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Florida, Local Agencies Assess AIG Holdings

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By RUSSELL RAY and CATHERINE DOLINSKI

The Tampa Tribune

Published: September 17, 2008

TAMPA - Hours before Federal Reserve officials found a cash infusion to keep afloat American International Group Inc., the nation's largest insurance company, state and other government officials in Florida were still assessing how much financial exposure they might have with investments in AIG.

They also tried to assess what government and other assets in the state are insured through AIG and what might become of AIG insurance policies should the company seek bankruptcy protection.

AIG shares closed down Tuesday $1.01, or 21.2 percent, at $3.75. Its shares have traded as high as $70.13 during the past year.

Under a plan orchestrated by the Fed during a day of crisis talks, the U.S. government will provide an emergency $85 billion loan to AIG. In return, it will receive a 79.9 percent equity stake in the company, similar to the way the government took control of faltering mortgage giants Fannie Mae and Freddie Mac.

AIG provides a variety of insurance coverage throughout Florida, including auto and home insurance, through 47 subsidiaries, said Ed Domansky, spokesman for the Florida Office of Insurance Regulation. State regulators aren't sure what might happen to the guarantees under those policies should AIG seek bankruptcy protection.

"It's too early to speculate," Domansky said. "We're working with the regulators in New York and Pennsylvania, the two states that have the most regulatory control right now over AIG, in determining what would be necessary if something like that were to happen."

State officials said the only policy it holds with AIG is insurance for 73 state-owned aircraft at a cost of $194,000 a year.

It wasn't clear Tuesday whether Hillsborough County holds any AIG insurance policies. Eric Johnson, the county's budget director, could not be reached.

The city of Tampa recently purchased a policy from AIG to cover damage to the city's fuel storage tanks. The $20,000-a-year coverage is the only policy the city has with AIG, city officials said.

Kimberly Crum, the city's human resources director, noted that the liquidity crisis at AIG is limited to the holding company, not the commercial insurance division. The financial status and claims-paying ability of the commercial insurance division are "quite sound," Crum said.

Any claim by the city would probably be paid even if the parent company files for bankruptcy protection, Crum said.

"From the information I've received, that's what it looks like to me," she said. "But I don't know that any of us know that for sure."

Tampa Reports No AIG Holdings

Meanwhile city officials said Tampa doesn't have any money invested in AIG stock or bonds. (The city also does not have any money tied up in Lehman Brothers, which declared Chapter 11 bankruptcy on Monday.)

Hillsborough County has a contract with AIG to provide investments for the county's proceeds from $300 million in solid waste bonds. But the bond proceeds are held by a third party and are fully collateralized, said Mike Merrill, the county's director of debt management. That means the county's money is safe if AIG goes under.

The state does have investments in AIG, however, and their value has been cut as AIG's troubles have mounted and its shares have tumbled.

Those holdings include:

•As of Sept. 12, the state Board of Administration had AIG holdings valued at $130 million, representing about 0.09 percent of the SBA's total assets. The SBA's investments in AIG have lost substantial value; an original investment of $453 million has slid in value by about $323 million, state officials said.

•The lion's share of the state's AIG holdings lies with the Florida Retirement System pension fund, which accounts for half of the SBA's assets. The $125-billion pension fund holds about $127 million in AIG stocks and bonds. Specifically, $83.4 million in AIG equities and $43.5 million in AIG fixed income notes. The pension fund's total original investment in AIG holdings, about $441 million, has slid in value by $313.9 million. SBA Director Bob Milligan emphasized in a meeting Tuesday with members of the state Cabinet the diversity of the pension fund's investments.

•AIG holdings account for $181.7 million, or less than 0.8 percent, in the $24-billion Florida Treasury, according to state Chief Financial Officer Alex Sink's office. The state Treasury's AIG holdings are in the form of bonds or debt, Sink said.

Sink Hopes For Best

Asked whether the SBA should dump its AIG stock, Sink said it's a difficult decision.

"It's possible that the stock will go up in the ensuing days or so. Look what happened to Merrill Lynch stock when Bank of America took it over: They got a bump in price. It's just rolling the dice."

Information from The Associated Press was used in this report. Reporter Mike Salinero contributed to this report. Reporter Russell Ray can be reached at (813)259-7870 or rray@tampatrib.com.

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