AIG Scraps Use of Life Insurance Policies to Pay Taxpayers Back

American International Group Inc. (AIG) has recently reported that it has decided to ditch its plan to use cash flows from life insurance policies to repay its $8.5 billion debt to the Federal Reserve Bank of New York. Instead, it plans to repay the money through other means, including cash generated by its insurance business and asset sales.

Why the Change?

Originally, the plan was to create $8.5 billion in securities back by cash flows from the policies to be underwritten by some of the company’s U.S. life insurance units. However, people who are close to the decision makers for AIG say that the company decided to move away from the original payback plan because it saw that its fourth-quarter results were better than expected.

Its market has recovered well over the past year and has given the company a greater chance of repaying its debts to U.S. taxpayers by other means.

The Pressure to Repay

Oddly, AIG has been in the news more in the past few weeks than it was in the year following its major fall. Part of the reason AIG disappeared for a while was because it was trying to spark a recovery plan out of the public’s critical eye.

By the time it reappeared, we were hearing news that it was selling to Metlife some of its life insurance business. Since the company is now 80 percent owned by taxpayers, it is definitely feeling the pressure to repay chunks of government money to U.S. taxpayers and looks to be pushing to get it done in the very near future.