After the sudden fall of American International Group, policyholders everywhere are asking the same question: How safe is my insurance company?
We all depend on insurance, from health coverage, life insurance, protection for our house and car, to our annuity in retirement. Every facet of our lives involves insurance, and we pay a large amount to make sure we will receive help when we need it.
There are two positive things about insurers. First, they are strictly regulated to ensure companies maintain the ability to meet claims, and this regulation is overseen by state insurance commissioners. Second, in the event an insurer is unable to meet its claims, states have a guaranty arrangement where all insurers would be required to contribute funds. When there is a multi-state life and health-company failure, the National Organization of Life and Health Insurance Guaranty Associations, or NOLHGA, coordinates claims. Similar guaranty associations exist for all insurance types.
It is important to realize that AIG's insurance companies are continuing to operate as normal. The insurance companies did not fail; the problems are with the holding company. The insurance companies are considered by the National Association of Insurance Commissioners, or NAIC, to have sufficient liquidity to meet all claims. In fact, the NAIC has set up a special committee of commissioners overseeing AIG to ensure normal operations. Additionally, the NAIC will oversee any sale of an insurance company.
Source
Wednesday, November 19, 2008
Wednesday, November 12, 2008
AIG shares jump on report of shareholder plan
Shares of American International Group Inc jumped as much as 43 percent on Monday, boosted by hopes that quick asset sales might allow the struggling insurer to repay an emergency bailout loan and stay out of the clutches of the U.S. government.
It was the third day of gains for the stock, which hit its all-time low of $1.25, just before the company was bailed out by the Federal Reserve with an $85 billion loan to help it recover from massive losses it suffered on mortgage derivatives.
Under last week's deal, brokered by Treasury Secretary Henry Paulson, the Federal Reserve would take an almost 80 percent stake in the insurer, diluting the existing shareholders' ownership.
According to a report in the Wall Street Journal on Monday, major shareholders are looking to organize a quick sale of assets and to raise capital in order to pay off the Federal Reserve loan, thereby keeping AIG independent, citing an unnamed person it said was familiar with the matter.
It did not name any shareholders in particular, but noted that AIG investors such as Bill Miller of Legg Mason and former AIG director Eli Broad banded together earlier this year in their successful push to remove then-AIG Chief Executive Martin Sullivan.
"We heard earlier that there was a group getting together to buy some assets," said Bobby Harrington, head of block trading at UBS in Stamford, Connecticut. The company has made no comment on its situation.
AIG's large and profitable insurance underwriting units -- which are separate from AIG's disastrous derivatives operation -- should get plenty of willing buyers, industry-watchers said.
"It's a soft market in the insurance industry right now, so a lot of people would give their eye tooth to own (parts of AIG)," said Andrew Barile, an independent insurance consultant, based in Rancho Santa Fe, California. He said the sum of all the parts of AIG, which underwrites almost every type of insurance in markets around the world, could be worth as much as $180 billion.
Source
It was the third day of gains for the stock, which hit its all-time low of $1.25, just before the company was bailed out by the Federal Reserve with an $85 billion loan to help it recover from massive losses it suffered on mortgage derivatives.
Under last week's deal, brokered by Treasury Secretary Henry Paulson, the Federal Reserve would take an almost 80 percent stake in the insurer, diluting the existing shareholders' ownership.
According to a report in the Wall Street Journal on Monday, major shareholders are looking to organize a quick sale of assets and to raise capital in order to pay off the Federal Reserve loan, thereby keeping AIG independent, citing an unnamed person it said was familiar with the matter.
It did not name any shareholders in particular, but noted that AIG investors such as Bill Miller of Legg Mason and former AIG director Eli Broad banded together earlier this year in their successful push to remove then-AIG Chief Executive Martin Sullivan.
"We heard earlier that there was a group getting together to buy some assets," said Bobby Harrington, head of block trading at UBS in Stamford, Connecticut. The company has made no comment on its situation.
AIG's large and profitable insurance underwriting units -- which are separate from AIG's disastrous derivatives operation -- should get plenty of willing buyers, industry-watchers said.
"It's a soft market in the insurance industry right now, so a lot of people would give their eye tooth to own (parts of AIG)," said Andrew Barile, an independent insurance consultant, based in Rancho Santa Fe, California. He said the sum of all the parts of AIG, which underwrites almost every type of insurance in markets around the world, could be worth as much as $180 billion.
