Despite trouble, AIG still writing policies in Florida
Oct 17, 2008
Keys Net--October 17, 2008
BY BEATRICE E. GARCIA
American International Group’s insurance units continue to write policies in Florida, despite the financial woes of the parent company.
The insurance subsidiaries represent the healthier parts of AIG. The 34 property-and-casualty companies and 12 life-and health-coverage companies are regulated by the states. Their assets are separate from the parent company.
The AIG companies “are continuing as business as usual,” said Pablo Conde, president of A&A Underwriters, a Miami insurance underwriting firm.
Agents said that if clients prefer to move their policies to another company, they will present them with alternatives. But for the time being, they are processing renewals and new policies with the AIG companies.
“AIG’s problems are not with the insurance subsidiaries. They are well-run and they have tremendous surplus. They have insolvency protection from the state of Florida should something go wrong,” said Evan Glassman, a commercial insurance agent at MDW-Ampac Insurance in Coral Gables.
AIG has said it will keep its property-casualty business and retain an interest in its foreign life-insurance companies. But it will be selling off a significant number of assets to raise cash to eventually pay back government loans.
The global insurance and financial-services company got its start in China in 1919. It now faces a severe liquidity crisis primarily in its insurance of mortgage-backed securities and other risky debt. It’s being bailed out by the federal government with more than $122 billion in loans.
Initially, the Federal Reserve Board provided an $85 billion loan to AIG. In return for the two-year loan, the government received warrants to buy up to 79.9 percent of AIG. This removed the threat of bankruptcy.
But last week, the New York Federal Reserve Bank announced an additional $37.8 billion in loans for the company.
In return for the loans, the bank will receive the securities that AIG now holds.
Originally, AIG had lent these securities to other companies in exchange for a fee. These companies are returning the securities and demanding their money back, which AIG doesn’t have readily available.
A New York Fed spokesman said the latest loan program set up for AIG is similar to lending arrangements the Fed provides to banks, which can also exchange collateral for cash.
Yet, as AIG’s problems worsened more than three weeks ago, A.M. Best, the Oldwick, N.J., company that provides financial-strength ratings for insurers and reinsurers, downgraded the parent company and most of its insurance subsidiaries to A (excellent) from A+ (superior).
The agency continues to have all the companies on its watch list with negative implications because it’s too soon to know if they will regain financial footing despite the Fed loans that have been extended.
AIG’s insurance companies have been taking pains to assure customers their operations are continuing.
Fausto Alvarez, a partner with HBA Insurance Group in Miami, said some of the AIG carriers his agency deals with have provided letters to agents explaining that the companies have the capital to pay claims and maintain sufficient reserves.
Alvarez said clients are willing to stick with AIG so far, “but I suspect other carriers might be ready to go after that business hard.”
For their part, agents are glad AIG continues to write policies because it has a significant presence in the commercial market in Florida. If it sharply curtailed the number of policies it wrote, or if it shut down entirely, rates could climb sharply as demand would outpace available coverage.
Florida’s Office of Insurance Regulation said it’s staying in close contact with regulators in states where AIG’s insurance units are based. Ed Domansky, an OIR spokesman, said that there’s no issue here for consumers to be concerned at this point regarding AIG.
Rick Hall, chief executive officer of ACC Insurance Brokers, a 17-year-old all-lines leading insurance agency in Miami, said it’s wise to continue to monitor the financial strength of these companies.
“AIG is everywhere [in this market]. If clients lost faith in their ability to provide property insurance, there could be a lot of chaos. That’s a good reason to support the bailout.”