AIG: The World will soon be able to blame the U.S. Congress

Be careful what you wish for. The big PR fuss over the AIG FP bonuses may cause unintended consequences.

If the talent at AIG’s FP unit begin to leave, who is going to be able to unwind everything? It seems that just a few people were involved with the credit default swaps that caused the problem in the first place. Most of the AIG FP people were involved in other products.

With all the noise Congress made over a relatively small amount of money (compared to the amounts being thrown at the problem by Congress), it appears that some key AIG FP employees are headed for the doors (i.e., AIG FP Paris).

If there is no one left to unwind things, the result may costs more than anyone ever thought possible.

Congress is going to be left holding the bag. I wonder how they will deflect this monument to poor judgment.

AIG’s D&O?

Which insurers write AIG’s D&O?

AIG: Ratings were the Real Problem

Putting aside the issue of whether or not AIG should have been offering 'insurance' to firms insuring against losses on securities (notably those related to U.S. mortgages), the principle reason this whole ting started was because AIG’s ratings were downgraded.

Pure and simple: Had AIG’s ratings not been downgraded, perhaps, just perhaps, the global downward economic spiral might not have happened.

Which brings up the point that AIG recognized the potential for disaster several years ago when it stopped writing this type of business.

AIG’s Counterparty List: To Disclose or Not to Disclose? That is the question.

With everything that has been said concerning which companies benefited from the U.S. Government bailout, no one has mentioned that there may have been terms and conditions in these policy contracts that more or less forbids disclosure.

I used to write a policy which clearly stated:

“The Assured and Insured Person(s) must at all times use best efforts to ensure that knowledge of the existence of this insurance is restricted as far as possible.”

The principle reason for this important condition was to avoid the ‘moral hazard’ problem.

Moral hazard?

What does Moral Hazard mean?

The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

Moral hazard explained:

Moral hazard can be somewhat reduced by the placing of responsibilities on both parties of a contract.

The inclusion of such condition in one of these policies would explain why Ben S. Bernanke, the chairman of the Federal Reserve, has said “it is proprietary information.”

AIG Slashes Minimums

It has been reported that AIG units are slashing prices across all lines in order to win business. As an example, they have reduced their minimum premium on mid-market packages to $1,500, from a previous $2,500, the industry standard.

You get purchase D&O, EPLI, Crime, K&R, and Fidelity for $1500!

This is outrageous. As taxpayers, we are subsidizing this irresponsible underwriting.