INTERNATIONAL RISK MANAGEMENT & INSURANCE SERVICES

THE END OF AIG
26 February 2009
This morning, new information about AIG’s financial problems was made public as it negotiated with the Government for additional funds, the third bail-out in five months. The company is expected to show a $60b loss after its fourth quarter results are released next week. Additionally, the sale of its assets, which it planned to use to help pay off part of the Government loan, is reported to be going poorly due to the inability of the buyers to obtain adequate financing.

There is now talk about a complete break-up of the company, and one source stated earlier this week that AIG is preparing for a possible bankruptcy.

Where does a corporate break-up or bankruptcy leave the AIG Commercial Insurance Companies? This morning their Best’s ratings were still “A: XV”, although with a negative outlook (indicative of a possible downgrade). Collectively, they maintain a strong financial position with about $18.8b in written premium, over $26b in policyholders surplus, and a combined loss ratio of 100.5% through the third quarter of 2008. Legal experts have stated that In the event of a break-up or bankruptcy of the parent, there would be no direct effect on the assets of the subsidiary insurance companies or their policyholders.

Most government agencies require that the carriers from whom they buy insurance have a Best’s rating of “A” or above. The question for holders of AIG policies is: If AIG’s rating drops below “A”, will they be required to replace those policies with other carriers?

2 March 2009
AIG reported this morning their net annual loss for the fourth quarter of 2008 was $61.7b or $99.3b for the year. The federal government responded by announcing another bailout package of $20b, in addition to the $120b already provided to the company. Putting that loss into perspective, you would have to lose $1,000,000 a day every day for the next 169 years to equal what AIG lost in just the fourth quarter!

19 March 2009
AIG’s new Chairman announced he intends to break up the company.

27 July 2009
AIU Holdings, the group of surviving AIG companies, announced today the appointment of Mr. Kristian Moore as its President and CEO and the creation of its new brand - Chartis. The companies that currently use the “AIG” name will begin to transition to the Chartis identity.

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