The AIG Auto Insurance Meltdown: The Importance of Assessing the Financial Strength of Your Car Insurance Company

Posted & filed under Advice & How-to, Car Insurance, economy.

The public is outraged at AIG because it awarded its top executives over $165,000,000 in bonuses during the government bailout.

Besides selling off the AIG auto insurance division, AIG has also sold several other divisions – and plans to continue selling in order to pay back more than $170,000,000,000 in governmental loans.

A short year before international headlines read: Farmers Insurance Acquires AIG Personal Auto Group, the vast majority of financial analysts on the planet would have laughed at the concept. It would have seemed far too bizarre to conceptualize one of the most powerful financial institutions in the world crumbling to the brink of financial doom; losing stability to the point where only a massive government takeover (aka “bailout”) could sustain it.

Fast facts about what really happened to AIG auto insurance:

  • Largely due to excessive amounts of Credit Default Swaps (CDS’s), AIG was brought to the edge of bankruptcy;
  • AIG was awarded more than $173.3 billion in bailout monies – and now the government is turning up the collection heat;
  • AIG is selling off different divisions of its overall entity;
  • AIG wants desperately to maintain face in the eyes of the public – the same public they still owe more than $45 billion to;
  • Zurich Financial Services (Swiss) purchased American International Group’s (AIG’s) US-based automobile insurance division;
  • The total amount paid was $1.9 billion: $1.5 billion in cash and $400 million in Euro capital notes which are backed-up by Zurich;
  • AIG has also sold its Retail Public Bank Co. Ltd., AIG Card, HSB, Unibanco and the AIG Financial Products Corporation;

Why the public is so outraged at AIG:

In a nutshell, AIG paid its top executives bonuses that totaled more than $165,000,000 – while simultaneously taking billions of dollars in taxpayers’ money during the government bailout.
In response, Rep. Carolyn Maloney (D- NY) and Senate Banking Committee Chairman, Chris Dodd (D-Conn) are attempting to develop a plan that places a 100% tax on those bonuses. Dodd stated, “You can write a tax provision targeted specifically at 98 percent of the taxable proceeds.” He adds, “This could happen fast. We could write this tomorrow.”

Carolyn Malonely, Chair of the Joint Economic Committee, has introduced a specific legislation that commands the IRS and United States Treasury Department to develop “guidelines that tax at 100 percent any bonus compensation that is not directly related to a commission for any recipient of TARP funds where the government is the majority owner of the company.” She states, “For a company that has required $170 billion in U.S. taxpayer assistance and is 80 percent owned by the United States government, this is clearly unacceptable.” Dodd and Maloney both plan to schedule hearings that delve further into the AIG bonuses.

What this means to you:

If a seemingly unshakable company like AIG Auto Insurance can disappear overnight, it just shows that you need to pay close attention while assessing the financial strength of your car insurance company. And while it’s impossible to really know what will happen in the future with any company, arming yourself with knowledge, and being a thorough comparison shopper, can greatly enhance your probabilities for a successful and long-lasting business relationship.