State Regulators Say AIG Insurance Policyholders Still Protected

March 23, 2009

The nation’s insurance regulators are again telling policyholders of American International Group (AIG) that the insurance company is able to meet its obligations to them despite ongoing controversy surrounding the parent company.

“In uncertain times, making correctly informed financial decisions is more important than ever,” said Therese M. (Terri) Vaughan, chief executive of the National Association of Insurance Commissioners (NAIC). “This is especially true for AIG’s policyholders, where unsubstantiated information and misstatements in the media have led to unnecessary consumer frustration and fear.”

Vaughan said that while AIG is typically described as the world’s largest insurance company, it is in fact a global financial services conglomerate that does business in 130 countries. AIG owns 176 other companies, in addition to 71 U.S. state-regulated insurance subsidiaries.

“State insurance regulators have been actively involved in the AIG situation to help ensure that consumers remain protected,” Vaughan said. “Regardless of the failings at AIG’s holding-company level, its insurance subsidiaries have continued to fulfill their obligations to policyholders.”

These points were further underscored in testimony last week by Pennsylvania Insurance Commissioner Joel Ario at a Congressional hearing before the U.S. House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

“AIG’s insurance companies remain strong, in part because state regulation continues to wall them off from the high-risk activities engaged in by AIG Financial Products,” Ario said. “The insurance industry — just like the rest of the global economy — is facing challenges, but this only reinforces the need to be wary of changing a part of our regulatory system that has proven effective.”

Ario reiterated that AIG’s Financial Products operation — not its 71 U.S. insurance subsidiaries — created the systemic risk that caused the federal government to intercede. Additional action at the federal level, Ario stressed, should be collaborative, transparent and inclusive — and should integrate state-based insurance regulation into the framework for managing systemic risk.

“State insurance regulators recognize that federal action is needed to address systemic risk within the nation’s financial marketplace,” Ario said. “This shared objective calls for a collaborative approach …. that does not compromise one company within the enterprise for the benefit of another.”

Ario also addressed claims made by some of AIG’s competitors that the company was using federal assistance as an unfair competitive advantage.

“Regulators have devoted special attention to the current allegations, because AIG and its competitors may have distorted incentives to put their competitive engines into overdrive,” Ario said. “With the caveat that these issues are complex, we have not seen any clear evidence of under-pricing to date, though we continue to look at individual cases and at aggregate numbers on both renewals and new business at AIG.”

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