Gov: AIG's Systemic Risk Could Lead To Collapse Of Insurance Industry

New York Times:

One of the biggest worries, besides the considerable collateral damage to the banking system, is a risk that most people aren't talking about, perhaps because it's too scary. This one is probably easier to understand than any kind of financial chicanery: the dangers lurking below A.I.G.'s seemingly stable, highly regulated life insurance business. In the United States, A.I.G. has more than 375 million policies with a face value of $19 trillion.

If policyholders lost faith in A.I.G. and rushed to cash in their policies all at once, the entire insurance industry could falter.

Read the whole story: New York Times

Comments

[research]

AIG = leveraged unregulated investment Insurance Swaps.

AIG is toast. The rating companies should also be liquidated to pay off outstanding Swaps,

But most important of ALL

Stop Swaps and Shorting NOW.

http://www.huffingtonpost.com/users/profile/research?action=profile

[orrgroup]

Plus, all cash value policies have a "run on the bank' protection in that a life insurance company can take 6 months to send you your requested cash value proceeds. That will help them to survive.

More lessons were learned from the 30's than we thought.

[bff426]

On Tuesday, Andrew Ross Sorkin wrote about a document circulating in DC called “A.I.G.: Is the Risk Systemic?” It argued that AIG’s demise would cause the life insurance industry to collapse:

“In the United States, A.I.G. has more than 375 million policies with a face value of $19 trillion.
...“A ‘run on the bank’ in the life and retirement business would have sweeping impacts across the economy in the U.S.,” according to the A.I.G. document. “In countries around the world with higher savings rates than in the U.S., the failure of insurance companies would be a catastrophe.”

One problem…the figures are wrong. The 375 million policies and $19 trillion face value are the entire US life industry, not AIG’s. They have only 3% of the market.

It will be interesting to see Sorkin’s comment/correction. It appears that he didn’t confuse AIG/Industry numbers inadvertently- Is it possible that AIG is peddling this in Washington and people are buying it???

Also, most insurance in force is either group or term, with no value other than a death benefit? You can’t “cash them out” only let them lapse, in which case you get nothing and the carrier keeps the premium without paying the benefit.

God, this is scary if they don’t understand basic stuff. Time to cash out my policies and buy guns and ammo.

[dgscol]

Any organization with the scope of AIG is bound to fail.

[climatebabes]

So what? People should hold their own money, the banks have only speculated it away anyway.

[japrz]

If we let AIG fail, do you promise I won't have to pay: Accidental death and dismemberment insurance
Auto insurance, Boat insurance, Casualty insurance, Dental insurance, Deposit insurance, Disability insurance, Earthquake insurance, Flood insurance, Health insurance Liability insurance, Life insurance, No-fault insurance, Property insurance, Title insurance in the United States, Workers' compensation? Okay, scre*w them. Let them pull themselfs up by their boot straps.

[spike27]

We live in a country of fear, we are the most paranoid people on the planet and the insurance industry knows it. We have insurance for everything as your post shows...........

[littleguy]

We need banks. Banks that are banks, not investment speculation engines. But we don't need an industry that scrapes the cream off of the health care industry, drives prices higher and higher without contributing anything except enough capital to make "insurance companies" like AIG (yes, I know the diiff. between them & health insurance copies, but agree with the comment I'm replying to) - enough capital to make them the fulcrum of speculation-based capital. Let AIG fail or deal with the mess that is AIG on behalf of us all, and then let the economy-murderers die the death they deserve. Why NOT the death penalty for corporate persons guilty of the economic equivalent of mass murder? Why save them, they wouldn't do the least thing to save any of US. End the insurance industry & cut that cancer out of our economy. Only without the insurance companies can health care be dealt with. This is a golden opportunity that may never come again!

[privategirl]

I think we have been down this road before.

Did any inform AIG that things are already going down the drain and they have been propped with billions. I think we need to take our chances. Give them an ultimatum (??) either Nationalize or go down..

[bygollymissmolly]

Fine, Nationalize AIG. We the taxpayers pretty much own it already. So Nationalize it and fire all their executives. Then put people in place who know how to run a company, not run it into the ground.

[Peter007]

Yes, put an ad on craigs list
CEO and a management team needed to run company that is bankrupt." No experience necessary. $110,000/ yr.

[tomas0808]

The entire insurance industry is a scam as are modern banks. I'll take the hardship to be rid of them

[cronkyvoddy]

ditto.

[swift goat pet for truth]

I don't think you have any idea what modern banks do.

[spike27]

The entire banking and insurance industry is only there to suck billions of dollars out of the population and fatten their wallets. legitimate claims are denied at an astounding rate, banks only give 1/2% on savings accounts. I stay away from banks, pay with cash and have the absolute least insurance I can buy, only what I must have by law. I LIKE the idea of taking care of myself, my way.
Depending on other entities such as banks and insurance companies to be there for you is a foolish idea............Unless of course you're rich............

[orrgroup]

must be lonely living alone and loving nobody that you wish to protect.

[leftLibertarian]

Lots of financial chicanery at AIG. The FBI and SEC needs to secure all financial data so accountants could search for fraud.

[pros54]

You do not run to cash in an insurance policy. What kind of insurance policy do you cash in at will? You only cash in an insurance policy when and only if the occurrence you were insured against occurs. The banks that insured the mortgages can run to collect the money but they have to show how how real the repackaged mortgages were.

[Truby]

Give me your lunch money or I'll take the economy down with me.

[nogimmicks]

AIG has already failed. The owners/execs also succeeded in raking and cashing out enormous profits for years and they are not giving them back. The process must be completed. Insurance is not an industry it is a scam of the largest magnitude in modern history. Supporting AIG is the same as supporting Madoff and paying his dept.

The following needs to be done:
- reinstate Glass-Steagall
- ban trading derivatives
- stop all bailouts in the financial and insurance sectors immediately
- recognize that Geithner, Summers, Bernanke are lawyers representing only the banking side even though they are on the public payroll. We definitely do not need their advise.

[cronkyvoddy]

Too much common sense and logic in your post, and agree with everthing you say

[spike27]

I agree completely.............

[orrgroup]

Don't forget a bailout for homeowners...
http://orrgroup.com/subpages/Andrews_Blog.asp?navid=&id=11

[manitoumackinac]

It's the financial industry using PR (propaganda) scare tactics to get the taxpayer to fork out more cash. Don't fall for it. These people don't care about anyone except themselves.

[Teri]

let them just all fail and let's get the pain over with. what difference does it really make. just let it ALL collapse and we will rebuild from there. stop foreclosures, stop bailing out banks and insurance companies, forget the car companies. it will be bad for a while, but why prolong the pain. enough is enough.

[spike27]

This is exactly the right way to go. I couldn't agree more...................