AIG: The (False Accounting of the) Bloodsucking Parasite That Just Won't Die
Hey guess what? You can "restructure" all you want, AIG, but if liabilities outweigh assets, AIG is essentially a dead man walking unless they can keep fudging the numbers indefinitely. Looks like things don't add up too well for AIG, despite numerous attempts to magically rearrange that red ink.
The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows.
Over time, the weaknesses could mean trouble for A.I.G.’s policyholders, and they raise difficult questions for regulators, who normally step in when an insurer gets into trouble. State commissioners are supposed to keep insurers from writing new policies if there is any doubt that they can cover their claims. But in A.I.G.’s case, regulators are eager for the insurers to keep writing new business, because they see it as the best hope of paying back taxpayers.
In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound — that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives.
But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.
More ominously, many of A.I.G.’s insurance companies have reduced their own exposure by sending their risks to other companies, often under the same A.I.G. umbrella.
Echoing state regulators’ statements, the company said the interdependency of its businesses posed no problem and strongly disputed that any units had obligations they could not pay.
House of cards anyone?
If A.I.G.’s incoming premiums shrink, he warned, “the whole thing’s going to collapse in on itself.”
[Retired LA state insurance examiner W. O.] Myrick has not fully examined all the A.I.G. subsidiaries but said his own recent review of many state filings raised serious concerns, particularly about the use of reinsurance to “bounce things around inside the holding company group.”
“That is a method used by holding companies to falsify the liabilities,” he said.
A.I.G.’s premiums have, in fact, been declining in important lines. Its ratings have fallen, and customers tend to steer clear of lower-rated insurers. To woo them back, A.I.G. has in some cases lowered its prices, competitors say. A.I.G. executives insist they would rather lose a customer than drive down prices dangerously.
A.I.G. has also pledged a share of its life insurance premiums to the Fed, to pay back about $8 billion. Details have not been provided, but consumer advocates say it is not clear how the life companies will pay future claims if their premiums are diverted.
Pull the damn plug on this monster already, or has AIG been back to its old tricks? With the appropriate counterparties already slipped their hush money (yes, I'm talking about you Goldman Sachs), who cares if it continues to lumber along or not?
One more time in case you missed it: "That is a method used by holding companies to falsify the liabilities"
I don't know about where AIG is from but where I'm from, we call that cooking the books.