INS To Stick With AIG
For Now
The Costa Rican
Instituto Nacional de
Seguros (INS) yesterday
calmed the worries of
clients about the fate
of US insurance giant
American International
Group (AIG), which
reinsures 22 policies
here and narrowly
avoided bankruptcy this
week.
"We want all Costa
Ricans and especially
our clients not to
worry. The future of the
institute is financially
sound", said Guillermo
Constenla, the president
of the INS.
The 22 policies that
rance from fire
insurance to worker
compensation, that
includes a us$940
million dollar insurance
policy on the Juan
Santamaría (San José)
international airport,
which AIG would have to
cover in the event of a
disaster.
The US Federal Reserve
bailed out AIG on
Tuesday with a us$85
billion dollar bailout
plan, persuading the INS
to stick with the giant
insurer that reinsures
about 1% of INS
policies.
However, Constenla
warned that if AIG's
credit rating drops
further, the INS will
switch policies to
another reinsurer,
though he did not
mention names.
Constenla said the INS
is on alert and if and
when the rating goes
down, then it's time to
worry.
On Tuesday, shares of
the giant insurance
company swung violently
as rumors of potential
deals involving the
government or private
parties emerged and were
dashed. By late Tuesday,
its shares had closed
down 20 per cent — and
another 45 per cent
after hours. Still, no
deal emerged.
The problems at AIG
stemmed from its
insurance of
mortgage-backed
securities and other
risky debt against
default. If AIG couldn't
make good on its promise
to pay back soured debt,
investors feared the
consequences would pose
a greater threat to the
U.S. financial system
than this week's
collapse of the
investment bank Lehman
Brothers.
The worries were
triggered after Moody's
Investor Service and
Standard and Poor's
lowered AIG's credit
ratings, forcing AIG to
seek more money for
collateral against its
insurance contracts.
Without that money, AIG
would have defaulted on
its obligations and the
buyers of its insurance
— such as banks and
other financial
companies — would have
found themselves without
protection against
losses on the debt they
hold.
New York-based AIG
operates an insurance
and financial services
businesses ranging from
property, casualty, auto
and life insurance to
annuity and investment
services.
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