About the author

Bob Graham is executive editor at Insurance & Financial Advisor and IFAwebnews.com.

More by Bob Graham »
Contact Bob Graham »

The saga of American International Group is one of the biggest stories of the decade, and the implications of its descent and eventual government bailout, to the tune of some $180 billion, are likely to reverberate long into the next decade.

The failures of its Financial Products unit – which has nothing to do with insurance – continue to serve as the example by which advocates for comprehensive U.S. financial services reform seek change. Proposed reform, if two wars, health care reform and increased concern about terrorism don’t scuttle its progress, appears likely to alter all aspects of financial services in the U.S., including the state-based regulation of insurance products.

Yet, in the Washington Post, a dissection of the events leading up to AIG’s demise, quoting emails and other communications from key players at AIG in 2007, shows that AIG’s leadership anticipated problems with the Financial Products unit’s securities tied to subprime mortgages. These leaders kept raising red flags, but the apparent hubris of Joe Cassano, head of the Financial Products’ unit, successfully batted them down – again and again. Until it was too late.

While the report further proves that AIG’s leadership didn’t do enough to rein in the Financial Products unit, it also shows the AIG crisis to be an anomaly, not worthy of recreating the entire basis of insurance regulation in the U.S.