Friday, September 19, 2008

NAIC Confirms AIG will be able to pay claims 
I thought so.

Why are the insurers in a position to help out the financially challenged parent? 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 ongoing financial analysis of insurers, and on-site examinations.

How are the policyholders protected, in the unlikely event that the insurer fails? 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 funds. These funds are in place in all states. 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.

The NAIC, which is a consortium of state-level insurance commissioners, and which jealously guards its turf against the encroachment of federal regulators, gets in a subtle dig at the feds:

“The key distinction here is that AIG’s insurance subsidiaries did not cause this crisis — rather, they will play a critical role in the solution,” Praeger added. “Calls for federal regulation of insurance in light of these events are simply unable to be supported. State regulatory oversight has kept the AIG insurance subsidiaries solvent, despite the actions of its federally regulated parent and non-insurance entities. If future developments challenge that solvency, there are state insurance regulatory safeguards in place to protect policyholders.”

Current AIG policy holders and annuitants should be fine.

Just goes to show you: The stock jockeys and investment bankers get all the press on CNBC. But it's the insurance guys who are the adults at the dinner table.

Splash, out


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