Source
Wednesday, November 5, 2008
AIG names Liddy as CEO, not planning liquidation
American International Group Inc, which narrowly escaped financial collapse, said it had named Edward Liddy as chairman and chief executive.
Liddy succeeds Robert Willumstad, who is leaving after three months on the job, and in the wake of AIG -- once the world's largest insurer -- agreeing to an $85 billion rescue plan from the U.S. Federal Reserve.
"My intention is not to liquidate the company," said Liddy, speaking with employees, according to a source who heard the comments.
Liddy also said AIG's insurance operations were well funded, and that the company's "mess is solvable."
AIG, at the end of 2007, had 116,000 employees in operations throughout 130 countries and territories.
As part of the federal bailout, AIG will have to repay monies borrowed from the government by selling assets or units.
Liddy said AIG had to move quickly to decide what should be sold, or risk being hurt further.
Liddy was formerly chief executive of large U.S. home and auto insurer Allstate Corp.
Source
Liddy succeeds Robert Willumstad, who is leaving after three months on the job, and in the wake of AIG -- once the world's largest insurer -- agreeing to an $85 billion rescue plan from the U.S. Federal Reserve.
"My intention is not to liquidate the company," said Liddy, speaking with employees, according to a source who heard the comments.
Liddy also said AIG's insurance operations were well funded, and that the company's "mess is solvable."
AIG, at the end of 2007, had 116,000 employees in operations throughout 130 countries and territories.
As part of the federal bailout, AIG will have to repay monies borrowed from the government by selling assets or units.
Liddy said AIG had to move quickly to decide what should be sold, or risk being hurt further.
Liddy was formerly chief executive of large U.S. home and auto insurer Allstate Corp.
Source
Wednesday, October 29, 2008
Country's Largest Motorcycle Insurer Becomes Official Sponsor of Women's Motorcyclist Foundation
For 25 years, the Women's Motorcyclist Foundation (WMF) has been promoting the safe enjoyment of motorcycling among women. WMF has also dedicated itself to the fight against breast cancer, raising more than $2 million for Susan G. Komen for the Cure, the world's largest grassroots network of breast cancer survivors and activists. Now, Progressive has become the official insurer of WMF.
Whether it's providing motorcycle insurance or tips on safe riding, WMF and Progressive are both in the business of making sure female riders are top of mind," said Marcy Gray, motorcycle product manager at Progressive. "As a female biker, I understand the importance of organizations like the WMF, and am thrilled to provide resources to help further its mission."
About Progressive
The Progressive Group of Insurance Companies, in business since 1937, is one of the country's largest auto insurance groups, the largest seller of motorcycle and personal watercraft policies, and a market leader in commercial auto insurance based on premiums written.
Source
Whether it's providing motorcycle insurance or tips on safe riding, WMF and Progressive are both in the business of making sure female riders are top of mind," said Marcy Gray, motorcycle product manager at Progressive. "As a female biker, I understand the importance of organizations like the WMF, and am thrilled to provide resources to help further its mission."
About Progressive
The Progressive Group of Insurance Companies, in business since 1937, is one of the country's largest auto insurance groups, the largest seller of motorcycle and personal watercraft policies, and a market leader in commercial auto insurance based on premiums written.
Source
Wednesday, October 22, 2008
Carmakers look for handout: ?Big 3' ask Congress for $50B in low-interest loans
At the close of a week that left Wall Street battered by the collapse of a major investment bank and government intervention to halt systemic bleeding in the financial markets, three of the nation's big automakers are waving white flags, too.
Top executives of the "Big Three" carmakers in Detroit -- General Motors Corp., Ford Motor Co. and Chrysler LLC -- sent a letter to U.S. House Speaker Nancy Pelosi, D-Calif., this week asking Congress to release $25 billion in low-interest loans it authorized last year.
Congress authorized $25 billion in loans in the 2007 Energy Independence and Security Act, which increases fuel economy standards for cars by 40 percent to at least 35 miles per gallon by 2020.
There has been no official action on the auto industry's request to expand the funding by another $25 billion. That remains in the balance as the nation digests a series of bailouts that began with Bear Stearns, followed by Fannie Mae and Freddie Mac.
The automobile manufacturers say the funds would enable them to modernize their plants and answer consumer demand for more fuel-efficient vehicles.
