AIG's Biggest Victim Could Be Other Life Insurers

Let's get serious. The lynch mob that's out to hang those American International Group (AIG) executives with their $165 million in bonuses is going to fail.

First of all, their rope is too short to reach across the Atlantic Ocean. The fat bonus checks have already been delivered to traders in AIG's Financial Products unit, which is based in London. Chances are these Brits are now at the pub, three sheets to the wind, laughing at the outrage from across the pond that they are viewing on the telly. So playing the shame game by naming them, as New York Attorney General Andrew Cuomo suggests, isn't going to work.

And neither are legal measures. The contracts are valid. For the U.S. itself to break a contract would be equivalent to defaulting on a Treasury bond. And that's not going to happen.

So who is going to get hurt? Quite possibly other insurers, and particularly life insurers. It is no secret that 12 lifers are lined up, tin cup in hand, looking for money from the TARP (Troubled Asset Relief Program) fund. Frank Keating, president of the American Council of Life Insurers, refuses to name names, but they are apparently some of the biggest, including Prudential and Hartford. Earlier in the month Keating suggested that action could come "in the next several weeks."
Will they get a blank check from the Treasury the way AIG did several months ago? Not bloody likely. Their argument, as reported on BNET Financial in January , is that they've taken huge losses on their investment portfolios and need to shore up their capital in order to pay claims. But that soap did not wash when they took their complaints to the National Association of Insurance Commissioners, the quasi-regulatory body for the U.S. insurance industry, back in January.

The NAIC, led by New York State Insurance Superintendent Eric Dinallo, turned them down. Are they expecting a better reception from a Congress, president and treasury secretary already battered for letting AIG get away with so much? The life insurers may want to insure themselves; the lynch mob is heading their way.