AIG - Ring Fencing Insurance Companies

  • OTS Report - 7B Life Insurance to AIGFP
  • Dinallo / Governor
  • Kanjorski / Paulson - GOV 2010 01
  • Regulatory Forbearance

2008-09-13 - FRBNY Email re AIG Update - 1p

Dinallo outlined the same plan that AIG gave us earlier --- ie move muni's from P&C subs to parent, and parent send equity in life insurance subs to the P&C subs in return.

  • There are a number of multi-state regulatory hurtles to this, but Dinallo thinks it is possible to do.
  • Dinallo described P&C companies in NY and PA as having very large capital cushions, and so he thinks that they can accommodate this.
  • He also noted negative consequences in insurance markets in general if AIG goes down (ie cost of insurance is likely be much higher if they file) and negative consequencies in muni bond market if GICs default so regulatory forbearance can be justified politically.
  • They are very happy to speak with our experts (Elise and team) tomorrow with more details.
  • My impression is that while they are comfortable with the capital dilution at the P&C companies, they are less knowledgable and comfortable about the equity value of the life companies, so they have work to do on that front.

Starr v AIG - Case 1:11-cv-00779-TCW Document 281-1 Filed 08/22/14 Page 26/27 of 99 - 99p

10.3 The Credit Facility was fully secured by AIG’s assets.

  • (b) Bernanke: “The credit facility was fully secured by assets that AIG was able to pledge under the associated Guarantee and Pledge Agreement and that had an estimated value in excess of the maximum size of the credit facility” (PTX 561 at 5)
  • (e) Bernanke: “AIG had a very substantial business, a huge business, more than a trillion dollars in assets and a large insurance business that could be used as collateral to borrow the cash needed to meet Financial Products’ liquidity demands…the Federal Reserve will absolutely be paid back by AIG” (PTX 599 at 37).
    • “And so it was our assessment that they had plenty of collateral to repay our loan—because it was in a separate business that did have a lot of going-concern value and did have a lot of assets” (Id. at 60).