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AIG consumers urged to be cautious about liquidating or replacing insurance policies

September 30, 2008

AIG consumers urged to be cautious about liquidating or replacing insurance policies

For Immediate Release: September 30, 2008
Contact: Bill Walsh (651) 296-7531

State regulation of insurance works - despite AIG holding company woes, insurance company reserves are more than adequate to cover claims.

(St. Paul, MN…) Minnesota Commissioner of Commerce Glenn Wilson cautioned insurance consumers today about replacing or liquidating their insurance policies, particularly those that may be underwritten by the AIG insurance companies, despite the current volatility in financial markets.
Wilson explained that the trouble with AIG is largely with their non-insurance parent company, which is not regulated by the states and therefore not held to the same investment, accounting and capital adequacy standards as its state-regulated insurance subsidiaries. The insurance subsidiaries are solvent and able to pay their obligations.

"The AIG insurance companies are separately regulated by state insurance regulars and do not have the financial stress that AIG Holdings, Inc is experiencing," said Wilson. "They are meeting all their financial obligations to their policyholders. Consumers who feel pressured to replace annuities or property/casualty insurance policies because of claims that AIG is under financial stress are encouraged to contact the Minnesota Department of Commerce."

If consumers liquidate or replace a policy they currently own, they may be incurring significant surrender charges or experience adverse tax consequences. The Department of Commerce is monitoring the suitability of annuity sales in Minnesota for activity that would appear to take advantage of the recent turmoil in financial markets and has already made several investigative inquiries.

"Consumers should understand the full impact of any decisions they may make to liquidate or replace insurance policies or annuities they already hold," said Wilson. "If someone tells you to replace any policy because an AIG insurance company is in trouble and may not be able to pay your claim, that is not only untrue, it could be against the law."

Annuities are insurance products regulated by the Minnesota Department of Commerce The department licenses both companies and agents and monitors their activities. There are also guaranty funds in place in all states which act as a safety net in the event an insurer becomes insolvent.

Wilson reminded consumers that state law requires an insurer must have reasonable grounds for believing that the recommendation is suitable for the customer before the sale or replacement of any annuity or insurance product. A suitability analysis should include a complete evaluation of a consumer's financial position, including, but not limited to their income needs and the cost of liquidating any assets. Consumers should also understand that if they replace an annuity, a new surrender period will start with the replacing annuity.

According to Wilson, the story behind the failure of AIG provides a perfect case study for the success of state based insurance regulation and the repeated failure of federal oversight.

"When the dust settled after the fall of this international financial holding company with over 200 subsidiaries, the 71 insurance companies were not the ones in need of a bailout from the federal government. They stood apart as strong, solvent and fully capitalized, ready to meet any and all obligations to their consumers."

"The reason AIG's insurance companies are solvent is due to the strong oversight and regulation they received at the hands of the 20 state insurance regulators in the states where they are headquartered, including Minnesota," added Wilson.