Monday, March 02, 2009

AIG vs the Gnomes of Zurich (and the US Taxpayer)

Bah.

AIG is my employer's largest competitor in North America. They have now basically become a US owned entity that apparently has endless access to the US Treasury. You know, the tax money all of us chumps out here working for AIG's competition have had taken from us...

If AIG is this shaky - then put them into run-off and let the rest of the market pick up their business. There is no shortage of other insurance companies out there.

But to prop them up makes me fear one thing - AIG will hurt the entire market trying to get cash from new or renewed business. If AIG cannot point out that they are stable, solid, secure and a great place to insure your business, etc., than what can they do? They can only do one thing - write business cheaper than anyone else.

So what is wrong with that, you ask? They will be writing bad policies - the money they collect in premiums will not be enough to keep them in business/make a profit. You have to collect enough money from the premiums to back up your policy with sufficient reserves, pay your employees to handle claims, buy reinsurance, invest in your portfolio to backstop everything too. AIG has demonstrated that their investment abilities are so much flatulence wafting away on the winds of the bear market. Now they will damage everyone else by hastily writing new policies or renewing old ones too cheap. They will grasp at a few dollars right now, and will still fail in the future. What it does to everyone else is cut the amount of premiums they can get - even though they have not burned away billions already.

I can only hope that the businesses out there resist the siren song of artificially low premiums now, or we will all run onto the rocks later.

5 Comments:

Anonymous Anonymous said...

But no matter how cheap the premium is, a few years down the road if I need to file a claim, are they even going to be around?

And, yes, I know some people will buy the cheapest premium available -- and you know they'll advertise, like all these other companies you see now, "Oh, we care about you in these tough times, so here's our new price." Oh, puh-leeze!

(Ha,ha, the letters that I have to type in at the Word Verfication are usually just a jumble, right now it says LOOTER. Hmmm.)

Kath

2:29 PM  
Blogger LTC John said...

LOOTERs indeed. Our pitch is exactly as you describe - do you want price now, or someone who will be there later when you need it? It has worked to some extent, but I have seen companies lured in by the savings - it is a tough time to resist such.

2:40 PM  
Blogger Inner Prop said...

I had heard, "AIG is too big to let fail."

Why? I don't understand that.

I don't like any of these bailouts.

Maybe I'm confused, but isn't the market supposed to be self-policing? Good, strong, well-run companies with good product survive, no?

Maybe I need an economist.

9:27 AM  
Anonymous Anonymous said...

Inner Prop --
AIG sounds like the huge fat guy that weighed something like 500 pounds or whatever, and he wanted to go outside. So it took the entire town to haul (literally) him outside to a barge type thing on a tractor bed.

If I remember right, they went halfway up a street and the thing broke down.

I'm with you about this "bail-out" business. Seems to have gotten totally out of hand.

Kath

1:44 AM  
Blogger xxmy said...

This comment has been removed by a blog administrator.

5:51 AM  

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