Regulators - AIG - FCIC

  • YPFS: Since AIG is an insurance company, what was the role of the insurance regulators and their interaction with the Fed during this time?
  • Baxter: Part of the reason some people were not comfortable that the Trust owned 80% of AIG was because the investment could be subject to the jurisdiction of state insurance supervisors.
    • We worked with multiple state insurance supervisors and their national organization, the National Association of Insurance Commissioners (NAIC).
    • From the perspective of a federal supervisor, you are working with a collection of state insurance commissioners with very different financial support and very different capabilities.
    • With that understood, the insurance commissioners have significant political power.
    • That combination is one of the complicating factors for AIG and this became an issue with respect to the Trust.
    • ...................
    • The insurance commissioners really didn't help the rescue of AIG, but they didn't harm it either.

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

2008 0913 - FCIC - FRB email (Mosser) - SB-AIG-35651 - 1p

  • AIG has put together a term sheet for NYSID , which they will be discussing this evening.
  • The term sheet would outline all pieces of liquidity plan, and plans for debt and equity injections, plans for asset sales as well as regulatory forebearance to move assets from subs to parent.
  • NYSID: 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.