New York-based American International Group Inc. (AIG), the world’s largest insurer, will use assets held by its insurance subsidiaries to stay afloat after the company was hit Monday by downgrades by three major credit-rating agencies worried that the worsening housing market is working to undermine the company’s shaky finances. New York Gov. David Paterson said the state will allow AIG to use $20 billion of assets held by its insurance subsidiaries to provide cash needed to support day-to-day operations.
In what analysts are calling an “unprecedented move,” Paterson also asked New York state insurance regulators to allow AIG to provide a bridge loan to itself. Because state insurance commissioners are normally defending policyholders, it’s typically difficult for an insurer to access the funds that are used to pay claims. Paterson has also asked the head of New York’s insurance department to talk with federal regulators about providing an additional bridge loan to AIG.
Fallout from the credit-rating drop caused AIG’s shares to fall $7.38, or 60.8 percent, to close at $4.76 Monday. Over the past year, New York-based AIG has seen billions of dollars of losses due to weakened mortgage and credit markets.
The dropped ratings from the agencies – Standard & Poor’s, Moody’s Investors Services and Fitch Ratings – put more pressure on AIG as it seeks billions of dollars to strengthen its balance sheet. In August, the company estimated that a one-notch downgrade of its long-term senior debt ratings by both S&P and Moody’s would force it to post $13.3 billion in extra collateral, the Associated Press reported. The three agencies dropped AIG’s rating by at least two notches Monday.
