If you ever succeed, let me know. I could use some pointers.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.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...
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.
They call that a "diploma"...I stopped taking classes when I realized they were never going to get to something that was worth sitting through the classes.
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.They call that a "diploma"...
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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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?
At least until their main watchdog started paying $3,000 an hour for hookers, anyway.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.
How do the state insurance regulators treat GICs or similar credit support instruments underwritten by insurance companies? According to the NY Times article today, a major reason for treating AIG's potential failure as a systemic risk to the economy is that it is heavily involved in esoteric credit support instruments in these mbs transactions. Is there a mechanism, like bank examiners, where they would classify the asset or investment risk and then adjust capital levels? Just curious.
That's been their story all along but we've been misled before.But I believe that the bulk of the problematic transactions were not at the insurance company level.