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Aditya

If AIG can't run its business operations, how can it pay the insured during a catastrophe?

Under the heading of Homeland Security, AIG provides insurance coverage to organizations that might be at risk of a terrorist attack, including property terrorism insurance, cyber-attack insurance, kidnap.ransom and extortion insurance. There's also contaminated products insurance covering accidental contamination or malicious tampering.They also insure commercial banks and even other insurance companies.There's an extensive list of areas they cover here:http://www.cnn.com/2009/POLITICS/03/18/aig.bonuses/index.html?iref=mps​toryview#cnnSTCOther1But how can they insure against any of this if they can't even run their own business? Another ponzi scheme? Where would their money come from if there was a major terrorist attack or if there was huge bank failure?
Liv4themoment:

Is there another company like AIG that big that can step in or take over for those claims already in motion and cover these big companies if we let AIG fail I wonder if any other stable company like AIG would want to take that chance ? After see AIG fail.

Nikkinmiss:

That's precisely why AIG can't fail. The bonuses are abhorrent, no doubt about it. But this is what happens when companies are allowed to get too big. If something happens where they need to pay out all at once, the derivatives market will become due on demand, and default swaps were being sold ON the default swaps (in some cases 10 times over) the ENTIRE global economy would melt. To explain it better, imagine you buy insurance for your car, your insurance company takes out an insurance policy to cover their losses on your policy, and that company does it too...and it happens over & over....Now imagine a 50 car pile up where every driver has the same scenario....How much money is lost?

Liv4themoment:

Correct but the magnitude and the diversity of business they cover is so big that it would not just be a few law suits over time it would be many on every level it could bring down so many other business not to mention the already over burdened courts with more litigation. So many other things factor into letting AIG fail. I was angry that's before I learned how big and how many different companies around the world this will effect . Scary

Aditya:

It seems odd that all we can do is hope they don't get in a situation where they'd have to pay what they don't have. So many companies get into trouble and then go bankrupt, leaving people holding the bag.

Nikkinmiss:

Very true, but should AIG fail & lawsuits will be the least of our worries. These credit default swaps connected to AIG is said to be to the tune of over 1 Quadrillion dollars. ( That's 1000 trillion ) That amount of money is almost incomprehensible yet is very real. Should this fall through, it'll make the great depression seem like a nickel fell out of our pockets, inducing the largest financial meltdown since the fall of Rome (perhaps larger). Trust me, now is not the time to worry about what is "fair". When all world currency becomes useless, fairness wouldn't matter anyway.

Aditya:

Let's just see that number... Let's see...
million, billion, trillion, quadrillion
$1,000,000,000,000,000

Survivalists will then have the upper hand.

.......:

Good thing that Obama got his $101,000 from them before this all was stirred up to distract people from the real pork spending in the "stimulus" bill and the other bill pork pie -- the budget that this last Congress passed with 9,000 pork filled pies shoved into it. So much for line-by-line review. But that long weekend at Camp David came first plus a visit to Chicago to pay back his supporters (but not the $1.7 million still due there after his last party in town!).
And these contractual fees are little more than a bee sting in a hurricane compared to the 11 TRILLION in debt stacked on taxpayers. Bless Dodd and his cronies for their hard work.

SULLY:

How much does Obama get for dong Leno tonight?

Aditya:

What does this have to do with the question??? Stop trying to politicize this. Do you see "politics" in the tags? No. This is an economics question and your answer is bankrupt.

.......:

http://www.investors.com/editorial/cartoons/CartoonPopUp.aspx?id=32165​1841769426
Get the notes from the telepromter and you can watch the show in advance.

Aditya:

The question is about AIG, not Obama. Please take your political rant to a question tagged with politics.

.......:

Run away! Great response! Nothing like avoiding a poorly run spend trillions like made administration in comparison to a public company that in the end IS responsible to their stock holders unlike the new King of DC and his chorus of big spenders... With DODD at the head of the pack. Maybe next time, the King will bother opening the cover on a bill before signing it. But then again, most likely not. He will do what his handlers tell him to do.

SULLY:

Calm down Mikey! It was put in the wrong place. I meant to put it..........
oh, never mind. Not a big deal.

Aditya:

The comment wasn't intended to you, E. It was aimed at the person who wanted to go on a rant that had nothing to do with my question. I have no idea how to communicate with someone like that.

Pegalomania The Artsqueen:

Obama wants credit for passing this huge bill, then once some of his antics are exposed, he leaves town to be a "celebrity" instead of doiong the dirty work of defending his choice of Treasury Secretary. His stature of the great Innocent is continuing. Oh I didn't know this was in the bill...Oh I didn't know Reverend Wright was saying anything anti-American, Oh I didn't know blah blah blah.
A real man would defend the homestead and not be traveling around to appear on comedy shows. Our federal government is taking from the poor and giving to the rich...I am glad there is an uproar in Congress, I'm glad that people are finally waking up, we have been a sleeping giant for too long. I appreciate Bush's dignity, he could easily bash Obama and he won't, Obama could never say that, he bashed Bush constantly, and now he is in for trouble himself.
I am glad that AIG is under scrutiny, it is like spring cleaning, it is healthy, and it shows us that we lack leadership at the top, that is what frightens me, the lack of leadership and accountability not only by AIG, but by Obama and The Treasury Secretary, ....the guy sat in on all the meetings since November, and now he claims he didn't understand, he couldn't do his taxes either.