The investment bank Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection this week and Bank of America entered into a deal to acquire investment bank Merrill Lynch Inc. The U.S. Treasury and the U.S. Federal Reserve extended a loan to insurance giant AIG and unveiled a plan for the government to buy deep-discounted mortgage-backed securities that banks and other firms can't unload.
Estimated at $500 billion to $1 trillion, the bailouts are amounting to the largest in the nation's history.
Nicholas Perna, economic adviser to Webster Bank and visiting lecturer in economics at Yale University, said that if the government had allowed Fannie Mae and Freddie Mac to fail, the damage could have been more severe. "Your house is going to be worth less even if you had nothing to do with it," he said of the ongoing subprime mortgage and foreclosure crisis.
"Taxpayers are now in the mortgage business, the insurance business and it looks like we're going to be in the auto business," said Donald Klepper-Smith, chief economist at DataCore Partners LLC in New Haven.
Car and truck manufacturers say they need the low-interest loans because their credit ratings have declined in an economy marred by job losses, record-high energy costs, falling home values and tight credit.
They have found allies in more than 70 members of Congress and 10 governors who say the health of the auto industry is critical to gaining energy dependence and creating jobs as clean car technologies are developed.
Peter Gioia, vice president and economist for the Connecticut Business & Industry Association, said the era of cheaper oil prices is gone, despite the current respite from declining per-barrel crude oil costs.
The survival of America's auto industry is linked to technology, he said. "What the auto industry needs to do in this country is compete with foreign manufacturers for high-mileage, reasonably priced, small cars," Gioia said.
A spokesman for Pelosi said that the $25 billion already authorized breaks down into $7 billion in loans with the rest in the form of guarantees. Congress is in discussions about releasing the funds either as part of the 2009 budget package or a second stimulus package.
Source
Top executives of the "Big Three" carmakers in Detroit -- General Motors Corp., Ford Motor Co. and Chrysler LLC -- sent a letter to U.S. House Speaker Nancy Pelosi, D-Calif., this week asking Congress to release $25 billion in low-interest loans it authorized last year.
Congress authorized $25 billion in loans in the 2007 Energy Independence and Security Act, which increases fuel economy standards for cars by 40 percent to at least 35 miles per gallon by 2020.
There has been no official action on the auto industry's request to expand the funding by another $25 billion. That remains in the balance as the nation digests a series of bailouts that began with Bear Stearns, followed by Fannie Mae and Freddie Mac.
The automobile manufacturers say the funds would enable them to modernize their plants and answer consumer demand for more fuel-efficient vehicles.
The investment bank Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection this week and Bank of America entered into a deal to acquire investment bank Merrill Lynch Inc. The U.S. Treasury and the U.S. Federal Reserve extended a loan to insurance giant AIG and unveiled a plan for the government to buy deep-discounted mortgage-backed securities that banks and other firms can't unload.
Estimated at $500 billion to $1 trillion, the bailouts are amounting to the largest in the nation's history.
Nicholas Perna, economic adviser to Webster Bank and visiting lecturer in economics at Yale University, said that if the government had allowed Fannie Mae and Freddie Mac to fail, the damage could have been more severe. "Your house is going to be worth less even if you had nothing to do with it," he said of the ongoing subprime mortgage and foreclosure crisis.
"Taxpayers are now in the mortgage business, the insurance business and it looks like we're going to be in the auto business," said Donald Klepper-Smith, chief economist at DataCore Partners LLC in New Haven.
Car and truck manufacturers say they need the low-interest loans because their credit ratings have declined in an economy marred by job losses, record-high energy costs, falling home values and tight credit.
They have found allies in more than 70 members of Congress and 10 governors who say the health of the auto industry is critical to gaining energy dependence and creating jobs as clean car technologies are developed.
Peter Gioia, vice president and economist for the Connecticut Business & Industry Association, said the era of cheaper oil prices is gone, despite the current respite from declining per-barrel crude oil costs.
The survival of America's auto industry is linked to technology, he said. "What the auto industry needs to do in this country is compete with foreign manufacturers for high-mileage, reasonably priced, small cars," Gioia said.
A spokesman for Pelosi said that the $25 billion already authorized breaks down into $7 billion in loans with the rest in the form of guarantees. Congress is in discussions about releasing the funds either as part of the 2009 budget package or a second stimulus package.
