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State Regulators: We Protect AIG Insurance Assets

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American International Group Inc., a holding company that is not an insurance company, is asking its insurance subsidiaries for assets, says Ohio Insurance Director Mary Jo Hudson.

“We are actively involved with the situation on [the] national level to ensure that the necessary safeguards for the protections of policyholders remain in place,” Hudson says in one of several statements released by top state insurance regulators in the past 2 days.

Hudson notes that the Ohio Department of Insurance regulates AIG insurance companies licensed in Ohio.

- Sandy Praeger, the Kansas commissioner and president of the National Association of Insurance Commissioners, Kansas City, Mo., has put out a statement that also has been released by the insurance regulators in states such as Iowa, Massachusetts and New Hampshire.

AIG wants insurance subsidiaries to trade liquid assets for non-liquid assets from the parent company, Praeger says in her statement.

Here is a condensed version of the Praeger statement:

We have a very strong message for consumers: If you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims. Our job is to ensure that they continue to have the ability to pay.

In this particular instance, AIG’s insurance subsidiaries are being asked to provide liquid assets to the financially distressed non-insurance parent company in exchange for non-liquid assets. The New York State and Pennsylvania Insurance Departments are working with AIG to review the transaction. State insurance regulators will only approve this type of action if they are assured it is part of a total resolution of the liquidity issue at the parent company and fairly compensates its insurance company subsidiaries.

As a holding company, AIG is a separate, federally regulated legal entity that is distinct and apart from its subsidiary insurers. The subsidiary insurers are governed by state laws designed to protect the interest of policyholders. State insurance regulators are committed to protecting the interest of policyholders and will work closely with AIG management and other regulators to fulfill this commitment.

The No. 1 job of state insurance regulators is to make sure insurance companies operate on a financially sound basis. If needed, we immediately step in if it appears that an insurer will be unable to fulfill the promises made to its policyholders. This includes taking over the management of an insurer through a conservation or rehabilitation order, the goal being to get the insurer back into a strong solvency position.

State regulators have numerous actions they can take to prevent an insurer from failing. Claims from individual policyholders are given the utmost priority over other creditors in these matters — and, in the unlikely event that assets are not enough to cover these claims, there is still another safety net in place to protect consumers: the state guaranty funds. These funds are in place in all states. If an insurance company becomes unable to pay claims, the guaranty fund will provide coverage, subject to certain limits.

It is a state insurance regulator’s responsibility to protect policyholders and ensure a healthy, competitive market for insurance products. Strict solvency standards and keen financial oversight — based on conservative investment and accounting rules — continue to be the bedrock of state-based insurance regulation.

- Matt Denn, the Delaware commissioner, makes many of the same points that the NAIC makes in its statement.

Denn also points out that most Delaware residents who hold AIG coverage have policies issued by insurers domiciled outside of Delaware, and that is a concern about the many AIG workers in Delaware as well as the many AIG policyholders in Delaware.

“Should there be any requests from AIG involving the Delaware regulated companies, every decision that I make will be for the primary and exclusive purpose of assuring that every policyholder is protected to the fullest extent of the law,” Denn says.

- Myron Kreidler, the Washington state commissioner, says “there is a firewall in place that guards the assets of the insurance companies and protects policyholders.”

“The parent company cannot move assets upstream without the approval of state insurance regulators,” Kreidler says. “If you have a policy through an AIG insurance company — whether it’s an auto policy, homeowner policy or even an annuity — your coverage is safe. Do not cancel your policy or cash in your annuity. State regulators have made sure that the insurance companies have the money necessary to pay claims. And if the financial condition of AIG takes a turn for the worse, we have the authority to prevent AIG from raiding its insurance companies.”


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