AIG’s art deco headquarters is a couple of blocks from our office. The media buzzards are outside its doorstep waiting for news on its survival.
It seems that AIG’s cash crisis is not from its traditional life and casualty and property insurance operations, such as insuring homes and businesses. Its traditional insurance businesses are sound. It appears that its problems are from insuring subprime mortgage securities and other questionable investments.
New York State Insurance regulators have allowed AIG’s insurance subsidiaries, which appear to be in sound health, to swap certain securities which will act as collateral on the troubled financial insurance programs. Although AIG’s subsidiary insurance companies appear to be sound, I am concerned that the troubled parts of AIG may pull down the whole ship.
In the event that the whole AIG ship founders, then there will be grave consequences in the courts and for our clients. In that event, all accident and insurance lawsuits will be stayed in which an AIG company is an insurer for a defendant. It is likely that lawsuits will be stayed for about a year until the State Liquidation Bureau is able to take-over the business of the AIG insurance companies. For example, if a business owner has a pending fire claim, the claim will be stayed for about a year, and the business owner will not be paid for at least a year.
Also, in the event that the AIG insurance companies are taken-over by the state, then the taxpayers will be picking-up the tab.
All in all, if AIG fails, this will hurt our clients and insureds.
Maurice “Hank” Greenberg built AIG from a small insurance company into a giant. He was acknowledged as the senior statesman of the insurance industry. Then Attorney General Elliot Spitzer forced out Mr. Greenberg as AIG’s CEO in 2005 over a very minor accounting scandal. At the time it seemed to me to be a over-reaction in view of Mr. Greenberg’s track record and reputation as the savviest insurance executive.
Would this crisis have arisen if Hank were still at the helm? Or did Hank sow the seeds of this crisis?
This is one time that I’m rooting for the insurance company.
Mark E. Seitelman, 9/16/08, www.seitelman.com.