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					Contagion and Competitive effects: Evidence from AIG




                Andre P. Liebenberg
         College of Business Administration
               University of Mississippi
                 Oxford, MS 38677
           aliebenberg@bus.olemiss.edu

                Ivonne A. Liebenberg
         College of Business Administration
               University of Mississippi
                  Oxford, MS 38677
           iliebenberg@bus.olemiss.edu

                   Jared Egginton
         College of Business Administration
              University of Mississippi
                 Oxford, MS 38677
            jegginton@bus.olemiss.edu




                  November 2008
                        Contagion and Competitive effects: Evidence from AIG




Abstract

       Using and event study structure, this study explores contagion and competition effects

by examining the abnormal returns of AIG and its rival insurers surrounding AIG’s considerable

decline in 2008. We find evidence of competition effects over the general event window and

surrounding some events dates. We also find evidence of contagion effects in the days

surrounding several informational events.




                                               2
Introduction

           On September 16, 2008 American International Group (AIG) stock price shares fell to

$1.25 a 95% drop from the 52-week high price of $70.13. AIG’s Financial Product division had

entered into credit default swaps to insure $441 billion worth of securities that were originally

rated AAA. Of these securities, $57.8 billion were structured debt securities backed by

subprime mortgages (Pittman 2008).

           As Lehman Brothers, the largest bankruptcy in U.S. history, share price was declining

investors compared securities held by AIG that were similar those held by Lehman Brothers,

and discovered that AIG had valued it’s ALT-A and sub-prime mortgage-backed securities at 1.7

to 2.0 times the rate used by Lehman Brothers (Morgensen and Walsh 2008). It was ultimately

these ALT-A and subprime mortgage-backed securities that sent AIG shares into a tailspin and

nearly bankrupted the company.

           The implications of an AIG failure was seen as such a threat to the overall economy that

on the evening following AIG’s sharp decline in stock price the Federal Reserve Bank’s Board of

Governors announced a 24-month credit-liquidity facility from which AIG could draw $85

billion. The collateral for the loan were the assets of AIG, and the rate of the loan was London

Interbank Offered Rate (LIBOR) plus 8.5%. The U.S. government also received warrants for

79.9% equity stake in AIG, and the ability to suspend dividend payments to AIG shareholders.

The Board of Governors September 16, 2008 official press release cites the follow as reasons for

the bailout1:


1
    See Appendix A: For full press release.

                                                   3
       The Board determined that, in current circumstances, 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.

On October 8, 2008 the FED expanded the loan by adding an additional $37.8 billion to the

available loan amount.

       Using and event study structure this study examines contagion and competition effects

by examining the abnormal returns of AIG and its rival insurers surrounding AIG’s considerable

decline. We find evidence of competition effects over the general event window and

surrounding some events dates. We also find evidence of contagion effects in the days

surrounding several informational events.

       The remainder of the paper is structured as follows. Section 2 reviews prior literature.

Section 3 presents the research hypothesis. Section 4 describes the sample data. Section 5

outlines the research methodology. Section 6 presents the results and section 7 concludes.



2. Literature Review

       Event studies have been used extensively in the general finance literature to test the

impact of informational events. Within in the insurance literature then have been used to

study the impact of natural and man-made disasters. (Ewing, Hein and Kruse (2005); Lamb

(1995); Angbazo and Narayanan (1996); Shelor, Anderson and Cross (1992); Cummins and Lewis

(2003) and others). They have also been used to study the impact of political risk on insurers

(Fields, Ghosh, Kidwell, Klein (1990), Liebenberg, Liebenberg, Ruhland (2008), and others).
                                                 4
       Cummins, Lewis and Wei (2006) conduct and event study to analyze the impact of

operational loss events on the market value of banks and insurers. They look at all operational

loss events over $10 million that affected publicly traded banks and insurers from 1978-2003.

Their results reveal a significant negative stock price reaction to the announcement of

operational loss events. This market value response was larger for insurers than banks. The

market value loss was also larger than the operational loss reported, suggesting that reported

operational losses reveal adverse implications about future cash flows.

