AIG - Securities Lending - Insurance Regulators

  • (18) - Baxter: When you look at what happened with AIG’s securities borrowing program, in a nutshell, AIG's insurance companies held Treasury securities, which they lent out for cash.
    • Then they used that cash to buy MBS, knowing that in the future they would have to sell the MBS to then redeem their Treasuries.
      • No supervisor stepped up and said, "Wait a minute. You're making a play for yield, you're putting yourself at risk of being illiquid," which is exactly what happened.
    • But we didn’t feel free to discuss this supervisory failure.
      • We felt freer to talk about Financial Products.
    • If you're a federal official and it looks like you're being critical of the state official, that can be a bad position to be in. 

2018 1120 - Lessons Learned Oral History Project Interview: Thomas Baxter - 19p

  • (p9) - Susan Voss: And perhaps the greatest single source of concern for the insurance regulators during the financial crisis was securities lending activities by AIG. 
    • Commissioner, Iowa Insurance Division, and President, National Association of Insurance Commissioners (NAIC), on behalf of NAIC

2011 0728 and 1025 - GOV (House) - Insurance Oversight: Policy Implications for U.S. Consumers, Businesses and Jobs - Part 1 (2011 0728), Part 2 (2011 1025), Judy Biggert (R-IL) - [PDF-285p, VIDEO-?]

  • Eric Dinallo - New York
  • Terri Vaughan - CEO NAIC / Iowa
  • Michael Mcraith - Illinois
    • Insurance and Systemic Risk - [PDF-181p, VIDEO-CSPAN]
  • Sandy Praeger
    • Kansas Insurance Commissioner
    • 2008 - NAIC President
  • Doug Slape - Texas - AIG Lead Regulator
  • content.naic.org/sites/default/files/capital-markets-primer-securities-lending.pdf
    • While this insurer is most known for significant losses that occurred within its credit default swap (CDS) program, the onset of an overwhelming demand for returned cash by its securities lending counterparties compounded the insurer’s liquidity constraints.
  • 1:08-cv-05722 - American International Group, Inc. ERISA Litigation II
    • 2012 - Document 137 - Consolidated Second Amended Complaint - 230p
  • 2008 1010 - WSJ - AIG Increases Borrowings While Racing to Sell Assets, By Liam Pleven, Carrick Mollenkamp and Craig Karmin -  Oct. 10, 2008 - [link]
    • Securities Lending
    • 2009 0305 - GOV - Perspectives on Systemic Risk
  • As early as July 2006, we were engaged in discussions about the securities lending program with AIG.
  • In 2007, we began working with the company to start winding down the program.

2010 0526 - COP - Testimony - Michael Moriarty, Deputy Superintendent of the New York State Insurance Department - 7p

  • In December 2006, AIG’s lead state insurance regulator for the company’s domestic life insurers (“lead life insurance regulator”) began a routine examination of AIG in coordination with several other state regulators.19
    • During the examination, the state regulators identified issues related to the company’s securities lending program.
    • Prior to mid-2007, state regulators had not identified losses in the securities lending program, and the lead life insurance regulator had reviewed the program without major concerns.

2011 09 - GAO - Review of Federal Reserve System Financial Assistance to American International Group, Inc - 152p

  • 2008 0721 - Circular Letter No. 16 (2008) - [link]
  • TO: All Authorized Insurers, RE: Securities Lending
  • STATUTORY REFERENCE: N.Y. Insurance Law §§ 201, 301, 1409 and 1411
    • It has come to the Department's attention that some insurers engaged in securities lending activity have experienced significant losses in the last six to twelve months.
      • Specifically, cash received as collateral was reinvested into securities whose value has significantly declined.
      • As we see increased volumes in securities lending activity, we are concerned that some insurers may not be maintaining adequate collateral and effectively managing the risks associated with the securities lending function.