NEW YORK (Reuters) - Customers and investors of American International Group are uncertain about the fate of the insurer.
Below are several outcomes for policyholders under different scenarios:
If AIG were declared insolvent, which is a worst case scenario, individual and corporate policyholders would be protected by state guarantee funds, said Bob Hunter, who runs the insurance group for the Consumer Federation of America; and Barbara Cox, vice president of legal and regulatory affairs for the National Conference of Insurance Guaranty Funds.
Hunter, a former Texas insurance commissioner, cautioned that state insurance regulators have many milder remedies in dealing with financially distressed insurance companies.
The options range from voluntarily asking management to take certain steps, or requiring them to do so, to taking control and rehabilitating insurers by selling off profitable businesses. Companies can also be liquidated if they cannot be returned to health.
“The bankruptcy filing of a holding company or a noninsurance affiliate of a big conglomerate does not necessarily mean the insurance companies will liquidate,” he said.
While bankruptcies are handled by federal courts, a state court would have to order an insurance company to be liquidated, based on a number of factors, including the ability to pay claims.
Here are a few facts the two experts listed about state-run but insurance-funded guarantee funds that protect policyholders if regulators take control:
* AIG policyholders with claims might face delays because many of these funds limit yearly pay-outs, to 5 percent to 10 percent a year, for example.
* Some AIG policyholders with unusually large property claims might not fully recover their claims as some state guarantee funds cap pay-outs for homes or commercial buildings, for example, at $300,000.
* Policyholders of other insurance companies might have to pay slightly higher premiums, which their insurance companies would pay into the state guarantee funds, to help cover AIG policyholders claims.
* State taxpayers would not be hit because the guarantee funds do not draw on public dollars.
Reporting by Joan Gralla, Jonathan Spicer and Lilla Zuill; Editing by Leslie Adler