Policyholders Should Not Pay for AIG’s Bad Investment Decisions, Say Consumer Advocates

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Consumer Watchdog Calls on State Insurance Regulators to Protect Consumers From AIG Investment Losses
Santa Monica, CA — Consumers should not pay higher premiums to cover AIG’s losses as the company tries to recover from poor investment decisions, said consumer advocates with a leading insurance reform organization today. New York State authorities authorized AIG to borrow money from its subsidiaries this morning after the threat of a downgrade from credit rating agencies and a precipitous fall in stock price.
“State insurance regulators must act to ensure that AIG does not raise premiums on drivers and homeowners to make up for losses from its foray into the world of subprime mortgages. Consumers were already hit once by the collapse of the mortgage house of cards in the form of record home foreclosures, they should not have to pay again with higher insurance rates,” said Carmen Balber with the nonprofit, nonpartisan Consumer Watchdog.
Consumer Watchdog released a study of ten insurers’ 2001 stock and bond holdings that documented $274 million in losses by insurance companies due to bad investments in just five corporations, including Enron and Worldcom, that collapsed due to fraud. The value of the insurance industry’s stock portfolio fell nearly $20 billion that year after companies increased their exposure to corporations like Enron during the heady days of the last stock market boom. Policyholders were saddled with increased premiums in the wake of the losses. (Click here to read the report.)
An analysis of insurer investments is likely to find a similar increase in insurers’ investment exposure to the subprime market before the housing bubble burst, said Consumer Watchdog.
AIG lost $13.2 billion in the first half of the year, in part due to the falling value of the insurer’s mortgage-related investments, according to the New York Times.
The insurance trade publication Business Insurance highlighted insurers’ investment troubles in August, quoting industry analyst John L. Ward, CEO of Cincinnatus Partners LLC: “Investment income is down considerably from historical levels, and the outlook’s very uncertain and looms as the big unknown for industry results for the short term.”
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Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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