INSURANCE CUSTOMERS OF AIG SHOULDN'T WORRY YET

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Insurance customers of AIG shouldn't worry yet
Insurance industry; AIG insurance policy, annuity holders shouldn't worry
September 17, 2008: 05:27 PM EST

NEW YORK (Associated Press) - The financial problems at American International Group Inc. may be causing you great concern today if you hold an AIG life, health, home or auto insurance policy, or have an annuity with the company.

Insurance industry officials and analysts say there's little for policyholders to worry about today, but they say they're watching the situation carefully.

NOTE: AIG IS ONE OF THE TOP COMPANIES IN THE INSURANCE INDUSTRY.

They're keeping a close eye, because the potential impact in the United States for insurance policy holders is significant. The Insurance Information Institute says AIG ranks in the top 10 of insurance companies in fixed annuities sold through banks. Fixed annuities guarantee the principal and fixed payments to the buyer for a specified period of time, usually until death. AIG also ranks among the top writers of auto insurance, commercial insurance and life insurance. It led the nation in fixed annuities sold through banks, writing more than $5 billion in 2007. AIG also led in commercial insurance writing $24 billion in policies in 2007.

Here are the answers to some key questions about where AIG's insurance businesses stand and how it may effect you.

Q: What is going to happen to the insurance businesses owned by AIG?

A: The infusion of $85 billion into AIG offers financial stability so the company will have time to decide which assets or business segments it should sell and to whom. It hasn't been disclosed whether the insurance segment, or portions of it, would be sold.

"We believe the insurance subsidiary to be financially sound and continues to be sound today," said analyst Joyce Sharaf of A.M. Best Co., one of the nation's main insurance ratings companies. She said Wednesday that AIG holds major insurance businesses that "are enviable franchises that could be sold in whole or in part."

A.M. Best analyst Marc Steinberg said he's continuing to review AIG's ratings and analysts are closely monitoring the situation as it unfolds. Analysts believe, however, that insurance policyholders are safe for now, he said.

Insurance regulators in New York, which have regulatory oversight over New York-based AIG, and the National Association of Insurance Commissioners said the company's insurance operations remain solvent and can pay claims.

Insurance companies in the United States are closely regulated by government agencies established by the states in which they are based.

The company released a statement Tuesday evening which said: "Policyholders of AIG companies around the world can rest assured that AIG's commitments will continue to be honored."

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Q: Should I be worried if I have health or life insurance policies with AIG and what if I have a retirement annuity?

You should first keep in mind that AIG continues to operate, it has not filed for bankruptcy protection and has not been declared insolvent. Even if the insurance portion of the business was for some reason declared insolvent, there are protections in place similar to the FDIC insurance that backs up your bank deposits.

Life and health insurance, and products like annuities are covered by insurance guarantee associations that have been established in every state, said Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations. The associations step in when insurance regulators in your state declare an insurance company insolvent and it's placed in receivership.

The level of coverage may vary by state, but every state association provides withdrawal and cash value coverage for annuities of at least $100,000. About a dozen states offer up to $300,000 and a few others offer up to $500,000.

Life insurance policies are backed up with at least $300,000 in life insurance death benefits and $100,000 in cash surrender or withdrawal value. States offer at least $100,000 in health insurance policy benefits.

In the past 25 years more than $20 billion in coverage benefits have been provided by the state associations for policyholders and annuity clients of dissolved insurance companies. In that time, the associations have provided protection for more than two million policyholders and worked on more than 60 multistate insolvencies.

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Q: What should I do if I hold a homeowner's or car insurance policy with AIG?

Every state, the District of Columbia, Puerto Rico and the Virgin Islands have established property guarantee funds similar to those established to protect against losses in life and health insurance.

Guaranty funds generally pay the amount of coverage stipulated by the policy or $300,000, whichever is less. Each state has a law that places a cap on the coverage and some have higher amounts. New York, for example, has a property/casualty cap of $1 million.

Most state guarantee funds pay all of their state's workers' compensation benefits.

Since the late 1960s, the property/casualty guaranty system has paid out about $21 billion in claims on behalf of insolvent insurers. About $10 billion disbursed in the last six years, largely because of the frequent and severe hurricanes that have struck the Gulf Coast.

Since 1976, there have been about 600 insolvencies of property and casualty insurers. There are 2,648 property casualty insurers licensed to do business in the United States.

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On the Net:

A.M. Best Co.: http://www.ambest.com

National Conference of Insurance Guaranty Funds: http://www.ncigf.org

National Organization of Life and Health Insurance Guaranty Associations: http://www.nolhga.com/ Top of page
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