       Several studies have investigated whether abnormal returns are limited to firms directly

impacted by the news announcements, or whether contagion exists. Flannery (1998) provides

an extensive review of finance literature regarding contagion.

       Lang and Stulz (1992) explore both contagion and competition effects on a firms

competitors surrounding bankruptcy announcements. They purpose that competition effects

can arise in industries with imperfect competition, so that every firm faces an imperfectly

elastic demand curve. Suppose a firm in this type of industry enters bankruptcy or some other

detrimental event so that the firm experiences a decrease in demand because its product has

become less attractive than its competitors products. If this bankruptcy or other negative

event conveys information about a demand shift, then this information would be positive news

for competing firms because they may experience an increase in demand for their products.

Lang and Stulz (1992) find evidence of this competition effect in highly concentrated industries

with low leverage.

       Jorion and Zhang (2007) also look for evidence of credit contagion and competition

effects surrounding bankruptcies and other negative events using credit default swap (CDS)
                                                5
spreads and abnormal returns. They find contagion effects on firms in the same industry

surrounding some negative events (including chapter 11 bankruptcies). With other negative

shocks (including chapter 7 bankruptcies) they observe reverse contagion or competition

effects suggesting that bad news for one firm can with some events mean positive news for its

competitors.

       Contagion is an issue that has received some attention in the banking literature.

Weigand, Fraser and Baradwaj (1999) test for contagion using conditional volatility of weekly

returns estimated from a GARCH(1,1) model. They find evidence of contagion effects

surrounding the failure of First City Bancorporation in 1985. Aharony and Swary (1996)

examine contagion effects on banks surrounding five large bank failures that occurred in the

South-West region of the United States during the 1980’s. Their findings suggest that the

distance of the solvent bank and capital ratio are negatively related to the magnitude of the

contagion effect, and the size of the solvent banks is positively related to the contagion.

       Focus has also been given in the insurance literature concerning contagion. Fenn and

Cole (1994) examine life insurers’ stock price reaction to announcements concerning the

downward revaluation of First Executive’s junk bond portfolio and a subsequent downward

revaluation of Travelers’ commercial real estate portfolio. They hypothesize that firms

investing in junk bonds and commercial real estate with relatively high levels of Guaranteed

Investment Contracts (GICs) would be negatively impacted because of an investor perceived

decrease in value of GICs. They find evidences that investors took assets composition into

account, consistent with their hypothesis. Polonchek and Miller (1999) also explore the

contagion effects in the insurance industry. Their results are consistent with their hypothesis
                                                 6
that the announcement of equity offering reveals information about both the quality of the

announcing firm’s portfolio as well as the quality of rival firms’ portfolios. These

announcements were associated with a significant contagion effect among life insurers tested.



3. Hypothesis Development


       One explanation of contagion effects focuses on the updating of beliefs, in which

investors update their opinions of non affected firms. (See Collin-Dufresne, Goldstein, and

Helwege, 2003). For example, the fall of Enron increased investors concern about the

accounting numbers of unaffiliated firms. Collin-Dufresne et al. (2003) show that this updating

of beliefs can lead to a contagion risk premium. If news of AIG’s troubles led to an update in

the beliefs of investors then other insurers could have realized negative abnormal returns.

       Contagion effects are generally associated with a positive default correlation between

firms. However, Lang and Stulz (1992) and Jorion and Zhang (2007) note that there could be

cases in which there is negative default correlation among competing firms. Lang and Stulz

(1992) cite as example, Bethlehem Steel who benefitted from the downfall of its major rival LTV

Corporation. This “competition effect” arises when customers become reluctant to do business

with the affected firm, perhaps because the firm no longer has a reputation of providing a high

quality product (Maksimocis and Titman, 1991). The majority of AIG’s losses came as a result of

their sub-prime mortgage exposures and not as result of core insurance business. Therefore,

competition effects are especially of interest for our study because we only examine AIG’s

insurance company rivals who were largely unaffected by the mortgage crisis. If investors


                                                 7
speculated that AIG loss of market share could be snatched up by competing insurers or that

AIG assets could be bought by competitors at fire sells prices then this information could have

lead to positive abnormal returns for competing insurers.