Source
Wednesday, October 15, 2008
When an Insurance Company Fails
With an insurance company, AIG now at the top of the list of major U.S. firms on the verge of financial ruin, it's important to understand what happens when such a company fails.
American International Group is a holding company that owns 71 domestic insurance companies that sell virtually every type of coverage, including life, health, annuities, property, auto, aircraft and product liability.
Insurance companies are regulated at the state level by the insurance department in which the individual subsidiary is based. When an insurance company gets into trouble, the state regulator steps in and takes control of it.
"The state insurance commissioner effectively becomes the CEO of the company," explained Joseph Belth, professor emeritus of insurance at Indiana University and editor of The Insurance Forum.
If the regulator believes that the company has good assets and a strong book of business, the regulator will direct it to be rehabilitated. During rehabilitation, the company is restructured. The company builds capital and cleans up its operations, with the ultimate goal of being released from rehabilitation to operate on its own.
"The commissioner seeks to rehabilitate the company and minimize losses to policyholders, which could include selling all or parts of the company or modifying policy structures," Belth said.
In the case of policy modifications, i.e., lowering of guaranteed interest rates or increasing premiums, Belth said that a court order would be required, and affected parties would have input.
Source
American International Group is a holding company that owns 71 domestic insurance companies that sell virtually every type of coverage, including life, health, annuities, property, auto, aircraft and product liability.
Insurance companies are regulated at the state level by the insurance department in which the individual subsidiary is based. When an insurance company gets into trouble, the state regulator steps in and takes control of it.
"The state insurance commissioner effectively becomes the CEO of the company," explained Joseph Belth, professor emeritus of insurance at Indiana University and editor of The Insurance Forum.
If the regulator believes that the company has good assets and a strong book of business, the regulator will direct it to be rehabilitated. During rehabilitation, the company is restructured. The company builds capital and cleans up its operations, with the ultimate goal of being released from rehabilitation to operate on its own.
"The commissioner seeks to rehabilitate the company and minimize losses to policyholders, which could include selling all or parts of the company or modifying policy structures," Belth said.
In the case of policy modifications, i.e., lowering of guaranteed interest rates or increasing premiums, Belth said that a court order would be required, and affected parties would have input.
Source
Wednesday, October 8, 2008
Ford adds new urgency to auto loan lobbying
Bill Ford, chairman of Ford Motor Co, added new urgency to industry lobbying for $25 billion in government loans, with financial sector turmoil prompting some in Congress to seek assurances privately that help for automakers would not be a bailout.
Ford said he came away from meetings with a sense that lawmakers understood the financial services meltdown -- including late word of a massive government rescue of insurance giant American International Group was distinct from action to help automakers finance more fuel efficient vehicles.
"I don't think there has been any confusion at all," he said.
Nevertheless, there is some indication that worsening corporate upheaval involving major financial firms and the deepening regulatory response has cast a shadow over efforts to get quick congressional approval of billions in funds needed to issue the low interest loans to the auto industry.
"There are a lot of questions, unfortunately, with what's happening in the financial markets this week," Rep. Candice Miller, a Michigan Republican, said after attending a meeting with Ford that included other members of the Michigan and Ohio delegations.
"It's not a walk in the park," Miller said. "We keep trying to educate members that this is not a bailout."
Those lobbying for help are telling anyone who will listen on Capitol Hill that industry will pay back the loans -- with interest -- just like Chrysler did in the 1980s when it received loan guarantees to survive.
Source
Ford said he came away from meetings with a sense that lawmakers understood the financial services meltdown -- including late word of a massive government rescue of insurance giant American International Group was distinct from action to help automakers finance more fuel efficient vehicles.
"I don't think there has been any confusion at all," he said.
Nevertheless, there is some indication that worsening corporate upheaval involving major financial firms and the deepening regulatory response has cast a shadow over efforts to get quick congressional approval of billions in funds needed to issue the low interest loans to the auto industry.
"There are a lot of questions, unfortunately, with what's happening in the financial markets this week," Rep. Candice Miller, a Michigan Republican, said after attending a meeting with Ford that included other members of the Michigan and Ohio delegations.
"It's not a walk in the park," Miller said. "We keep trying to educate members that this is not a bailout."
Those lobbying for help are telling anyone who will listen on Capitol Hill that industry will pay back the loans -- with interest -- just like Chrysler did in the 1980s when it received loan guarantees to survive.
Source
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