its insurance businesses are separate units or subsidiaries that are restricted from transferring assets to related entities without regulatory approval to facilitate their ability to pay claims.
“IIABA does not believe that the AIG situation will have a domino effect on the insurance industry. Independent insurance agents and brokers across the country will continue to focus on the consumer and know the state guaranty funds in all 50 states serve as important protection for policyholders. Virtually all experts agree the insurance subsidiaries of AIG are fundamentally sound.”
Insurance Commissioner Steve Poizner issued the following statement regarding the two dozen companies under the AIG corporate umbrella that are licensed to sell insurance in California.
“I have made monitoring the AIG issue the No. 1 priority of my department. The Federal action offers maximum protection for AIG insurance customers in California and elsewhere. The loan does not create any lien obligations on any of the AIG insurance assets, ensuring that their claims-paying capacity remains strong.
“Even prior to action taken by the Federal government, the companies owned by AIG had the risk-based capital required to operate in the California market. The financial issues all come from the parent company, AIG, and not its subsidiary insurance companies. The AIG-affiliated insurance companies remain solid. We will continue to closely monitor these companies for any changes in their financial condition.
“Should AIG decide to sell any of the insurance companies domiciled in California or those that do business in California, I will closely scrutinize those proposed sales to ensure that consumers receive the protections they deserve.
“Because insurance companies are regulated by the state in which they are domiciled, New York bears the brunt of this regulatory work load. I called my counterpart in New York earlier in the week to offer assistance. He deserves a lot of credit for negotiating a deal that provides maximum protection to policyholders and soothes concerns of the financial markets. We will also continue communicating and working with the National Association of Insurance Commissioners, the body that routinely coordinates the actions of the state Insurance Commissioners.”
Background Facts:
• In 2007, AIG was a significant player in the California insurance market. AIG-owned companies had 1.5 percent of the homeowners insurance market ($98 million in written premiums), 8 percent of the workers compensation market ($725 million in written premiums) and 7 percent of the auto insurance market ($1.5 billion in written premium).
• Generally, the California Department of Insurance (CDI) regulates individual insurance companies and not their holding companies.
• AIG owns more than two dozen companies licensed to transact insurance in California. Those companies are 21st Century Casualty Company; 21st Century Insurance Company; AIG Casualty Company; AIG Centennial Insurance Company; AIG Premier Insurance Company; AIU Insurance Company; American General Indemnity Company; American Home Assurance Company; American International Insurance Company Of California, Inc.; Birmingham Fire Insurance Company Of Pennsylvania; Commerce And Industry Insurance Company; GE Auto & Home Assurance Company; GE Indemnity Insurance Company; Granite State Insurance Company; Hartford Steam Boiler Inspection And Insurance Company; Insurance Company Of The State Of Pennsylvania; Landmark Insurance Company; National Union Fire Insurance Company Of Pittsburgh, Pa; New Hampshire Insurance Company; Pacific Assurance; Putnam Reinsurance Company; Transatlantic Reinsurance Company; United Guaranty Commercial Insurance Co. Of North Carolina; United Guaranty Credit Insurance Company; United Guaranty Residential Insurance Company; and Yosemite Insurance Company.
