The insurer wins approval to use $20 billion in assets held by its subsidiaries.
American International Group Inc., the nation’s largest insurer by assets, Monday scrambled to borrow money from its subsidiaries and searched for as much as $75 billion in new capital as it struggled to stay afloat financially.
The New York giant also considered selling holdings while three key ratings firms — A.M. Best Co., Fitch Ratings and Standard & Poor’s — downgraded its ability to service its debt.
On Monday, Wall Street pummeled AIG’s stock. It fell $7.38 to $4.76, down 61% from Friday’s close. Its 52-week high was $70.13 in October 2007.
The stock dropped as AIG won approval Monday from New York regulators to use $20 billion in assets held by its subsidiaries to provide cash to stay in business.
The company also is seeking a loan through Goldman Sachs Group Inc. and JPMorgan Chase & Co. The talks began after the Federal Reserve balked at providing funding for the insurer and urged AIG to seek private capital, people familiar with the situation told Bloomberg News.
The company has been hit hard this year by losses from a portfolio of securities backed by subprime mortgages as well as declining earnings from other investments.
AIG has a worldwide reach with revenue of $110 billion and 116,000 employees in 2007.
In California, it is the top private company writing workers’ compensation insurance, with 11% of the market. AIG’s lead auto insurer, 21st Century Insurance Co. in Woodland Hills, is the seventh-largest in the state with about $1 billion a year in premiums. It also owns one of the world’s largest aircraft leasing businesses, International Lease Finance Corp. in Century City, which has a fleet worth nearly $50 billion.
A.M. Best, an Oldwick, N.J., firm that gauges the strength of insurance companies, downgraded AIG’s credit rating to "bbb" or "good" from "A+" or "excellent."
Many of the company’s subsidiaries, including 21st Century, also received downgrades "based on the rapid deterioration of the already existing fragile condition of AIG’s financial strength and flexibility," A.M. Best said. The analysis specifically noted "AIG’s lack of liquidity at the holding company level."
Fitch cited similar liquidity concerns in cutting AIG’s long-term default rating to "A" from "AA-." Standard & Poor’s lowered AIG’s long-term credit by three levels from "AA-" to "A-."
AIG spokesman Joe Norton declined to discuss any specific moves, other than to say that management was conducting "a strategic review."
He also would not speculate on rumors that billionaire Warren E. Buffett’s Berkshire Hathaway Inc. is interested in buying 21st Century.
The company is one of four AIG insurers based in California. The others are 21st Century Casualty Co., American International Insurance Co. of California and Landmark Insurance Co. The sale of any of those companies must be approved by California Insurance Commissioner Steve Poizner.
For now, Poizner is satisfied that the AIG companies have sufficient capital to continue operating in the state, Poizner spokesman Darrel Ng said.
AIG has 21 other companies that are licensed and operate in California but are headquartered in other states. Sales of those assets would need to be approved by regulators in those jurisdictions.
Ng said Poizner’s office was "actively in touch with our counterparts in New York and Pennsylvania," where most of AIG’s companies are headquartered. Policyholder advocates, meanwhile, lost no time issuing requests to Poizner not to allow any AIG affiliate in the state to raise rates to make up for lost investment revenue.
"Consumers were already hit once by the collapse of the mortgage house of cards in the form of record home foreclosures," said Carmen Balber of Consumer Watchdog, a Santa Monica advocacy group. "They should not have to pay again with higher insurance rates."
Balber said she was not aware of any pending AIG rate hike proposals.
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Bloomberg News was used in compiling this report.