AIG, NAIC Dispute Report of Weaknesses in AIG Operating Units

The National Association of Insurance Commissioners and American International Group Inc. are disputing a report that the state-regulated companies at the AIG's core are in a dangerously weakened and interdependent state.

The NAIC issued a statement saying "the claims-paying abilities of these companies remains appropriate" and referred to information in a July 31 New York Times story as "incomplete and misleading."

According to the Times report, the financial health of the dozens of individual AIG companies is difficult to gauge from the parent company's U.S. Securities and Exchange Commission filings. However, it quoted sources as saying many of the companies are essentially keeping each other afloat with reinsurance and liabilities to other AIG units.

NAIC Chief Executive Officer Therese M. Vaughan said such concerns are misplaced. "Consumer protection is our first and foremost concern. The 71 state-regulated insurance entities within AIG are financially sound and are fully able to pay claims," she said in a statement.

In a statement, AIG maintained that 11 months after the federal bailout began it is "fully equipped" to meet policyholder obligations. Also, its property/casualty companies have no debt, the company said.

"AIG's insurance companies are well capitalized, and absolutely committed to meeting policyholder obligations and maintaining strong capital levels. Never has the government asked otherwise. Our use of affiliate reinsurance is proper and properly accounted for in accordance with applicable statutory guidance," the company's statement reads.

"State regulators are engaged in a virtually nonstop, coordinated, comprehensive review of AIG's U.S. insurance company subsidiaries, both at the level of the individual companies and within and across the entire group of companies," Acting New York Insurance Superintendent Kermitt J. Brooks, chairman of the NAIC?s AIG Managing Task Force and Pennsylvania Insurance Commissioner Joel Ario, the task force vice chairman, wrote in a joint letter to the Times.

The Times story quoted two representatives of a group of AIG policyholders that have sued AIG in California Superior Court over its subsidiaries' funding obligations. It also quotes a former chief insurance examiner for Louisiana who said he found serious concerns about the use of reinsurance between the subsidiaries.

"A recent media report relies on the assertions of a consultant paid to say hostile things about AIG in connection with a lawsuit, and another individual who admits he has not fully reviewed our books and inappropriately discounts the points made by our regulators who do fully examine our books," AIG said.

AIG did not immediately respond to requests for additional comment.

The federal rescue of AIG currently amounts to $182.5 billion in loans and other aid (BestWire, April 20, 2009).

The AIG Board of Directors earlier this week named former MetLife Inc. chairman, president and CEO Robert H. Benmosche, 65, as AIG's new president and CEO, effective Aug. 10.

AIG is establishing its property/casualty and general insurance businesses under an independently managed company, renaming it Chartis and establishing a special purpose vehicle to hold its equity. Chartis' businesses have approximately 40 million clients worldwide, and in 2008 had $3.3 billion in operating income on gross premiums of $50 billion, according to Kristian P. Moor, who was named president and chief executive officer of Chartis (BestWire, July 27, 2009).

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

Shares of AIG were $13.44 in afternoon trading on Aug. 4, down 1.18% from the previous close.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)