IERM Comment

Published in: Risk, Risk management, Capital, Corporate strategy, Regulation, Solvency II, US - Canada - Bermuda

Companies: AIG, Prudential, Federal Reserve, FDIC

Dear Friend,

As we report, this week saw the US Federal Reserve and the Federal Deposit Insurance Corporation receive a raft of so-called 'resolution plans' from a number of systemically important financial institutions.

Amongst these plans were ones from American International Group (AIG) and Prudential Financial, both of which came to more or less the same conclusion, namely that if the financial world goes belly up again, they could well embark on a series of asset disposals.

The notion that they would not seek a taxpayer-funded bailout but rather slim down and think of run-off instead is certainly an interesting one, but just how realistic is it?

Part of the problem with these resolution plans is that they are, ultimately, merely wishful thinking. What will really decide what will happen to AIG, Prudential and other major insurance groups if we are to experience another financial crisis will be to a large extent out of their control.

Yes, I'm sure that slimming down and selling off in order to survive is a sensible strategy, and one to a degree that AIG has already employed in recent years as it has sought to concentrate on its main insurance business and shed some non-core assets such as its aircraft leasing business.

Unless future sell-offs entail nationalisation, then they can't really be guaranteed, though. And even governments facing a fiscal straitjacket might not be able to take on board financial service companies next time round in the way they have done recently.

Markets are weird and wonderful beasts, and do what's right for them. If the price and condition seem right, sales are of course possible. But only possible.

Now I'm sure that if – heaven forbid – we are to have another crisis any time soon there will be plenty of rivals keen to pick up the tasty morsels from the likes of AIG's table at a good price. But nothing is certain here.

Not that I want to knock these resolution plans entirely. A degree of forward planning is sensible and necessary for companies and regulators alike. As long as everyone realises that these are aspirations and not firm resolutions.

Marcus Alcock,

Editor, InsuranceERM