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Texas Insurance Industry Remains on Solid Financial Footing
The financial health of the Texas insurance industry is generally strong but is not immune to downward trends in the national financial markets. The Texas Department of Insurance has a number of processes in place to monitor the financial condition of insurers and to ultimately protect insurance policyholders.
Even though insurance companies operating in Texas saw a downturn in investment returns in 2008, the industry still earned over $195.7 billion of investment income, finishing the year with over $ 767.9 billion in capital and surplus and more than $ 3.2 trillion in reserves supporting insurance policies. Such capitalization allows companies to weather economic fluctuations. Even as some companies with a greater percentage of investments in the stock market, real estate and mortgage-related securities are seeing more adverse results, the overall industry in Texas is on solid footing.
Policyholders are cautioned against making abrupt changes to their insurance policies based on the current economic downturn. It is important for policyholders to be informed of their options and to get advice from a trusted professional before making a decision to purchase or change insurance coverage. In some cases, policy and annuity cancellations can result in additional fees.
The Department is prepared to act swiftly if operational problems occur at specific companies. Immediate steps include cease and desist orders or orders declaring a hazardous financial condition that must be addressed by the insurer. If a company cannot continue operations and receivership occurs, insurance laws provide that guaranty associations protect the insurance policies held by most companies up to certain limits.
This regulatory safety net ensures that even in the worst of times for an insurer, insurance claims will be paid.
Texas Department of Insurance
Update: On April 16, 2009, Zurich Financial Services Group -- parent company to Farmers Insurance Group of Los Angeles, CA -- and American International Group, Inc. (AIG) announced an agreement to sell AIG's personal auto insurance group, including 21st Century Insurance Group, to Farmers for $1.9 billion. The transaction is subject to approval by regulatory agencies including the Texas Department of Insurance.
21st Century, based in Wilmington, DE, includes the former AIG Direct and Agency Auto groups of business. It operates in 49 states including Texas.
The Federal Reserve Board on Tuesday, September 16, announced that it authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) to provide the liquidity necessary to assist AIG in meeting its obligations. The Federal Reserve Board said the loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, after determining that “a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.”
AIG is working with state regulators, including the Texas Department of Insurance, and federal authorities to develop plans to address liquidity and capital concerns at the holding company. Texas is actively engaged in these discussions. The Federal Reserve Bank loan will facilitate the development of plans that will minimize disruptions to the insurance marketplace and policyholders.
On November 10, 2008, AIG, the U.S. Treasury and the Federal Reserve Board announced new developments to provide AIG with additional flexibility to address its liquidity issues and provide for a more effective and efficient restructuring of the company. The new developments included:
1. The U.S. Treasury will purchase $40 billion of AIG preferred shares under the Troubled Asset Relief Program. Proceeds from the issuance of preferred stock will be used to pay down the original September 16, 2008 credit facility.
2. The Federal Reserve will reduce the total amount available under the original credit facility from $85 billion to $60 billion and will restructure the terms of the facility to lower the interest rate and extend the repayment schedule from two to five years.
3. The Federal Reserve and AIG will provide up to $23.5 billion to a newly formed limited liability company established to purchase residential mortgage backed securities from AIG’s U.S. securities lending pool as part of a plan to terminate the U.S. securities lending program. Concurrently, AIG will be able to repay and terminate the $37.8 billion securities lending facility established on October 8, 2008.
4. The Federal Reserve and AIG will provide up to $35 billion to another newly formed limited liability company established to purchase collateralized debt obligations (CDOs), on which AIG Financial Products has written credit default swap (CDS) contracts, so that AIG can terminate the CDS contracts.
American International Group, Inc., (AIG) is a publicly traded holding company located in New York City and listed on the NYSE. The holding company is comprised of a number of operating segments, including insurance companies, financial services and brokerage services. AIG writes a wide array of products covering life, accident and health and annuity insurance through its life segment and personal, commercial and mortgage guaranty insurance through its property and casualty segment. AIG’s life insurance companies are domiciled in the States of Arizona, Tennessee, Missouri, Illinois, Delaware and Texas. AIG’s property and casualty insurance companies are domiciled in Pennsylvania, New York, North Carolina, Missouri, Mississippi, Connecticut, Louisiana, Texas, and California. As a holding company AIG is the ultimate parent and owner of the insurance companies, but is not itself an insurance company.
The life insurance companies domiciled in Texas are American General Life Insurance Company, AIG Annuity Insurance Company and The Variable Annuity Life Insurance Company. The property and casualty insurance company domiciled in Texas is 21st Century Insurance Company of the Southwest.
