Risk Management Blog - ClearRisk

AIG Bailout

Posted by Craig Rowe on Tue, Mar 3, 2009 @ 14:03 PM

There is a lot of discussion about the AIG Bailout, so I want to throw my thoughts out for consideration. There’s debate about saving failing companies in general be they banks, automakers or insurers, so if you feel like former GOP Presidential candidate Ron Paul does, that none should be bailed out then I guess my opinion will be dismissed. I know they are bigger and more diverse than the insurance subsidiary, but I will keep my comments related to AIGs insurance operations.

The way I see it there are two issues: 1. There has been so much money pumped into them already that it’s too late to let them fail; 2. The potential fallout of a collapse of the worlds largest insurer is far too risky.

On the first point, I have been asked recently if I would keep my insurance with AIG (if I had any there, which I don’t). My answer was yes, primarily because of this point. How can the American Government let them fail after putting $120 Billion into them? They can’t. Therefore, this is probably the safest insurer out there.

On the second, what would happen if they fail? AIG has 74 million insurance policies globally. What if all of the companies insured by AIG couldn’t keep their bank loans because they aren’t insured? What if all the companies with outstanding claims, didn’t get paid? What if all the companies that do business with AIG didn’t get paid and lost the receivables and AIG as a customer going forward? What if it severely damaged the reinsurance industry where a small handful of companies globally insure most of the risk undertaken by all of the primary insurers that we all deal with? What if it was the first domino in a long line of insurer collapses?

I don’t know the answers, but the questions themselves are scary!

Topics: economic downturn, strategies for recession, recession