New York Insurance Chief Urges Caution on AIG Policy Switching

September 23, 2008

AIG’s insurance companies are financially sound, with substantially more in assets than they need to pay all valid present and projected claims, New York Insurance Superintendent Eric Dinallo said.

Dinallo also announced he would issue notices to insurance companies, agents and brokers, reminding them of their responsibilities under New York Insurance Law to fully inform consumers of the possible costs of switching life insurance, annuity and other policies.

“Don’t worry and don’t make any rash decisions if you have a policy issued by an AIG insurance company,” Dinallo said. “All your covered claims will be paid and all your annuity checks will come. Making sure insurance companies are solvent and able to pay every valid claim is my number one job, and the AIG insurance companies are strong and solvent.

He told policyholders to call his agency immediately somone advises them to replace a life insuramnce or annuity contract “because of the troubles at AIG’s parent company.”

“Replacing or liquidating a life insurance policy or an annuity can have heavy hidden costs and tax consequences. That is why our Insurance Law requires that you get all the information you need to make an educated decision in your best interests. There may be a cancellation penalty if you cancel your automobile or homeowners policy. If someone tells you to replace any policy because an AIG insurance company is in trouble and may not be able to pay your claim, that is not only untrue, it is against the law. Call us. Some regulators have received reports that this is happening. We will not allow it to happen in New York. We will protect consumers from improper sales practices.”

According to Dinallo, the trouble with AIG is largely with AIG’s non-insurance parent company, which is not regulated by the states and therefore not held to the same investment, accounting and capital adequacy standards as its state-regulated insurance subsidiaries. The insurance subsidiaries are solvent and able to pay their obligations, he said.

Unlike the troubled parent company, the property and casualty insurance company that New York regulates “has significantly more in assets over and above the reserves required to cover all valid current and future claim,” Dianllo said.

He advised that rating downgrades and drops in share price do not change an insurer’s ability to pay claims.

He said that AIG’s non-insurance entities are not subject to the solvency framework applied to insurers. This allowed various non-insurers to engage in risky credit transactions”without the appropriate limits and minimum capital/surplus to protect the company from a downswing in the mortgage-backed security markets.”

Per the federal Gramm-Leach-Bliley Act (GLBA), insurance regulatory authority only applies to actual insurance entities and transactions with those entities. According to Dinalloo, within AIG, there are 71 U.S. insurers subject to this authority. The remaining 176 entities are split between foreign entities and non-insurance U.S. entities.

Dinallo will chair a working group of state insurance commissioners established to oversee AIG insurance interests and ensure that policyholders of the insurance subsidiaries remain protected. This oversight will continue as AIG operates under the credit facility offered by the Federal Reserve.

The Department has set up an AIG hotline to keep New York policyholders informed. A list of Frequently Asked Questions for Consumers is available at the department’s website, Consumers with questions on AIG should call the Department’s AIG hotline at 1-800-339-1759 from 9 a.m. to 8 p.m., Monday though Friday.

Source: NYSID

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