As a holding company, AIG is a separate legal entity that is distinct and apart from its subsidiary insurers. The subsidiary insurers are governed by state laws designed to protect the interest of policyholders. For example, the Texas Holding Company Act creates a firewall between AIG, the holding company, and the insurance companies. TDI is committed to protecting the interests of policyholders and will work closely with AIG management and other regulators to fulfill this commitment.
AIG News Releases
- AIU Holdings to Be Placed in Special Purpose Vehicle and Positioned as Independent, Global Property Casualty Holding Company (April 21, 2009)
- AIG Sells Residential Mortgage-Backed Securities Portfolio and Terminates U.S. Securities Lending Program (November 10, 2008)
Frequently Asked Questions
Q: Is my insurance company going bankrupt?
A: Recent news reports about potential bankruptcy have been about American International Group (AIG), a publicly traded holding company, not about any of the insurance companies owned by AIG. As a holding company, AIG is a separate legal entity that is distinct and apart from its subsidiary insurers. The subsidiary insurers are governed by state laws designed to protect the interest of policyholders. None of the issues affecting AIG have changed the operations of the insurance companies. The insurance companies continue conducting business as usual and paying all claims.
Q: What happens to my family's whole life policies if AIG declares bankruptcy? Are we protected? I also have an annuity. How safe is my money?
A: Recent news reports about potential bankruptcy have been about American International Group (AIG), a publicly traded holding company, not about any of the insurance companies owned by AIG. As a holding company, AIG is a separate legal entity that is distinct and apart from its subsidiary insurers. The subsidiary insurers are governed by state laws designed to protect the interest of policyholders. None of the issues affecting AIG have changed the operations of the insurance companies. The insurance companies continue conducting business as usual and paying all claims.
Under federal and state laws, insurance companies are not permitted to file for bankruptcy. Insurance companies are regulated by state insurance departments, who have various tools at their disposal when dealing with companies that may be experiencing financial duress. These tools are designed to protect policyholders’ interests. In the event company issues cannot be resolved, state regulators (not the insurance company) can place a company into receivership, where additional tools are available to rehabilitate a company. In the event rehabilitation is not possible, state guaranty associations are required to pay covered policyholder claims, subject to certain statutory limits and other restrictions.
Q: Can I receive money from an annuity policy? Can I take my money out without penalties?
A: Please check the terms of your policy. Annuity policies often have charges associated with surrendering the policy. Over time, these charges generally decrease or disappear.
Q: Should I change car insurance?
A: Please work with your agent regarding your specific insurance needs. Recent news reports about potential bankruptcy have been about American International Group (AIG), a publicly traded holding company, not about any of the insurance companies owned by AIG. As a holding company, AIG is a separate legal entity that is distinct and apart from its subsidiary insurers. The subsidiary insurers are governed by state laws designed to protect the interest of policyholders. None of the issues affecting AIG have changed the operations of the insurance companies. The insurance companies continue conducting business as usual and paying all claims.
NEW 9/24 Q: I have a fixed annuity over 20 years. Most of the money is in interest. If I transfer to an IRA with a bank, will I lose all the interest I accumulated over twenty plus years?
A: First, you must examine the terms of the annuity contract to determine if you are subject to any surrender charges. Contractual terms governing surrender charges vary substantially from contract to contract. Make sure that you are aware of and understand all surrender charges applicable to your particular contract and proposed withdrawal of funds.
Second, you should be aware of any tax implications of your annuity withdrawal. For certain types of annuities and withdrawals under specific circumstances, the receipt of annuity funds may be considered income subject to federal taxation. We recommend that you consult with a private tax advisor or seek assistance from the Internal Revenue Service to make sure that you understand whether and to what extent your withdrawal will be treated as a taxable event. You may contact the IRS Help Line for individual taxpayers at (800) 829-1040.
NEW 9/24 Q: After I request the forms for a roll over, is there a time limit for sending the forms back to the company? What is a reasonable time I can expect a check to be issued and mailed after the company receives the forms?
A: Texas Insurance Code ยง1107.003(c) allows an annuity company to defer a payment of a cash surrender benefit under an annuity for up to six months following an annuitant's demand for payment upon contract surrender. You may wish to contact your annuity company to get a more specific time estimate for transfer of funds and for the time limit for sending the forms back to the company.
Prevent Insurance Fraud
Insurance Fraud Toll-Free Hotline - 1-888-327-8818
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Online Fraud Reporting for Insurance Companies
Online Fraud Reporting for Consumers
File an Insurance Complaint
Read about TDI's consumer complaints process in the Helping You With Your Insurance Complaint publication. You may also e-mail, mail, or fax your complaint along with copies of your supporting documents to
Texas Department of Insurance
Consumer Protection Program (MC 111-1A)
P.O. Box 149091
Austin, TX 78714-9091
Fax: 512-475-1771
E-mail: ConsumerProtection@tdi.texas.gov
For more information contact:
Last updated: 03/26/2013
