While AIG needed money from the government, its 71 state-regulated U.S. insurance subsidiaries have always been well-capitalized and were in no danger of not being able to pay claims.
If an insurer can’t pay its claims, the regulator in the company’s home state would start a rehab process. If that fails, the company is liquidated and claims would be paid up to a certain limit, which vary by state.
In the case of life insurance or annuity policies, state regulators usually try to transfer in-force policies to a new company.
For AIG customers, its subsidiaries are neither in rehab nor liquidation. Some will probably be sold to other companies, which will take over the policies.
In a sign of how this week has been, the ProShares UltraShort Financials (SKF) is up 21% in the last five days and Rydex Inverse 2x S&P Select Sector Financial (RFN) is up 24%, while the Rydex 2x S&P Select Sector Financial (RFL) is down 27.3%.
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.