AIG INSURANCE UNITS SHOW VULNERABILITY, REPORT SAYS

Troubled insurer AIG’s insurance operating units are showing “signs of considerable weakness” even after the holding benefitted from the largest corporate bailout in history, the New York Times has reported following a review of state regulatory filings. While state regulators have said that AIG’s core operations remain sound, the AIG companies’ filings show that they have been doing large volumes of business with each other for years, often reducing their own exposure by passing it on to other AIG units. Filings also show that AIG units have borrowed from each other’s investment portfolios and guaranteed each other’s policies. “An organization like this relies on constant, ever-growing premium volume, so it can cover and pay for the deficits”, former Louisiana insurance examiner WO Myrick told the Times. If those premiums start to fall, “the whole thing’s going to collapse in on itself”, he said. Mr Myrick said that he was particularly concerned about AIG’s use of reinsurance to “bounce things around inside the holding company group. That is a method used by holding companies to falsify the liabilities”.