AIG - Run

  • (p152) -  iv. Would Bankruptcy Have Been as Bad as the Government Claims?
    • 585 The events of the Great Depression are a useful comparison.
      • There were two financial holidays in 1933: the first was a full banking holiday that shut down every bank in the United States for 10 days and ushered in sweeping changes in banking regulation, and the second was a partial life insurance holiday that suspended the payment of cash surrender values and the granting of policy loans for a period of roughly six months.
      • During the Great Depression, insurance policyholders substantially accelerated the rate at which they drew on the savings and credit features of their life insurance contracts, and with the banks closed or allowing withdrawals on only a restricted basis, individuals turned to their life insurance for cash.
      • These circumstances caused the insurance companies, like the banks, to face the possibility of a run that would force them into failure. 

2010 0610 - COP - Report - The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy, Congressional Oversight Panel  ---  [BonkNote]  ---  337p

  • Tim Geithner:
    • They had written a huge amount of contracts.
    • They would have the classic retail insurance panic…

2009 1117 - FCIC - Hearing - Transcript of Financial Crisis Inquiry Commission - Closed Session With Timothy Geithner, Secretary of the Treasury - 50p

  • 2008 0916 - Reuters - Worried Singaporeans Rush to Redeem AIG Policies - [link]
  • 2008 0917 - Time Magazine - AIG Bailout Spooks Customers Around the World - [link]
  • 2008 0918 - Taiwan News - AIG's roots run deep in Asia Asian subsidiaries try to calm fears in founding region and vital market - [link]
    • People queue outside an AIA office in Singapore's main business district yesterday. AIA is a subsidiary of American Insurance Group. - Picture
  • 2021 - YPFS Lessons Learned Oral History Project: An Interview with Eric Dinallo - 19p
    • (p17-18) - Eric Dinallo (to Tim Geithner):
    • If you file for bankruptcy at the holding company level...
    • Some states may even require by law … that the states will seize the operating companies, because the holding company filed for bankruptcy.
    • They're going to pull up the drawbridge, and go into castle mode.
    • Then you're going to have a run on insurance companies.
  • 2008 0913 - FCIC - FRB (Brian Peters/NY/FRS) -FRBNYAIG00510 - 2p
    • They are also large issuers of annuities and have $11B of contingent exposure in their domestic retirement services business.
    • These are retail but run by large sponsors who could encourage accounts to put back the annuities in exchange for cash if they lose confidence in AIG.
    • These sponsors are U.S. banks who have exposure elsewhere.
    • This could be on top of the $18B payout above.
    • They have similar exposures in Japan but could not quantify the size.
  • 2008 0915 - FCIC - FRB - (Alexander J Psomas) - FCIC-AIG0020S00 - 1p
    • AIG is a $1 trillion asset global retail distributor of insurance products.
    • The company has a iconic franchise with over 300 legally separate distribution channels, most of which use the Flagship name.
    • Slightly more than half of operations reside in the US and the remainder overseas.
    • The firm has been a trusted name in millions of households for many decades, and has noteworthy historical presence in Asia.
    • Within the wholesale arena, the firm has noteworthy exposures to large European banks, many using insurance vehicles to facilitate regulatory capital relief.
    • The size, name, franchise and market presence (wholesale and retail) raise questions about potential worldwide contagion, should this franchise become impaired.
  • 2008 0916 - FCIC - FRB - Systemic Impact of AIG Bankruptcy attachment to FRBNY -  internal email from Alejandro LaTorre to Geithner - FCIC-SSI0007443 - 3p
    • Filing at holding co. level may, however, cause liquidity stresses at the insurance subsidiary level because of exposures to affiliates, and / or runs because of name aversion (risk of run mainly at the life insurance subsidiaries).
  • Beginning in March 2009, the Federal Reserve and Treasury publicly raised concerns that a sudden loss of AIG insurance capacity could have severely disrupted the market, potentially creating a market capacity shortage and significant premium increases for consumers, businesses, and financial institutions.
  • They also feared a run driven by a substantial influx of life insurance policyholders either drawing on the savings and credit features of their policies or surrendering their policies entirely, especially since some such “runs” were seen in foreign jurisdictions.520  (p134)

2010 0610 - COP - Report - The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy - 337p

  • 520 E-mail from Alejandro LaTorre, assistant vice president, Federal Reserve Bank of New York, to Timothy F. Geithner, president and chief executive officer, Federal Reserve Bank of New York and other FRBNY personnel (Sept. 16, 2008) (FRBNY AIG00483-486 <WishList>); FRBNY and Treasury briefing with Panel and Panel staff (May 11, 2010); FRBNY and Treasury briefing with Panel and Panel staff (Apr. 12, 2010).
    • Policymakers have pointed out that some runs were seen in foreign jurisdictions.
  • According to press reports, insurance policyholders in Singapore, Taiwan, Thailand, Vietnam, and Hong Kong sought to terminate their insurance policies with two of AIG‟s insurance subsidiaries (AIA and Nan Shan Life Insurance) after learning of AIG‟s financial troubles and despite the Federal Reserve‟s $85 billion rescue.
    • See, e.g., Hundreds of AIG Policyholders Throng Asian Offices, Agence France Presse (Sept. 17, 2008) - [link]
  • Examples of such disbelief include the run on Bank of East Asia in Hong Kong, China fueled by groundless rumors of overexposure to Lehman and AIG, and the run on AIG offices by worried policyholders in Singapore.
  • This suggests that the biggest negative effect of the global financial turmoil on Asia up to now may be the loss of confidence in the financial system.  (p68)

2008 12 - Asian Development Bank (ADB) - The US Financial Crisis, Global Financial Turmoil, and Developing Asia: Is the Era of High Growth at an End? - 85p

Skepticism about the bailout has since abated somewhat in light of a March 2009 New York Times article based on a confidential twenty-one-page document prepared for regulators by AIG entitled A.I.G.: Is the Risk Systemic?244 

  1. The article notes that AIG’s insurance subsidiaries have issued 375 million policies in the U.S. with a face value of $19 trillion.245

The article explains:

  • If policyholders lost faith in A.I.G. and rushed to cash in their policies all at once, the entire insurance industry could falter.
  • A "run on the bank" in the life and retirement business would have sweeping impacts across the economy in the U.S. according to the A.I.G. document.

In countries around the world with higher savings rates than in the U.S., the failure of insurance companies would be a catastrophe.

244. Andrew Ross Sorkin, The Case for a Giant, by a Giant., N.Y. TIMES, Mar. 3, 2009, at B1. 245. Id. - [link],

2009 - LR - The AIG Bailout, William K. Sjostrom, Jr. - 49p

  • 2010 0526 - COP - Hearing - TARP and Other Government Assistance for AIG - [PDF-241p]
    • Mr. CLARK (Managing Director, Ratings Services, Standard & Poor's)
      • Certain areas of insurance are more confidence-sensitive than others.
      • When you look at some of AIG’s businesses that were high net worth life insurance and annuities, those are very confidence-sensitive, vulnerable to runs on the bank in a severe stress.