Florida Insurance Commissioner Kevin McCarty said today that opinions by trade groups and Treasury Secretary Henry Paulson that the financial difficulties of American International Group demonstrated a need for federal insurance regulation are unwarranted.

He said in a statement that he was troubled by their suggestions that "the current AIG saga reinforces the need for a federal office to regulate insurance companies."

According to Mr. McCarty, under proposals for a federal system, "the hundreds of thousands of policyholders who rely on AIG insurance companies would have been at significant risk as all of the insurance assets would have been co-mingled to pay for the damage created by the non-insurance entities."

The AIG liquidity crisis, which led the company to give the government a 79.9 percent interest in exchange for an $85 billion loan, highlights "that the state-based system of insurance regulation employed in the United States has actually worked in this case," said Mr. McCarty.

"In fact, despite the staggering $85 billion price tag for the AIG bailout, the current plan put in place by Treasury would never have worked at all had it not been for the fact that the state-based system of insurance regulation ensured that the insurance operating companies at the very core of AIG's operations--not its current problems--were solvent and financially strong entities, fully capable of paying policyholder claims," he declared.

The AIG operating companies "have significant market value, as ongoing concerns, when they are sold to repay the Treasury investment. Without the diligent oversight of state insurance regulators, the bailout price tag would have been much, much higher," said Mr. McCarty.

He noted that American International Group Inc. is a financial holding company that owns 71 U.S.-based insurance entities, and "those entities all are financially sound and fully able to pay claims presented by policyholders and claimants."

He said AIG's problems were the result of the conglomerate's non-insurance entities that were regulated either by the U.S. Office of Thrift Supervision, for the U.S. financial holding company, or by an "integrated financial regulator," in the case of the non-U.S. entity.

The AIG non-insurance entities, Mr. McCarty said, wrote more risk than they could fund when financial markets soured over the last year, but "the insurance companies were not involved in these business decisions. And as a result of this important difference, the assets of the insurance companies--under the supervision of state insurance regulators--remain intact and almost completely unaffected."

Throughout the AIG financial holding company's liquidity crisis, consumers remained protected by state insurance regulatory rules that prevented the parent company from simply raiding capital from its profitable and well-capitalized insurance subsidiaries, the Florida regulator said.

"Being able to closely watch and understand the unique characteristics in each state is why the regulation of insurance companies should remain where it is--residing in a competent state-based system that is continually evolving and modernizing to reflect changing conditions," said Mr. McCarty.

Special Reports /

AIG Makes A Case For State Regulation, Says McCarty

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