Another View: Imagining an A.I.G. Bankruptcy?

The New York Times Deal Book

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PUBLISHED ON: April 1, 2009

The American International Group is not an insurance company. It sells noninsurance products and services in its own name and sells insurance via its insurance company subsidiaries like National Union, Lexington and American International Specialty Lines Insurance Company, known as A.I.S.L.I.C.

As the corporate giant asks for more and more government money to remain afloat, observers are looking ahead to an A.I.G. insolvency and asking whether these wholly owned insurance companies would be vulnerable to A.I.G. creditors through a bankruptcy trustee or creditors’ committee.

Conventional wisdom dictates that the A.I.G. insurer subsidiaries’ assets are beyond the direct reach of A.I.G. creditors. State and federal law requires insurers to be rehabilitated or liquidated in state courts under statutory schemes roughly analogous to federal bankruptcy law, which are not pre-empted by bankruptcy law. Insurance commissioners and superintendents have broad power to block sales of insurance company assets and wholesale movement of insurance company capital. As a result, under the conventional wisdom, the wide arm of state regulation would surround A.I.G. subsidiaries in the event of A.I.G. insolvency.

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