November 12, 2008
Someone has approached me about surrendering my American General Life Companies' insurance
policy or annuity contract. What should I do?
Be sure to have all the facts before making a decision about your insurance policy or annuity contract. Here are a few reasons why keeping your current policy or contract is likely the best choice for you:
- If you cancel your policy or contract, you may subject yourself to surrender
charges that could diminish its cash value.
- If your health has changed since you bought your current insurance policy, a new policy could cost you more or you may even be turned down for a new policy.
- If you are older now than when you purchased your current policy, your premiums will likely be higher.
- Your policy or contract is safe. Our companies remain strong and wellcapitalized. Insurance is a highly regulated industry. All insurance companies doing business in the United States are regulated by state law, and are required to maintain enough capital and surplus to satisfy their obligations to their policy holders. We continue to operate normally and are here to help you.
What did the government do for AIG in November 2008?
On November 10, 2008, AIG announced the second milestone in its plan to stabilize the organization by
addressing liquidity issues, creating a more durable capital structure and repaying taxpayers with interest. AIG entered into agreements with the U.S. Treasury and the Federal Reserve Bank of New York to restructure the terms of the $85 billion credit facility provided on September 16, 2008. The size of the existing credit facility from the Federal Reserve Bank of New York was amended to reduce the capacity from $85 billion to $60 billion. Additionally, the term for repayment was extended from 2 years to 5 years and the interest rate was reduced from LIBOR plus 8.5% per year to LIBOR plus 3.0% per year. More specific details about this transaction are available on AIG's Web site, aig.com.
When will AIG pay back the loan?
AIG is working diligently to execute its plan to focus on its core property-casualty business and sell other valuable assets so that it can repay the government loan in a timely fashion and emerge as a focused, vital organization.
I heard AIG sponsored another "junket." Is that true?
On November 6, the AIG Advisor Group held its annual conference for its registered advisors. These are not AIG employees, but independent financial advisors who operate their own businesses. Financial planners are required by law to complete professional development and continuing education programs to both earn and maintain industry certifications and designations. The goal of the conference was to provide financial advisors with continuing education and training and included seven general sessions, 22 classes, and two working lunches.
How much did this cost? Did taxpayer dollars pay this?
The majority of the cost - $320,000 out of a total cost of $343,000 - was paid for by sponsors, and the remainder - less than $25,000 - was paid for by the company. The airfare and hotel costs were the responsibility of the independent financial advisors. Only expenses required to ensure the meeting's success were incurred by the AIG Advisor Group.
What steps are being taken by AIG to control expenses?
AIG has issued a clear directive ending all activities that are not essential to the conduct of its business, and will continue to take all measures necessary to cease any unnecessary activities. A Special Governance Committee was established within AIG to institute new expense management controls. AIG issued a new Expense Policy Guidebook for all employees to prevent any future unwarranted expenditures.
AIG's CEO announced a plan for the company's future, which includes the sale of the American General insurers. Why did AIG make the decision to sell its domestic life insurance business?
Quite simply, because the domestic life insurance business is valuable. The proceeds from a sale of these assets can be used toward paying off the secured credit facility issued by the Federal
Reserve Bank of New York.
What does a sale mean for policy holders?
First and foremost, we want to assure you that your policies are safe and secure. The insurance policies written by one of our insurers are the direct obligations of that underwriting company – not AIG or any prospective buyer. The sale of an insurer does not change its obligations to its policy holders. Our commitment to customer service remains the same, and we continue to strive to exceed your expectations in everything we do. Our customer service centers are available to assist you with questions or policy maintenance issues.
What are your current ratings?
The table located here provides ratings of the AIG Domestic Life Insurance Companies including the American General Life Companies, as of November 10, 2008.
For more detailed information, please visit the individual rating agency Web sites.
What do ratings mean?
Independent ratings agencies, such as A.M. Best and Standard & Poor's, provided opinions on an organization's ability to meet its financial obligations to its policy holders, creditors and shareholders. Generally there are two components to ratings – a credit rating and a financial strength rating. Credit ratings, or longterm debt ratings, are an evaluation by the ratings agencies of the creditworthiness of an organization and its ability to pay its short- and long-term debt. Financial strength ratings are an evaluation by the ratings agencies of an insurer's ability to meet its obligations to its policy holders.
What steps are being taken by AIG to control expenses?
Insurance is a highly regulated industry. All insurance companies doing business in the United States are regulated by state law, and required to maintain enough capital and surplus to satisfy their obligations to their policy holders. The type and quantity of investments in which insurance companies may invest surplus capital is also limited by state law. Although various companies owned by AIG are part of a larger insurance holding company system – including American General Life Companies insurers – each company is individually responsible for the liabilities associated with the business that it sells. In addition, each insurer is individually regulated by its state of domicile for compliance and financial solvency independent of its parent or affiliates. This includes ongoing financial reporting to the regulator and undergoing periodic financial examination.
In accordance with state insurance requirements and investment guidelines, an insurer's general account is primarily invested in high-quality investment grade fixed income securities (bonds). The investment objective of the general account is to optimize yield, adjusting for credit risk, liquidity and liability characteristics. State insurance regulations are substantial and are designed to preserve and enhance the solvency of each insurer's general account and to assure that the contractual obligations to its policy holders are fulfilled. These regulations, along with the conservative investment requirements, help to safeguard policy holders.
It is important to note that the guarantees related to individual American General Life Companies insurers' life policies and annuity contracts are backed by the general account of the respective issuing companies. These general accounts support only the obligations of American General Life Companies life insurance companies and are not obligated to support any other AIG businesses.