By DAN REYNOLDS, senior editor of Risk & Insurance®
American International Group Inc., parent company of the largest of the U.S.-based commercial insurance carriers, reported on Monday a record loss and a major restructuring that is marked by continued aid from the U.S. government.
Citing what it characterized as "severe credit market deterioration", particularly in commercial mortgage-backed securities; AIG reported a net loss for the fourth quarter of 2008 of $61.7 billion and a net loss for all of 2008 of $99.29 billion, both of which are record losses for the company.
The restructuring and market disruption-related charges that AIG reported included $21 billion for tax benefits not obtained for losses in the fourth quarter.
AIG also announced Monday morning that it is forming a new commercial insurance unit headed by Kristian Moore, the current president and CEO of the AIG Property Casualty Group. To be known as AIU Holdings Inc. the new unit will be comprised of AIG's Commercial Insurance Group, its Foreign General Unit, and what the company described as "other property and casualty operations."
John Doyle, currently the president and CEO of AIG Commercial Insurance, will assist in the formation of AIU Holdings by taking over responsibility for the Domestic Personal Lines division, the company announced.
"AIG is executing one of the most extensive corporate restructuring programs in history," said Edward Liddy, AIG's chairman and chief executive officer since September.
In a continuing effort to stabilize AIG's liquidity, the U.S. Treasury and Federal Reserve announced on Monday that it was providing AIG with an additional $30 billion, five-year equity capital facility.
But Liddy stressed that the $30 billion that the government is making available to AIG is not a cash infusion and that the company is not burning through cash, despite its massive mark-to-market losses.
"I can't emphasize enough we need no new cash right now. This is a backup facility that will enhance the prospects for us enacting the restructuring that we are working on," Liddy said.
Liddy said the company still has access to $20 billion of a $60 billion credit facility the government made available to it earlier.
"The balance on that outstanding government facility has been in the $36 billion to $38 billion range now for the better part of eight, 10 or 12 weeks, indicating that our liquidity issue has in fact been stabilized," Liddy said.
Additional debt-reduction measures announced on Monday include the creation of two special purpose vehicles that will house assets of AIG's life insurance companies, the American International Assurance Co. and American Life Insurance Co. The vehicle will allow the Federal Reserve Bank of New York to receive preferred interest payments based on the value of those companies.
The special purpose vehicles will also allow AIG to reduce by $26 billion the amount it owes the Federal Reserve Bank of New York for previous loans provided in the effort to keep the company solvent. Although the divestiture of some of AIG's operations remains a possibility as the company seeks to raise capital, the severe global economic downturn is also impacting that effort, the company said on Monday.
"The very same global forces that we face have greatly diminished the ability of qualified buyers to raise the capital necessary to buy AIG's businesses right now," said Paula Rosput Reynolds, AIG's vice chairwoman and Head of Restructuring.
The U.S. Treasury and the Federal Reserve issued a press release on Monday that stated in part: "The U.S. government is committed to continuing to work with AIG to maintain its ability to meet its obligations as they come due."
INSURANCE DOWN IN Q4
To go along with the battering it has taken from the investment decisions that brought it to the brink of dissolution, AIG reported on Monday substantial decreases in the volume of its fourth-quarter General Insurance operations. Net premiums written in the fourth quarter in General Insurance were down 16.3 percent compared to the fourth quarter of 2007.
For the year, AIG recorded a net reduction in premiums written in general insurance of 3.9 percent. Net premiums written in that category totaled $47.06 billion in all of 2007, compared with $45.23 billion in all of 2008.
AIG's operating loss for 2008 was $5.7 billion, compared with an operating profit of $10.52 billion in 2007.
Commercial Insurance reported a reduction in net premiums written for the fourth quarter of 22.1 percent. In that respect, the company appeared to be impacted by the deteriorating global economy as it counted a "significant reduction" in workers' compensation premiums, as well as changes in the structure of its catastrophic reinsurance programs.
AIG reported Monday that it believes rates across all of its lines are stabilizing so far in 2009. The company reports that rates are flat so far in 2009, compared with what it characterized as a decline in rates for the fourth quarter of 6.5 percent.
March 2, 2009
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