AIG Crash Effect on Insurance Market
If AIG crashed would it result in insurance market failure? An interesting article was published recently in P&C – National Underwriter. It was a shocker.

The American Insurance Association and Property Casualty Insurers Association of America (PCI) argued their point to Congress. Their conclusion was if AIG’s property and casualty operations failed, there will be little effect on the property and casualty (P&C) markets as a whole. The P&C markets did not suffer the same systemic problems as the other financial markets. As I had posted previously, it is the financial part of AIG that had failed and started the AIG meltdown. The P&C part of AIG was never in trouble.
AIG in its justification for additional aid argued that “AIG continues to pose a systemic risk” and requires immediate additional federal assistance; otherwise its failure would cause “multiple and potentially catastrophic unforeseen consequences.”
The presentations to the leadership of financial services congressional committees were made in response to a document provided to the Treasury Department and Federal Reserve Board by AIG to justify an infusion of additional funds to the company as it reported a $61.7 billion loss.

The conclusion of the article was that the life insurance operations part of AIG would cause quite a ripple in the life insurance market, but not the P&C markets. There are enough capacity and market forces that would be able to absorb the failure of AIG as when other P&C companies have failed in the past.
Could there be more AIG’s in the P&C and workers compensation markets? I do not think so, as there was never a failing P&C part of AIG. The life insurance part of AIG is not considered in the analysis of their P&C operations.
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