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Old 09-15-2008, 05:11 PM   #41
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You mean Salomon Brothers?
Thank you, I do mean Salomon. The one Gutfreund was eventually driven out of...

Too many brokerages & investment banks in too much trouble to keep the scandals straight anymore.
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Old 09-15-2008, 06:18 PM   #42
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I guess this thread explains why Berkshire was up today. 50 plus holdings and 3 up not sure why the other stocks were up.
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Old 09-15-2008, 08:18 PM   #43
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So if I were thinking of annuitizing some part of my retirement savings, is there any kind of guarantee beyond the insurance company itself? For banks there's FDIC (FSLIC) for brokerage SIPC plus some private insurance, for pensions PBGC with low limits. What about annuities? Is there some backing minimal agency with low limits I could keep below? Should I spread several annuities over several insurers? I would guess costs go up as I buy smaller annuities, so I'd like to make as few chunks as possible yet stay "insured" Anyone know how this works?
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Old 09-15-2008, 08:50 PM   #44
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Each state seems to offer some 'insurance', although they go out of their way to tell you that its not insurance. New York is IIRC 500k, some states are 300k, most are 100k. Most of them are only 'insuring' the present value of the annuity, so the amount goes down over time.

For many states, that limit is a per policy/per insurer, so if you follow Rich's example and buy several annuities over time from different insurers, you should be protected even if several of them blink out.

I thought that insurers selling annuities rarely went out of business, but I guess theres been about a hundred or so over the last 30 years that went south. Who knew?

What isnt clear is how many hoops you have to jump through and how long it'd take to get your money. My guess is 'lots' and many months. I heard a few people say it took them years to get their money.

BTW, AIG was carrying super high ratings from all the insurance and bond rating companies just a month or so ago. So much for indicators you can use to identify problem children before you buy.
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Old 09-15-2008, 08:57 PM   #45
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BTW, AIG was carrying super high ratings from all the insurance and bond rating companies just a month or so ago. So much for indicators you can use to identify problem children before you buy.
Are you saying the rating agencies don't keep up with all the issues and alert the companies before they get into problems?
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Old 09-16-2008, 07:12 AM   #46
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Hey, what happened to Brewer? All of this insurance company talk made me realize I haven't seen any posts from him in a while.
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Old 09-16-2008, 07:16 AM   #47
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He's around. Posted this yesterday: Auto insurance with sinking ship AIG direct
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Old 09-16-2008, 07:48 AM   #48
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He's around. Posted this yesterday: Auto insurance with sinking ship AIG direct
Glad you are still with us Brewer. I guess I have been spending too much time reading rants in the Soap Box and you have the sense to stay clear.
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Old 09-16-2008, 07:52 AM   #49
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Hey, what happened to Brewer? All of this insurance company talk made me realize I haven't seen any posts from him in a while.
Trying not to think about the possibility of AIG going down. I've always despised the company and the people who run it, but if they go poof it will make Lehman look like peanuts and popcorn.

As for the annuities and other policyholder claims, your counterparty is the regulated insurance company, not the holding company. Insurance entities must hold assets to back claims plus put up lots of capital on top of that. I would not run for the hills as a policyholder, assuming you ignored my suggestions over the years and did business with these people. If the holdco goes BK, the insurance entities won't be going with it. Yes, the holdco is getting to borrow from the insurance entities, but I believe it is on a secured basis which means that the holdco won't be allowed to just rape and pillage policyholders.

As for hurricane claims, generally speaking property casualty business (homeowners, business insurance and other stuff that would be hurricane exposed) is written out of different subsidiaries (with their own assets, capital, etc.) than the life and annuity business. So even if AIG absorbed a catastrophic blow from Ike that rendered is P&C entities insolvent (very unlikely, IMO), the life and annuity companies should be OK.

