AIG Insurers Able to Pay Claims

State Solvency Standards Protect Policyholders

In the wake of news that the non-insurance parent company of American International Group (AIG) is facing a financial crisis, Massachusetts Insurance Commissioner Nonnie S. Burnes issued the following statement:

The insurance company subsidiaries of AIG are solvent and able to pay their obligations. At this time, these companies are able to pay claims as presented to them.

State insurance regulators quickly mobilized to ensure that policyholders of the insurance subsidiaries remained protected. This oversight will continue as AIG operates under the credit facility offered by the Federal Reserve. The National Association of Insurance Commissioners (NAIC) has established a working group to oversee AIG insurance interests in this financial situation and to coordinate with federal regulators as needed. I will participate with this group, as necessary, to protect Massachusetts policyholders.

State insurance regulators have numerous actions they can take to prevent an insurer from failing. Rating downgrades and drops in share price do not change an insurer’s ability to pay claims. From conservative accounting rules and mandatory annual CPA audits to investment regulations/limitations and minimum capital/surplus requirements, a state insurance regulator’s “toolbox” allows insurers to handle greater losses than other parts of the financial sector in down-market cycles. Additional regulatory tools include performing regular, periodic financial analysis of insurers, and on-site examinations.

In the unlikely event that the insurer fails, there are still protections for policyholders. Claims from individual policyholders are given the utmost priority over other creditors in these matters — and, in the unlikely event that assets are not enough to cover these claims, there is still another safety net in place to protect consumers: the state guaranty fund. If an insurance company becomes unable to pay claims, the guaranty fund will provide coverage, subject to certain limits, similar to the FDIC's coverage for bank accounts.