Carolyn Maloney

  • Carolyn Maloney 
    • 1993-2023 - US Congress
      • Chair of the Joint Economic Committee (JEC) - October 28, 2009

2009 1120 - Letter - NAIC to GOV (Carolyn B. Maloney, Chair Joint Economic Committee) - 1p

We are writing to correct a misstatement by Treasury Secretary Timothy Geithner at the Joint Economic Committee’s November 19, 2009 hearing, titled “Financial Regulatory Reform: Protecting Taxpayers and the Economy.”

  • Secretary Geithner asserted that the reason for the federal government’s bailout of AIG was a fear that AIG might not have been able to pay claims to its insurance policyholders.
    • That flies counter to the Treasury Department’s long-held assertion that the bailout was needed to prevent financial loss to AIG’s counterparties in its credit default swap (CDS) transactions.
  • It also belies the facts.
    • AIG’s state-regulated insurance subsidiaries were, and still are, safe and solvent.
    • Money to pay policyholders was protected from being used for other purposes, and was never at risk.
    • That is because of to state insurance regulators’ ability to “ring fence” solvent insurance entities of a group to shield them from the parent’s corporate losses or bankruptcy in order to protect consumers.
  • This change in rationale by Secretary Geithner is confusing at best, misleading at worst.
  • Carolyn MALONEY (D-NY)  How are the insurance businesses of AIG segregated from the AIG Financial Products?
  • Joel ARIO (NAIC /PA - Insurance Commissioner).  Within insurance regulation, there is the strong principle that the assets that are there for the benefit of policyholders are walled off from all other creditors of the company, including the holding company upstream.
    • So we believe that the assets of the insurance companies are there for the policyholders and they are protected against all other creditors, including the holding company upstream.
  • Mrs. MALONEY. So in other words, the risk of default in the life insurance business of AIG is separate from the cross-linked risk of being associated with and dragged down by AIG Financial Products, is that correct?
  • Mr. ARIO. It is a slightly different question.
    • If there are problems at the holding company level, particularly in terms of the rating of the companies, that can create rating issues for the downstream insurance companies, and that is a particularly important issue in the property and casualty side.
    • If we are going below the A minus level that we are at now into the Bs, it would have very negative impacts on the insurance company.
      • So there is that linkage.
  • Mrs. MALONEY. But the linkage is only with the rating companies.
    • In other words, they are walled off, they are separate.
    • So what would happen if AIG Financial Products was allowed to fail?
      • Would that have an impact on the insurance properties and the insurance assets of AIG?
  • Mr. ARIO. Not directly on the assets.
    • That is more a question for how the rating agencies would look at that issue for the insurance companies.
  • Mrs. MALONEY. The rating agencies do not have a lot of credibility at this point, so I would rather ask the insurance commissioner. It is my question.
    • So if Financial Products was walled off and allowed to fail, the insurance portion would be safe and sound, and going forward, is that correct?
  • Mr. ARIO. Yes, the assets would be there and would be protected.  (p48)
  • Mrs. MALONEY. Thank you. 

2009 0318 - GOV (House) - American International Group’s Impact On The Global Economy: Before, During, And After Federal Intervention, Federal Aid to AIG Insurance, Regulators Panel (CSPAN), Paul Kanjorski (D-PA)  ---  [BonkNote]