My guess is that AIG gets bridge loans now at punitive cost and then sells assets over time to pay it down. What Berkshire was interested in was one of two things: either offering very expensive financing to AIG, or offering to buy a unit or a block of policies at firesale prices. Even if you think AIG as a whole is a donut, thereare lots of individual businesses that would be very, very attractive to a number of buyers.
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Old 09-16-2008, 12:06 PM   #50
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Even if you think AIG as a whole is a donut, thereare lots of individual businesses that would be very, very attractive to a number of buyers.
So these individual business units are sort of like the sprinkles on the donut?

I'm trying to work up some better financial analogies to explain whats going on to my wife...
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Old 09-16-2008, 12:10 PM   #51
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So these individual business units are sort of like the sprinkles on the donut?

I'm trying to work up some better financial analogies to explain whats going on to my wife...
If you ever succeed, let me know. I could use some pointers.
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Old 09-16-2008, 12:21 PM   #52
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It helps to identify the problem source. She pointed to the talking heads on cnbc yesterday and said "Those guys said xxx, and they're economists, right?".

"Hmm well lets see...the guy on the left got a bachelors degree in english studies, and the two guys on the right got degrees in journalism..."

It was fun watching cnbc for half a day yesterday after not watching it in years. I can see why some people get worked up over a bunch of nothing.
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Old 09-16-2008, 12:24 PM   #53
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Trying not to think about the possibility of AIG going down. I've always despised the company and the people who run it, but if they go poof it will make Lehman look like peanuts and popcorn.

As for the annuities and other policyholder claims, your counterparty is the regulated insurance company, not the holding company. Insurance entities must hold assets to back claims plus put up lots of capital on top of that. I would not run for the hills as a policyholder, assuming you ignored my suggestions over the years and did business with these people. If the holdco goes BK, the insurance entities won't be going with it. Yes, the holdco is getting to borrow from the insurance entities, but I believe it is on a secured basis which means that the holdco won't be allowed to just rape and pillage policyholders.

As for hurricane claims, generally speaking property casualty business (homeowners, business insurance and other stuff that would be hurricane exposed) is written out of different subsidiaries (with their own assets, capital, etc.) than the life and annuity business. So even if AIG absorbed a catastrophic blow from Ike that rendered is P&C entities insolvent (very unlikely, IMO), the life and annuity companies should be OK.

My guess is that AIG gets bridge loans now at punitive cost and then sells assets over time to pay it down. What Berkshire was interested in was one of two things: either offering very expensive financing to AIG, or offering to buy a unit or a block of policies at firesale prices. Even if you think AIG as a whole is a donut, thereare lots of individual businesses that would be very, very attractive to a number of buyers.
who owns the lehman and fannie stocks and bonds? the holding company or the subs? i'm reading that these will mean bad things for insurance companies
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Old 09-16-2008, 12:29 PM   #54
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I always remember that the engineering majors that flunked out usually went into the business school where they became instant straight A students. These are the geniuses now running the big financial companies.

I took 21 credits in economics and business. I stopped taking classes when I realized they were never going to get to something that was worth sitting through the classes.
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Old 09-16-2008, 01:42 PM   #55
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I stopped taking classes when I realized they were never going to get to something that was worth sitting through the classes.
They call that a "diploma"...

I wonder if Mick Jagger has his economics degree framed on a wall somewhere-- next to all his gold records and the shrunken heads of the first three Keith Richards?
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Old 09-16-2008, 01:53 PM   #56
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They call that a "diploma"...
I got mine with "College of Engineering" on it. I had enough credits to get a legitimate minor in business if I had been in any other college other than engineering. They didn't believe in those things.
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Old 09-16-2008, 05:01 PM   #57
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So these individual business units are sort of like the sprinkles on the donut?

I'm trying to work up some better financial analogies to explain whats going on to my wife...

AIG, like most financial companies, can be thought of as a lot of individual boxes. Each box is a specific legal entity (American Insurance Company of Nowheresville, Inc.), with its own business, assets, liabilities, capital, etc. Some boxes own the others, generally ending up with a single holding company at the top. Very often there are contracts and business arrangements between boxes (Diddlysquat Life Insurance pays the holdco for investment management and administrative services), but in the case of regulated entities (insurance companies, banks, etc.), these arrangements are limited and subject to regulator scrutiny and approval.

