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Personal Injury, AIG and Structured Settlements

Posted by Jane Akre
Wednesday, September 17, 2008 6:20 PM EST
Category: Major Medical, Protecting Your Family
Tags: Structured Settlements, Annuities, Personal Injury, Injury Claims, Lump Sum Payments, Settlements

AIG structured settlements safe for the present time.





U.S. taxpayers are coming to the rescue of yet another American business.

With the Federal Reserve Board lending an $85 billion to rescue American International Group (AIG), the feds will own a majority share, 79.9 percent of the company and AIG has bought some time.

AIG is the nation’s largest insurer with $1.1 trillion in assets and 74 million clients in 130 different countries. An eventual liquidation is most likely with the company divesting itself of assets which could raise more than $150 billion for AIG.

It will have to sell quickly because the loan from the Federal Reserve has an expensive interest rate for borrowing at 11.4 percent. 

“AIG is borrowing money at loan-shark rates,” according to Sean Egan, president of Egan-Jones Ratings telling MarketWatch. 

American International Group is a large, complex holding company with many assets, among them an aircraft-leasing unit, an asset division, and life insurance, property and casualty insurance divisions. 

A division of AIG, American General Insurers, is market leaders in writing structured settlement annuities. The company claims on its web site that it’s been in business for over 25 years.

AIG life companies is separate from AIG corporate, says Jason Lazarus, an Orlando based attorney who handles benefit planning, financial product sales and structured settlements.   

A structured settlement compensates injury victims, particularly when the payment of money from a personal injury claim calls for future payments. A lump sum followed by payments for a fixed length of time, even a lifetime, meeting the specific needs of the claimant without the tax burden, is typical.  Or the settlement may be reinvested with the insurance company to grow tax free to be paid back to the injured tax free at a later date.

A structured settlement may have been determined in a pre-trial settlement or required by a court order. Often they pay minors or incapacitated adults, surviving family members, particularly future college fund needs. The payments are guaranteed by the life insurance company.

With the bailout of AIG, the parent company, some wonder about the future viability of the structured settlements set up by AIG.

“As far as a structured settlement, there has not been a situation yet where someone has not been paid,” said Lazarus told IB News. 

Lazarus says that the life Insurance division of the company is regulated in the state of Texas where the company is domiciled.

“There’s no way Texas insurance regulators will let AIG the New York holding company take the assets that are part of the life insurance company,” he believes.

A parent company cannot remove monies from a subsidiary company other than profits, according to each state’s corporate charter.  Life insurance companies are typically required to set monies in a “Reserve Account” for each and every annuity.  The life insurance company cannot invest these reserves in anything but sound low yield investments, which are approved by the state.

Texas monitors these reserve accounts to make sure they are sufficient to handle future payouts.  Expect the Texas insurance commission to monitor AIG Life very closely until the crisis is over, says Lazarus.

Existing annuities are protected up to the limits of the state, with most having at least a $100,000 per policy guarantee.

The problems with AIG have been known on the “street” for some time, according to Lazarus.

While the insurance and retirement services are AIG’s most attractive units, they are also the core of the company’s business.  Experts say the life insurance unit will be the last thing AIG wants to sell since it brought in $2.2 billion in profits last year.  

The first to be unloaded might be the company’s financial services unit and the more desirable aircraft leasing business. The fleet of 1,000 plus aircraft is valued at $55 billion, according to CNN.

The Fed got equity in the company because of the potential value it brings taxpayers, according to experts.  Ultimately, we all could be looking at a profit. #

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