If AIG is solvent, why can't it pay back Uncle Sam?
AIG "has an $11 billion shortfall in reserves to pay property-casualty claims that may hinder efforts to repay the government": report
American International Group, the giant insurer bailed out by the Bush administration and kept afloat under Obama as it tries to sell assets and raise cash to pay back taxpayers, "has an $11 billion shortfall in reserves to pay property-casualty claims that may hinder efforts to repay the government," reports Bloomberg LP, citing a report by Sanford C. Bernstein Research analyst Todd Bault.
Bault called AIG's Chartis group, which includes National Union and other Pennsylvania Insurance Department-regulated businesses, "aggressive" in pricing workers' compensation, executive liability and other property and casualty policies. It will have to prove to state insurance regulators it can pay those claims before it will be able to pay back federal investments - but state filings show AIG will have to raise billions before that can happen, according to Bault. He cut his AIG price target today to $12, from $20.
PA Insurance Commissioner Joel Ario and his state-regulator peers have assured us AIG's insurance businesses are solvent, and carefully regulated, and they're not why the company is in trouble, here and here, for example. They say it was AIG's New York investment office, regulated by the federal Office of Thrift Supervision, not its insurance operations, regulated by Pennsylvania (property and casualty), Delaware (life and health), and other states, that lost all the money that brought federal intervention last year.
If AIG's now solvent, why can't it pay back Uncle Sam?