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Geithner’s claim about AIG is wrong: AIA
03 February 2010
Testimony by US Treasury Secretary Timothy Geithner about the collapse of American International Group (AIG) has sparked criticism from insurers.
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Testimony by US Treasury Secretary Timothy Geithner about the collapse of American International Group (AIG) has sparked criticism from insurers. The American Insurance Association (AIA) says Geithner’s assertion that “if AIG had failed, the crisis almost certainly would have spread to the entire insurance industry” is wrong.
“There has been some suggestion in recent Congressional testimony by Secretary Geithner that if AIG had been allowed to fail, the crisis would have spread to insurance companies around the world, thus implying that the property/casualty industry might have been in crisis or potentially posed a systemic risk to the broader financial system,” said Blain Rethmeier, spokesman for the AIA. “This statement is intended to clarify the public record and emphasise that was, and is, not the case.”
Rethmeier added that AIG’s financial problems did not stem from its insurance business.
“In the event that AIG’s property/casualty business had failed and needed to be dissolved, it’s our view that the existing state guaranty fund system, which relies on post-event assessments on insurers, would have been able to protect AIG’s policyholders,” he said. “Equally important, property/casualty insurance remains a competitive and well-capitalised industry and able to respond to our policyholder needs and provide them with a variety of options, as we have demonstrated in the past when a competitor of any size leaves the market.
“Property/casualty insurers are subject to stringent capital standards that focus on maintaining their financial health and strength. The guaranty fund system exists to ensure that policyholders are protected in the rare circumstance when an insurer no longer meet those standards and fails."
The Philadelphia Inquirer quotes Geithner as testifying on January 27: "If AIG had failed, the crisis almost certainly would have spread to the entire insurance industry…Doubts about the value of AIG life insurance products could have generated doubts about similar products provided by other life insurance companies, opening up an entirely new channel of contagion." Geithner said this would have hit the world economy "much worse" than Lehman Brothers’ failure.