Good going, government! Looks like AIG must still owe billions to Goldman Sachs, so expect another bailout, because Goldman Sachs must be paid for the good of the nation!!! After Rescue, New Weakness Seen at A.I.G http://www.nytimes.com/2009/07/31/business/31aig.html?_r=1&hpw By MARY WILLIAMS WALSH Published: July 30, 2009 The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows. Over time, the weaknesses could mean trouble for A.I.G.âs policyholders, and they raise difficult questions for regulators, who normally step in when an insurer gets into trouble. State commissioners are supposed to keep insurers from writing new policies if in doubt that they can cover their claims. But in A.I.G.âs case, regulators are eager for the insurers to keep writing new business, because they see it as the best hope of paying back taxpayers. In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound â that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives. But state regulatory filings offer a different picture. They show that A.I.G.âs individual insurance companies have been doing an unusual volume of business with each other for many years â investing in each otherâs stocks; borrowing from each otherâs investment portfolios; and guaranteeing each otherâs insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect. More ominously, many of A.I.G.âs insurance companies have reduced their own exposure by sending their risks to other companies, often under the same A.I.G. umbrella. Echoing state regulatorsâ statements, the company said the interdependency of its businesses posed no problem and strongly disputed that any units had obligations they could not pay. âThere is absolutely no concern about the capital in these companies,â said Rob Schimek, the chief financial officer of A.I.G.âs property and casualty insurance business. The company authorized him to speak about these issues. Nothing is wrong with spreading risks to other companies, a practice known as reinsurance, when it is carried out with unrelated, solvent companies. It can also be acceptable in small amounts between related companies. But A.I.G.âs companies have reinsured each other to such a large extent, experts say, that now billions of dollars worth of risks may have ended up at related companies that lack the means to cover them. âAn organization like this one relies on constant, ever-growing premium volume, so it can cover and pay for the deficits,â said W. O. Myrick, a retired chief insurance examiner for Louisiana. If A.I.G.âs incoming premiums shrink, he warned, âthe whole thingâs going to collapse in on itself.â Mr. Myrick has not fully examined all the A.I.G. subsidiaries but said his own recent review of many state filings raised serious concerns, particularly about the use of reinsurance to âbounce things around inside the holding company group.â âThat is a method used by holding companies to falsify the liabilities,â he said. A.I.G.âs premiums have, in fact, been declining in important lines. Its ratings have fallen, and customers tend to steer clear of lower-rated insurers. To woo them back, A.I.G. has in some cases lowered its prices, competitors say. A.I.G. executives insist they would rather lose a customer than drive down prices dangerously. A.I.G. has also pledged a share of its life insurance premiums to the Fed, to pay back about $8 billion. Details have not been provided, but consumer advocates say it is not clear how the life companies will pay future claims if their premiums are diverted. âEventually, thereâs going to be a battle between the policyholders and the feds,â said Thomas D. Gober, a former insurance examiner who now has his own forensic accounting firm that specializes in insurance fraud. âThe Fed is going to say, âWe want our money back,â but the law says, âPolicyholders come first.â Itâs going to be ugly.â Mr. Gober is a consultant for a lawsuit on behalf of A.I.G. policyholders, filed in California Superior Court in Los Angeles. The lawsuit seeks a court order requiring all A.I.G. subsidiaries doing business in California to put enough money to cover their obligations into a secure account controlled by the state treasurer. The goal is to keep money from being moved out of California or used to finance A.I.G.âs other activities, said Maria C. Severson, a lawyer for the plaintiffs. The lawsuit also seeks to bar A.I.G. companies from soliciting new business without full disclosure of their financial condition. The condition of A.I.G.âs individual companies is hard to see in the parent companyâs filings with the Securities and Exchange Commission. Those filings simply tally all the individual subsidiariesâ financial information. The companiesâ weaknesses emerge in their filings with state insurance regulators â particularly when several are reviewed together. But that appears not to happen often, because there are so many. A.I.G. has more than 4,000 units in more than 100 countries. Responsibility for A.I.G.âs 71 American insurance companies is spread among 19 state insurance commissions, which do not conduct examinations simultaneously. As a result, Mr. Myrick said, a conglomerate like A.I.G. âcan keep moving assets around to clean up one companyâ at a time, when examiners were looking. He said that it would take a coordinated, multistate examination of all the insurance companies to catch this. Mr. Schimek, speaking for the insurance companies, said that in 2005, a team of examiners had at least considered A.I.G.âs property and casualty businesses as a group. âIt was a thorough examination,â he said. âI have absolutely no concern about the integrity of the financial information thatâs been filed.â State regulators confirmed that they believed the A.I.G. subsidiaries under their authority were solvent. Mike Moriarty, deputy insurance superintendent for New York State, said that while A.I.G. subsidiaries did not report all their reinsured obligations on their balances sheets, state regulators could âfollow the trail of liabilitiesâ and make sure they did not get lost in the holding company. Obligations âcanât be hidden from state insurance regulators,â Mr. Moriarty said. One A.I.G. subsidiary, the National Union Fire Insurance Company of Pittsburgh, shows what can happen by heavily relying on affiliates. Its most recent regulatory filing in Pennsylvania said it had more than enough money to pay its obligations. But at the end of 2008, more than a third of National Unionâs portfolio was invested in the stock of other A.I.G. companies, which are not publicly traded. National Union might not be able to sell all of these shares, and it is not clear what it could get for them. Many states bar insurers from investing that heavily in related companies. Meanwhile, National Union has $42.1 billion in obligations looming off its balance sheet. These have been transferred to 56 other A.I.G. companies, through reinsurance. National Union will have to pay any of these claims and then collect from its relatives. But it is not clear that the affiliates could pay promptly. National Unionâs biggest reinsurance partner is American Home Assurance, an A.I.G. subsidiary that has taken $23.1 billion of obligations off National Unionâs hands. In a New York filing, American Home reports total assets of $26.3 billion, but part of that consists of assets that cannot be used to pay claims, like furniture. It too includes a number of investments in other A.I.G. companies. In addition, American Home has âunconditionallyâ guaranteed the obligations of 16 other A.I.G. subsidiaries, bringing the total it might have to pay to $140.6 billion. Normally, when an insurance company weakens, regulators in its home state will first measure its capital. They may demand a weak company rebuild its capital, and if it fails, eventually bar it from selling new policies. Like New York regulators, Pennsylvania regulators say they do not see a problem. âThe insurance companies remain strong and are probably the most valuable assets within the A.I.G. structure,â said Joel Ario, Pennsylvaniaâs insurance commissioner. âTo the best we know it, we think the companies are sound.â But policyholder advocates said they feared state regulators were deferring to the wishes of the Fed and Treasury, to use the insurance operations to pay back the taxpayers. âThe insurance commissioners, for whatever reason, are letting them do this,â Mr. Myrick said. âIâd be jumping out of my shoes.â
AIG needs to go to court and try to prove the Derivatives sold and then hedged by GS were based on tranches peppered with fraudulent no verification mortgages. No payoffs for fraud. Let the GS shareholders shoulder the cost for fraud.
Why bother putting a link in your post if you are going to copy/paste the entire article? Or rather, why copy/paste the ENTIRE article if you are going to include a link to the article?
Aig collected premium to insure risk, and they made a mistake, pretty much end of story, shit happens. Looks like an oxymoron, how can you have fraud if you don't verify anything?