Aditya:

Sure a lot of comments about Obama, but no answer to my question. Get it off your chest to you can actually consider the question in front of you.

.......:

Let's not forget the plannned "spring" break tour planned to get Europe to worship him too. All the while Russia builds up their military mocking the new "commander in chief" as Cuba readies their airports for Russian bombers and China challenges the US Navy on the open seas.

Aditya:

I'm sure you'll actually consider answering the question sometime in our future...

.......:

Why? It's just a smoke screen put out by the White House handlers in an attempt to hide the fact that NONE OF THEM had a clue what was in the bill! Line-by-line might refer to a mirror, but not legal review with this crew.

Aditya:

Oh, I see. AIG is in good shape and Obama just wanted to give them some money. I understand you now.

BMC:

Insurance companies have two separate companies, many times they are split up as such. The first part is the actual insurance company. X percentage of premiums are held in a trust fund to cover disasters/coverage the rest of the money goes into a mutual fund and is invested to earn the company more money. This is where AIG failed, they lost allot in the investment market. The problem with AIG is that there are entire countries and businesses that invested into their mutual funds that will go belly up if AIG fails.

It's never likely that all insured will need to be covered all at once this is why only a certain percentage of premiums are held in trust. On the very rare occassion that an insurance company has to pay out more than what is in trust they are immediately backed by their mutual even if it means assets need to be sold.

I used to work for an insurance company and we did have a year of storms that caused us to pay out extreme amounts. None of the people who worked for the "insurance" company got bonuses that year because we barely kept ourselves in the black. The "mutal" people however got big bonuses because their end of the investing made lots of money. Life ain't fair but that is how insurance companies work. No different than a bank that pays interest on your savings acct they borrow people's money so they can invest it in loans to others. So long as the principal stays in tact there is no problems, it's when they have to tap into the principal that they go belly up. As we've seen, allot of banks have gone belly up on the investment end as well.

BMC:

From the outside, it appears AIG is messed up, bonuses should have gone out to the "insurance" employees and not to the investment employees. You never know how the bonus packages are set up though. It's possible they are performance bonuses and are only being paid out based on individual performance BUT that money should also be based on company profit and since they showed a loss, no bonus should be paid. That's the real world, this however is AIG and Congress so not likely any of it makes sense no matter how you look at it.

Liv4themoment:

I didn't realize how many large companies they insure .I'm a safety specialist so I know about a companies liability problems and how it can ruin a company it might be a lot worse to let it fail. AIG has over 7 hundred million clients bank, drilling platforms, airlines that's just a few and the ones you said all around the world that's a lot of law suits and there will be a lot .

Aditya:

I agree. Many people say let AIG fail, but I don't think that's very far-sighted. People are angry. I get that, but they answer irrationally. Anyway...

Thanks for actually reading the question. You are the first of three answers to actually address it.

So what happens of there's a huge claim filed (for whatever reason)? Where does AIG get the money to pay the insured?

SULLY:

The federal government!

Aditya:

I don't think they can pay for everything without going further into debt.

SULLY:

Michael, I am not an economist. Keep in mind every economist I have listened to all have different opinions. Many openly admit they do not know. That being said, this question can not be answered.
It would be easy to say that they, (A.I.G.) cannot take care of those they have insured. I don't know that to be true. I am not even sure they ran a bad business. Morally, they did indeed. However, they seem to have taken care of "their own." Some would say that is good business.
I am pretty cynical these days, as many of us are. Every time we turn on the news another crook
emerges, another company is exposed for bad practices. I can only speak to the psychology of it all. People are frightened, angry and highly insecure. I believe in the long run we will prevail. I can not force others to believe that, or ease their fear. The American public has been injured. Where it all began is almost irrelevant. What we do about it from this point forward it key! I am sorry no one can know the answer to this, it is almost like asking if an ambulance will arrive in time if I have a heart attack!

Aditya:

I've heard people refer to this as a moral issue, but to me it's more a matter of honor. How is it that we've become a nation of law-abiding crooks?

I'm not really fearful. I'm just wondering aloud. I also try not to continue the blame game. I am trying to assess where we are and what our options are going forward. It may be a bigger question than QnA can handle, but there must be someone who's considered the possibility or the govt wouldn't be working so hard to keep AIG solvent.

Thanks, E. Always a pleasure.

SULLY:

"Law-abiding crooks." I am stealing that one.............:)

Aditya:

Yes. Legal doesn't necessarily mean honorable. My ex-wife taught me that.

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