Dinallo To Lead NAIC Task Force On AIG Asset Sales

New York Insurance Superintendent Eric Dinallo will oversee a National Association of Insurance Commissioners task force created to expedite the approval of sales of American International Group assets.

Creation of the task force was approved by commissioners in a 5 p.m. conference call Tuesday afternoon, as federal and state regulators worked with the Treasury Department to design a solution to AIG’s liquidity crisis, according to David Neustadt, an insurance department spokesman.

The move implied that prompt action to sell AIG assets and pay off a government bridge loan secured late yesterday is necessary to get the best value for the government and shareholders.

That appeared to be an imperative as AIG’s stock price continued to plunge this morning, while the overall stock market continued to decline in the wake of the federal action Tuesday night to rescue AIG from a potential bankruptcy filing.

The stock was selling at $2.06, down 45 percent from Tuesday’s close, at 11:10 a.m. AIG stock had been selling in the mid-20s last week.

At the same time, in an appearance Wednesday morning on CNBC’s “Squawk Box,” Mr. Dinallo lauded state regulators for the way they dealt with AIG’s problems as the company became engulfed in a financial tsunami linked to the plunging value of housing assets.

He also voiced confidence in his decision to approve the appointment of Edward Liddy, former CEO of Allstate, as the new CEO of AIG. Mr. Dinallo characterized Mr. Liddy as a “sterling insurance executive with great competency” to oversee AIG and the sale of the assets needed to pay off the government loan.

Mr. Dinallo spoke as a former chairman of the Securities and Exchange Commission, Arthur Leavitt, described the $85 billion government loan to AIG in return for 79.9 percent of its stock as a “controlled bankruptcy.”

Mr. Dinallo confirmed that a Chapter XI bankruptcy filing would normally have been an appropriate way to deal with AIG’s problems, since it was the lack of liquidity in the holding company—rather than any insolvency in AIG’s operating insurance operations—that were causing the problems.

However, he said, such an action was ruled out because regulators were concerned “it would have created a perception in the eye of the public of problems”—a lack of confidence that could have prompted the frantic sale of AIG products by consumers, as well as a decision by commercial customers to switch their accounts to other insurers.

That would have eroded the value AIG would have received for its viable assets, he explained, and would have reduced the price that could be negotiated for its assets through an orderly sale—the purpose of the government bridge loan, delivered via the Federal Reserve.

Mr. Dinallo also criticized insurance executives, who, he said, “have gotten away from their core competence” by becoming involved in the acquisition of the speculative financial derivatives that laid AIG low. “They have to get better at focusing on their core competence,” he said.

Moreover, he added, the lesson of AIG’s problems is that more capital is needed at the holding company level, as well as in the operating insurance companies.

He also lauded the Federal Reserve Board because it acted in such a way as to protect insurance policyholders by not mandating the collateralizing of assets and surplus in insurance subsidiaries in order to secure the loan.

Under the terms of the loan, entire affiliates, not their underlying cash assets, are securing the loan.

He disclosed that the reason a private solution—that is, a loan from a consortium of banks collateralized by AIG assets—could not be completed was that some of the insurance subsidiary assets were “given low evaluations” by the bankers as they perused AIG’s books.