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AIG worries continue


eggbriar
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Here is additional insight on AIG from the NYTimes:

 

http://www.nytimes.com/2009/07/31/business/31aig.html?pagewanted=1&hp

 

"But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.

 

More ominously, many of A.I.G.’s insurance companies have reduced their own exposure by sending their risks to other companies, often under the same A.I.G. umbrella."

 

 

“An organization like this one relies on constant, ever-growing premium volume, so it can cover and pay for the deficits,” said W. O. Myrick, a retired chief insurance examiner for Louisiana.

 

If A.I.G.’s incoming premiums shrink, he warned, “the whole thing’s going to collapse in on itself.”

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Lot of red flags:

 

Despite the fed takeover, they're still keeping reinsurance risk within the group (from one sub to another) ? Either the risk was so toxic for the price, that industry refused it (so they had to do it amongst themselves) - or no-one is looking at the consildated group risk (its only individuals within each sub looking at only their sub).

 

The fed invests 130BB+ and isn't aware they its behind, & not ahead of policy holders ? Or is it more likely that at the operating level AIG's UWs haven't been told that the fed has an override - so they believe they have to write, because they need the premium ?

 

AIGs UW risk has to be rising dramatically - as they're writing for additional premium, and don't seem to be able to reinsure much of it. Assume reinsurance where-ever practical, & their book can only contain a material & growing slug of really low quality business. The securitiation issue again, but this time with insurance vs Alt-A & liar loans ?

 

A super-cat loss doesn't have to be weather related, it could also be the collapse of significant UW capacity - & arguably the risk that AIG is increasingly representing. We know that WEB has been withdrawing from super-cat because the premium doesn't warrant the risk - perhaps this is part of the reason?

 

It cant be easy running AIG, so lapses is corporate wide risk management & communication are to be expected.

Hopefully they can fix it before it blows up.

 

SD

 

 

 

 

 

 

 

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The Fed should hire Dennis Gibbs.  He's shown his mettle in operating run-off.  He's run out of things to do at Fairfax. 

 

The poor US taxpayer is not done paying for AIG...$160BB and counting.  With Buffett and others withdrawing from the marketplace for pricing, it's inevitable that AIG will consume more capital destroy more wealth.  Unfortunately, the public purse may not know when it should exit because it's play way outside of its circle of competence.

 

-O

 

 

Lot of red flags:

 

Despite the fed takeover, they're still keeping reinsurance risk within the group (from one sub to another) ? Either the risk was so toxic for the price, that industry refused it (so they had to do it amongst themselves) - or no-one is looking at the consildated group risk (its only individuals within each sub looking at only their sub).

 

The fed invests 130BB+ and isn't aware they its behind, & not ahead of policy holders ? Or is it more likely that at the operating level AIG's UWs haven't been told that the fed has an override - so they believe they have to write, because they need the premium ?

 

AIGs UW risk has to be rising dramatically - as they're writing for additional premium, and don't seem to be able to reinsure much of it. Assume reinsurance where-ever practical, & their book can only contain a material & growing slug of really low quality business. The securitiation issue again, but this time with insurance vs Alt-A & liar loans ?

 

A super-cat loss doesn't have to be weather related, it could also be the collapse of significant UW capacity - & arguably the risk that AIG is increasingly representing. We know that WEB has been withdrawing from super-cat because the premium doesn't warrant the risk - perhaps this is part of the reason?

 

It cant be easy running AIG, so lapses is corporate wide risk management & communication are to be expected.

Hopefully they can fix it before it blows up.

 

SD

 

 

 

 

 

 

 

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