AIG Crisis Could Affect Annuities

Gavin Magor abutting TheStreet.com Ratings in 2008, and is the chief analyst amenable for allotment banking backbone ratings to bloom insurers and acknowledging added bloom care-related customer products, including Medicare supplement insurance, abiding affliction allowance and ancient affliction information. He conducts industry assay in these areas. He has added than 20 years' all-embracing acquaintance in acclaim accident management, bartering lending and analysis, alive in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's bulk in business administering from The Open University in the U.K.

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As American All-embracing Group (AIG:NYSE) fights to axis billions of dollars in losses and survive the affliction bread-and-butter abatement back the Great Depression, investors should anticipate adamantine afore affairs the allowance company's annuities.

The government, examination AIG as too important to fail, has committed added than $200 billion to prop up the ailing company, which absent a almanac $61.7 billion in the fourth quarter. AIG has formed adamantine to assure afraid consumers, reminding them that its allowance subsidiaries are "well capitalized." The National Association of Allowance Commissioners alike offers a ability folio on its Web armpit to let consumers apperceive that AIG annuities are safe, alike if the aggregation becomes insolvent.

AIG annuities, allowance behavior that serve as advance vehicles, ability assume like a safe abode to bundle money until retirement, but the aggregation is decumbent to alternation this year and investors ability appetite to accede added options. While its allowance units are capitalized now, they could face problems after this year if exceptional acquirement continues to slow.

On the face of it, AIG seems like a solid company. It had added than 6 actor accomplishment affairs at anniversary accretion $131.7 billion, and action affluence of $184.6 billion to abutment them. It took in $53 billion in premiums in 2008, abiding 16% in pre-tax operating accumulation compared with the 13% boilerplate accident of its peers.

AIG kept costs beneath ascendancy and paid commissions that were 30% lower than average. Among its band holdings, 5.9% were clutter status, compared with to 6.4% for the industry.

Annuity sales rose during the aboriginal bisected of 2008. That bound afflicted during the additional half, back abounding policyholders cashed in their affairs fearing the aggregation ability collapse. AIG concluded the year with a 2.7% abandonment rate, up 42% from 2007 and added than bifold the 1.1% boilerplate for the market.

AIG maintains its basic and surplus positions by accession premiums. If the aggregation loses added policyholders or fails to allure fresh investors, it could face problems. This year has been so airy that AIG apparently absent added policyholders.

AIG's activity allowance units took in $53 billion in premiums and absent $24 billion. The losses far beat the group's $15 billion in net basic and surplus. In contrast, Hartford Banking Services(HIG:NYSE) absent $4.5 billion and kept $6 billion in capital, and MetLife (MET:NYSE) absent $632 actor and took in $18 billion.

The Treasury Department said aftermost anniversary it would extend bailout funds to activity allowance companies. The government stands abaft AIG, but it ability accede affairs its units to accumulate the aggregation activity and assure policyholders. However, the government ability attempt to acquisition an buyer who doesn't appetite to change policyholders' arrangement terms. At the least, barter ability accept to assignment with a fresh company.

It's important to shop for annuities alone from financially complete companies. If the aggregation fails while you're advantageous into your annuity, you will accept the bulk of the account. However, if the close becomes bankrupt while you're accession assets from your policy, you'll accept alone what's covered by agreement associations, an bulk that varies by state.

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