AIG Stay of Execution: Holding Company Can Access $20 Billion of Subsidiary Capital

AIG appears to have fended off the immediate threat of a downgrade with the granting of permission by New York State for the parent to gain access to subsidiary capital. While certainly quite a waiver, it is also possible that AIG has overcapitlaized subs and thus this move may be defensible as far as policyholders are concerned.

It also buys AIG time to complete asset dispositions that may enable it to satisfy the rating agency calls for more capital. The total need cited was $30 to $40 billion; AIG was looking at asset sales in the $10 to $15 billion range.

The Bloomberg story is skeletal:

American International Group Inc., the largest U.S. insurer by assets, has been given special permission to access $20 billion of capital in its subsidiaries to free up liquidity, New York Governor David Paterson said.

The move “is not a government bailout,” Paterson said today at a New York City press conference. AIG is still a “financially sound company,” Paterson said.

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  1. mxq

    imo…i think these failures are ultimately good for the markets. Over the past few q’s (since this mess started) it was interesting that a lot of IB CFO’s would mention that the problem with a lot of abs markets wasn’t that there was a dearth of buyers…it was the fact that there was a dearth of sellers. There aren’t enough people willing to realize their assets are worth 10c on the dollar vs the 70c they have them marked-to-model at.

    BSC never really unwound as JPM kept their balance sheet going. LEH (and probably AIG) will be the first time this market has sellers actually selling at prices that people are willing to bid for.

    Unfortunately, its taken a bankruptcy and a lot of lost jobs to achieve this end, but my guess is markets improve with the new liquidity at any price provided by LEH unwind.

  2. Anonymous

    If AIG is now be permitted to tap its non-consolidated subsidiaries for liquidity purposes, doesn’t this also mean the liabilities of those subsidiaries must now be shown on the parent balance sheet?

    This move might help liquidity today, but it hardly seems like it will benefit AIG 2-3 months down the line as those non-consolidated subsidiaries, where I imagine the firm houses its nastiest risks, start to take losses of their own.

    Am I perhaps misunderstanding the story?

  3. Anonymous

    I am sure that Patterson was using Dinallo as an advisor. And fro m what I know Dinallo’s background is just about ideal to give input.
    I have faith that they know where the extra money is, and that it will not hurt insurees.
    Besides helping AIG the move seems aimed to keep NYS attractive to Wall Street as downsizing occurs.

  4. mxq

    Cramer had some good points re: AIG and that business model:

    “If you insure something, it had better be quantifiable. If you insure property, you’d better know how much the property is worth. If you insure lives, you’d better know how much exposure you have. If you insure autos, you’d better know the accident rate…

    But if you insure the unquantifiable, you are in a different position. If you insure financial instruments and you can’t assess how much you are insuring, then you are taking on a level of risk that is too difficult to handle.

    That’s what AIG (AIG) did. It wrote policy after policy insuring mortgages and mortgage portfolios of all shapes and sizes, not just in the United States but in Europe. Especially in Europe.

    That’s why AIG is so difficult. We don’t have federal regulation of insurance and we don’t have cross-border regulation of insurance. So we don’t know who has the responsibility of regulating or even helping AIG.”

  5. dearieme

    “we don’t know who has the responsibility ..[for]..helping AIG”: in a market economy, no-one has the responsibility for “helping” a company, thank goodness.

  6. Anonymous

    Being someone whos lively-hood depends on an AIG court-ordered structured settlement from a lide altering car accident a couple years ago, I would like to know how this “mess” is going to affect my settlement payments. I called the annuity division and asked the obvious questions and was assured the court-ordered structured settlement annuities are safe. Can anyone shed any light on this situation? I am worried.



  7. mxq

    RE: “in a market economy, no-one has the responsibility for “helping” a company”

    In a market economy the stakeholders have a responsibility for helping a company. Unless of course the stakeholders don’t care. But I seriously doubt that’s the case, given AIG’s massive presence in innumerable markets.

  8. howard

    the fact that warren buffet hasn’t shown any interest in AIG (at least as far as i can tell; admittedly, he could just be discrete) is, to me, an enormous “tell,” and what it’s “telling” isn’t happy….

  9. fred55

    without details, i can only guess the following:

    (a) the aig company behind the annuity is not the parent

    (b) whatever state its in is making sure its adequately capitalized (except in ny, where they are whores now)

    (c) the other annuity companies in that state will step in and make up whatever can be made up to protect the industry’s reputation

    (d) if you arent going to sleep about this, GET ON THE FONE AND CALL YOUR LAWER AND ASK THE FOLLOWING:

    “was the contractual payment obligation satisfied by purchase of the annuity, or was it merely suspended by purchase of the annuity and if the annuity becomes impaired there is a residual payment im entitled to from the defendant”

  10. Paul

    There’s no reason for AIG to access the Fed directly – other than to save costs. Why can’t AIG do a back-to-back loan with one of its bankers. AIG loans $40b whatevers to BankerA, who pleadges the $40b whatevers with the Fed (who will literally take whatever) for a say $30b loan at 2.25%. BankerA loans $30b to AIG at 6.25%. AIG gets their funding, BankerA gets a nice fat margin and crisis is deferred for a while.

  11. Anonymous

    Hi Lori. Fred made some good points. I would however, go to your local state insurance Dept. for assistance. Get the exact name of the insurer that has the annuity. It might not be AIG. I suspect it might be National Union Fire Ins. Co. As long as Nat’. Union or whomever is ‘admitted’ in your state, the Ins. Dept. will have jurisdiction.

    Whatever you do, don’t go to one of those viatical settlement companies until you talk to your state Ins. Dept. Good luck.


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