The AIG Life Insurance Numbers

The document itself is dated February 26, and Andrew Ross Sorkin's column on it came out on March 3, under the headline "The Compelling Case for Saving A.I.G., by A.I.G." He begins:

Inside the corridors of power in Washington, a 21-page document has been getting a lot of attention. It is marked confidential and titled "A.I.G.: Is the Risk Systemic?"

Sorkin devoted his entire column to the contents of the document, and wrote this:

In the United States, A.I.G. has more than 375 million policies with a face value of $19 trillion. If policyholders lost faith in A.I.G. and rushed to cash in their policies all at once, the entire insurance industry could falter.

I picked up that startling number on March 3, and then dropped it on March 4, saying that it was clearly false and that there should be a correction on Sorkin's column.

On March 9, Calculated Risk made the document public. At that point, everybody could see what it actually said, on page 9:

AIG has written more than 81 million life insurance policies to individuals worldwide
- Face value: $1.9 trillion

On March 10, the correction finally got appended to the bottom of Sorkin's column:

The DealBook column last Tuesday, about the systemic risks posed by any collapse of the American International Group, misstated the size of A.I.G.'s life insurance business. The company has more than 81 million life insurance policies with a face value of $1.9 trillion globally, and says that a run by its policyholders to cash in policies with cash value could result in the collapse of the entire life insurance industry. A.I.G. does not have more than 375 million policies with a face value of $19 trillion; that is the total of all policies held by insurance companies in the United States.

It strikes me as a little odd that the correction didn't appear until after the document was made public, when the document is crystal-clear about both numbers: if Sorkin actually had the document, it's hard to see how he would have made this mistake in the first place, and even harder to see why he wouldn't have corrected it immediately, after simply looking at the document to see if it really said what he said it said.

So did Sorkin write an entire column about a document he didn't actually have posession of? Or did he just think that any correction could wait a week until the next time his column appeared?

Comments

[growroe:]

AIG is an incredibly complex company, with more than 4300 legal entities, often with cross ownership. Yet, each operating unit has its own accounting and policy systems and so getting a handle on total exposure across all lines of business is nearly impossible. Thus, the error in total exposure could be 'assisted' by a lack of firm internal numbers.

Mar 12 10:44 AM

[growroe:]

Having read the report again looking for how someone could misinterpret the numbers, it is obvious that AIG gave their exposures and the article got it plain wrong. Got me how Sorkin got it all bollixed.

One thing is clear about AIG - be it as separate entities or what have you, the insurance companies are healthy and therefore can and should stand alone. As for the casino like losses they ran up in London, best to get it behind them so the insurance pros can do what they do best.

Mar 12 10:55 AM

[User 283977:]

The document is crystal clear. Sorkin's numbers were wrong. So best case Sorkin is careless, OR worse case Sorkin had a hidden agenda to inflate the numbers. Given the size of the error, it appears that Sorkin's "eye" is not well calibrated with respect to the size of the actual market.


Sorkin's column was devoted to making the case for saving AIG. In the correction, I note that Mr. Sorkin did NOT revise his conclusion in his origional article based on the wrong data. That says a lot about Mr. Sorkin and raises questions about his credibility. If you make a published conclusion on bad data, and later find out the data was bad, then you need to publish the ramifications of that bad data on your conclusion. The only thing you have as a columnist is your reputation. Strange that Sorkin is not doing what is necessary to protect his reputation… why?

Mar 12 11:41 AM

[Augustus:]

The money comming out of one insurance policy will most likely be moved into another one. All that changes is who gets to shear the sheep.

Mar 13 10:23 AM

[samwise:]

because it was professor plum in the library with a candlestick, that's why.

Mar 13 02:30 PM

[objective:]

a NYT article with analysis of AIGs CDS exposure.

www.nytimes.com/2009/0...
It states:
“…A.I.G.’s insurance commitment stood at “only” $302 billion in part because the government has already voided $62 billion of the protection A.I.G. had written on pools of especially toxic securities. The underlying collateral on those contracts, valued at about $32 billion or so, now sits in a facility that the Federal Reserve Bank of New York oversees and which we, the taxpayers, own.

In order to rip up those contracts, the taxpayers had to make A.I.G.’s counterparties whole by buying the debt that A.I.G. had insured and paying out — in cash — the remaining amount owed to the counterparties.

Of the $302 billion in insurance outstanding at A.I.G., about $235 billion was sold to foreign banks and covers prime home mortgages and corporate loans. The banks that bought this insurance did so to reduce the money they must set aside for regulatory capital requirements.

A.I.G. also wrote $50 billion of insurance on pools of corporate loans. These contracts are performing O.K. for now, the company has said. ”

Now in ‘09 the Fed (via NY Open Market Operations) is buying $500B of MBS (already at $200B+ as of last week). Perhaps AIGs counter parties are (or could be, or were "encouraged" to) selling the "prime home mortgages" to the Fed in order to tear up the CDS contracts with AIG in a similar way to that described above, voiding a big AIG liability without causing a large drop in the value of the MBS while liquidating as the Fed is a ready buyer.

So if the NYT article is accurate, when it claims: "According to its most recent financial statements, A.I.G. had $302 billion in credit insurance commitments at the end of 2008.", and if, as the article states, most of it is on prime mortgages held by Euro banks that can now safely be sold to the Fed (probably at a profit!); doesn't this look like it can/will be over soon? with the Fed holding the mortgages until they run off in a few years.

Resp,

Mar 15 02:03 PM

[www.landlor...:]

I wouldn't worry about matters like this too much. Could of been a simple error. It's incredibly difficult to track every single aspect of a business, especially insurance policies.

Oct 10 02:52 PM