AIG Seeks Principal-Protection Flexibility

A large New York insurer wants permission to use affiliates to back its own investment funds’ guarantees.[@@]

Asset-management units of American International Group Inc., New York, have filed an application asking the U.S. Securities and Exchange Commission for an exemption from a securities law that limits the ability of investment advisors to do business with affiliates.

The AIG asset-management units, AIG Sun America Asset Management Corp. and the Variable Annuity Life Insurance Company, want to be able to arrange for sister companies to insure the principal in principal-protected mutual funds and variable annuities through reinsurance contracts and derivatives contracts.

In the past, AIG asset-management units have reported that they have been using other companies, such as a unit of Prudential Financial Inc., Newark, N.J., to guarantee the principal in the principal-protected funds.

AIG is a strong, creditworthy company, and AIG asset-management units might have an easier time getting sister companies to make good on their principal-guarantee commitments, AIG SunAmerica and VALIC argue in their application for the securities law exemption.