Fighting for Solvency, AIG Gets a $20 Billion Hand From New York

NEW YORK, Sep 15, 2008 (A. M. Best via COMTEX) -- AIG | Quote | Chart | News | PowerRating -- The state of New York gave permission for American International Group Inc. to use $20 billion of its assets to use as collateral to borrow funds to maintain its daily operations, Gov. David Paterson said during a press conference.

?No taxpayer dollars are involved, and this is not a government bailout,? Paterson said. ?This simply allows AIG to provide a bridge loan to itself. ? What we are doing is accommodating that by providing the authorization to do it, which in New York is the law.?

Paterson said state Insurance Superintendent Eric Dinallo was meeting with Federal Reserve officials in New York as he spoke, to see what other assistance, including loans, could be provided to AIG (NYSE: AIG), which has been rocked by a loss of confidence that saw its share prices plummet since Sept. 12.

The stock, which sold for slightly more than $70 a share a year ago, was trading at less than $3.50 a share, more than 50% below the previous close, before Paterson began speaking at about 12:10 p.m. EST on Sept. 15. It had rebounded to more than $6 by 12:30 p.m., and shares were trading at $5.07 by midafternoon, down 58.24% from the previous close.

According to the A.M. Best Global Multiline Insurers Index, AIG?s stock has lost 79.18% of its value year-to-date.

Any collateralization of subsidiary assets proposed will undergo appropriate due diligence, Paterson said. He said that AIG is fundamentally sound, and that its current problems were caused by a lack of liquidity.

?We have seen some of the companies that have served as the bedrock of our economic system unraveling right before our eyes,? Paterson said. ?One of those companies is AIG. They still remain a financially sound company, with $1 trillion in assets and $77.9 billion in surplus capital. They have been dragged down buy the subprime crisis. Right now, they are having a liquidity crisis. ? This provides a mechanism to provide a market-based solution to free up $20 billion in what are now illiquid assets.?

Paterson said he sent Dinallo to meet with federal officials ?about the possibility of the federal government to be involved in some kind of arrangement ... to tide them over.?

?We urge the federal government to take action,? he said. ?We have laid the foundation.?

Referencing equity analyst speculation that AIG needed to sell assets and raise $40 billion in cash to survive, Paterson said, ?That?s what?s floating around in the media, that they need $40 billion.?

?It?s a concept,? he said. ?Is it a mark in the marketplace they?re trying to meet? Is that the actual number they need to meet, or are they being told there would be a lack of confidence if they don?t meet it? That?s what the superintendent and the feds are in discussion about right now -- what is that actual amount that they need? Certainly, I?m hoping by our actions today we are putting them in a place where consideration could be given either by the federal government or the federal government could influence other institutions.?

Paterson framed the action in terms of trying to save 8,500 AIG jobs in New York at risk, including 6,000 in New York City, in the wake of the anticipated job losses from the bankruptcy of investment bank Lehman Brothers, which was occurring as he spoke.

Efforts to reach AIG officials for comment were not immediately successful.

AIG?s newly named Chief Executive Officer Robert Willumstad had planned to announce a reorganization of the company?s structure, including the sale of assets, at an investors conference on Sept. 25. In August, AIG posted its third consecutive quarterly loss driven, by subprime-related write-downs, and said losses for the first half of the year totaled $13.16 billion.

AIG raised $20.3 billion earlier this year by selling debt and equity, and in a conference call to discuss second-quarter results, Willumstad declined to rule out a further capital raise (BestWire, Aug. 7, 2008).

Among AIG?s subsidiaries, according to the A.M. Best Co. Credit Report, are International Lease Finance, the international market leader in the leasing and remarketing of advanced technology commercial jet aircraft to airlines around the world and fleet management services; AIG Financial Products Corp., which engages in various commodity and foreign exchange trading; AIG Consumer Finance Group Inc. which provides a wide variety of consumer finance products; AIG Retirement Services, Inc. (AIG Sun America); and the AIG Advisor Group broker dealers and AIG Global Investment Group.

According to the Best report, AIG?s top five direct premium writings by state in 2007 were California, 13.7%; New York, 9.2%; Florida, 6.6%; Texas, 6.5%; and Illinois, 5.7%.

The report says that in 2007, the lines providing AIG?s highest percentage of net premium written were workers' compensation, 17.8%; other liability, occurrence, 15.8%; other liability, claims made, 13.6%; private passenger auto liability, 8.4%; and auto physical, 5.6%.

American International Group currently has a Best?s Financial Strength Rating of A+ (Superior).

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)

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