So if the problem is at AIG's holding company, the insurance company legal entities should have the benefit of regulatory protections and their own capital. They also would be viable sale candidates as distinct entities from the troubled holding company.
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Old 09-16-2008, 06:15 PM   #58
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AIG, like most financial companies, can be thought of as a lot of individual boxes. Each box is a specific legal entity (American Insurance Company of Nowheresville, Inc.), with its own business, assets, liabilities, capital, etc. Some boxes own the others, generally ending up with a single holding company at the top. Very often there are contracts and business arrangements between boxes (Diddlysquat Life Insurance pays the holdco for investment management and administrative services), but in the case of regulated entities (insurance companies, banks, etc.), these arrangements are limited and subject to regulator scrutiny and approval.

So if the problem is at AIG's holding company, the insurance company legal entities should have the benefit of regulatory protections and their own capital. They also would be viable sale candidates as distinct entities from the troubled holding company.
.

Ok more questions for the professional. Let's assume that the liabilities of AIG holding company exceed the assets. Who gets paid? I am pretty sure that the shareholders more than likely end up with diddly squat.

Now presumably if the assets of a particular AIG subsidiary say AIG Marine Insurance exceed the liability than all the folks who insured their boats/ship get their claims paid, premium partially refunded etc.

However, it does not take a lot of imagination to guess the smart folks at AIG managed in a few cases to transfers cash/profits, from say AIG Life Insurance Inc with respect to EIA or VA policies back to the main holding company, despite the not so diligent oversight of overstretched STATE insurance regulators . So it is entirely possiblity that liabilities of an AIG subsidary exceed the assets by a decent margin.

In this situation aren't individual annuity holders just another creditor? Do you know where they rank on the priority scheme?

Which leads me to the important question. If you have an AIG annuity and it has a surrender value might you be better trying to get your money out of before AIG files for bankruptcy?
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Old 09-16-2008, 07:37 PM   #59
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.

Ok more questions for the professional. Let's assume that the liabilities of AIG holding company exceed the assets. Who gets paid? I am pretty sure that the shareholders more than likely end up with diddly squat.

Now presumably if the assets of a particular AIG subsidiary say AIG Marine Insurance exceed the liability than all the folks who insured their boats/ship get their claims paid, premium partially refunded etc.

However, it does not take a lot of imagination to guess the smart folks at AIG managed in a few cases to transfers cash/profits, from say AIG Life Insurance Inc with respect to EIA or VA policies back to the main holding company, despite the not so diligent oversight of overstretched STATE insurance regulators . So it is entirely possiblity that liabilities of an AIG subsidary exceed the assets by a decent margin.

In this situation aren't individual annuity holders just another creditor? Do you know where they rank on the priority scheme?

Which leads me to the important question. If you have an AIG annuity and it has a surrender value might you be better trying to get your money out of before AIG files for bankruptcy?
#1: holdco shareholders would get teh cornhole.

#2: it is highly unlikely that AIG's insurance company entities would become insolvent as a result of the holdco's troubles. Not only are the state regulators there, there are lots of statutes that protect against this. Plus one of AIG's main regulators is NY state, which is widely regarded to be at least the equal of the SEC and FDIC, probably considerably nastier. And if you run afoul of these regs, you go to federal pound-me-in-the-ass penitentiary. In the event of an insurance insolvency, policyholders rank ahead of just about everyone, including any and all senior unsecured creditors.

#3: The type of annuity and its size would influence my actions. If you had lost your mind and bought a variable annuity from them, I would do nothing. If you have a SPIA with them, you are SOL. If you have afixed or equity indexed () annuity with them, I would leave it alone unless it was more than, say, 20% of my net worth.
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Old 09-16-2008, 07:41 PM   #60
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Plus one of AIG's main regulators is NY state, which is widely regarded to be at least the equal of the SEC and FDIC, probably considerably nastier.
At least until their main watchdog started paying $3,000 an hour for hookers, anyway.
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