Federal Aid to AIG Totals $170 Billion, Oversight Panel Says

American International Group Inc. received a total of $170 billion in assistance from the U.S. government, as of July 2, as part of a rescue plan that has kept the insurer solvent since September, an oversight panel said.

AIG has received $70 billion in outlays from the U.S. Treasury Department and $100 billion in loans from the Federal Reserve System, according to a report by the Congressional Oversight Panel, the body overseeing government bailout efforts.

The Treasury outlays involve special purpose vehicles created to acquire various assets to relieve cash flow demands on AIG. It includes a $30 billion investment committed to in March, when the federal rescue plan was revamped and its cost rose to up to $182.5 billion (BestWire, March 5, 2009).

A month later, Treasury deducted $165 million from that investment, representing the amount paid in bonuses to AIG Financial Products employees. The bonuses sparked a political and public firestorm because the Financial Products unit largely was blamed for the credit default swaps and other derivatives that jeopardized AIG?s solvency, when it was unable to meet tens of billions of dollars in collateral calls following a series of rating downgrades in September 2008 (BestWire, April 20, 2009).

The facilities acquired tens of billions of dollars of collateralized debt obligations on which AIG had credit default swap contracts, and then voided those contracts. Also acquired was AIG?s interest in a $39.3 billion pool of residential mortgage-backed securities. AIG then used that money to settle outstanding transactions from, and terminate, its troubled securities-lending program, which also contributed to its September crisis (BestWire, Dec. 24, 2008).

The report said that the government?s exposure through the special purpose entities is lower than the panel originally estimated because it cost less to acquire the assets involved, and because the government is using income from the purchased assets to pay down the loans.

The oversight panel reported AIG?s rescue program was dwarfed by the bailout plan for Citigroup, to which the federal government had committed $289.8 billion.

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

Shares of AIG (NYSE: AIG | Quote | Chart | News | PowerRating) were $14.13 in afternoon trading on July 15, down 1.3% from the previous close.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)