            It is also possible for these contagion and competition effects to coexist. In this case the

observed abnormal return would be the net effect of the two conditions. This discussion leads

us to the following hypothesis stated in null form.

     Null Hypothesis: News about AIG should not lead to abnormal returns for other insurers.

            The alternative hypothesis is that information about AIG lead to positive or negative

abnormal returns for other insurance firms.


4. Data

            To explore the stock price reaction of insurance firms surrounding the AIG crises events

we construct a sample of publicly traded insurers with a SIC codes between 6300 and 6400.

Stock price data for these insurance companies was obtained from Yahoo! Finance. We limit

our sample to firms that operated in the US during and have available data on yahoo finance

over the entire Jan 2007- October 2008 period. Our final sample consists of 148 insurers2.

5. Methodology

            Although mid September saw a near 90% drop in AIG’s share price there were several

events leading up to the AIG mortgage crisis. We test for contagion and competition effects of

AIG’s rivals surrounding significant event dates in AIG’s deterioration3. We examine the

2
    See Appendix B for a list of all insurers.
3
  We obtain relevant event dates for AIG by searching new wires on Lexus Nexus for the first report of an
informational event.

                                                         8
abnormal returns of both AIG and its rivals to test our hypothesis that AIG’s crisis significantly

impacted the stock price of its rivals.

        On February 11, 2008 AIG was forced to write-down $4.88 billion because of losses on

exposures to subprime mortgages. This is a noteworthy date because it raised one of the first

flags that AIG may be in trouble. Table 1 reports other relevant dates in the deterioration of

AIG surrounding their crisis due to exposures of sub-prime mortgage.

                                                Table 1
                                         Timeline of AIG Events
 February 11, 2008 AIG forced to write-down $4.88 billion because of losses on exposures to subprime
 mortgages.

 February 28, 2008 AIG reports $5.29 billion fourth-quarter loss.

 May 8 2008 Heard On the Street column warns that American International Group's troubles with losses
 from derivatives tied to subprime mortgages may play out over next several years in sluggish
 profitability, weaker returns and missed opportunities; notes that derivatives will put pressure on AIG's
 balance sheet until they bounce back

 May 8, 2008 (After Hours) AIG Reports $7.8 billion first-quarter loss

 June 16, 2008 AIG fires chief exec Martin Sullivan

 August 6, 2008 (After Hours) AIG reports $5.4 Billion second-quarter loss

 September 15, 2008 AIG shares fall 31% to $12.14

 September 15, 2008 AIG scrambles to raise cash talks to fed

 September 16, 2008 AIG share prices fall to $1.25 61% decline.

 September 16, 2008 (After Hours) The Federal Reserve Board authorizes the Federal Reserve Bank of
 New York to lend up to $85 billion to the American International Group (AIG)

 September 22, 2008 AIG dropped from DOW Jones Industrial Average

 October 3, 2008 AIG announces its plans to sell assets to focus on core commercial P/C operations

 October 8 2008 Fed expands bailout package by increasing federal loan an addition $37.8 Billion



                                                      9
       Our event study estimation period is 150 trading days ending 21 days prior to our first

event date (February 11, 2008). Expected returns are estimated using the standard market

model across the estimation period as outlined by Mackinlay (1997):

                                                                       (1)

                                                                       (2)

       Where       is the return on security i at time t,     is the return on the S&P 500 index at

time t, and    is the zero mean disturbance term. The OLS estimated parameters of the market

model are              . Abnormal returns are calculated as follows:

                                                                               (3)

       Where           is the abnormal return for security i, at time t. Under the null hypothesis,

the abnormal returns are jointly normally distributed with a mean of zero and conditional

variance           . We use the Boehmer, Musumeci, Poulsen (1991) z-statistic and the Patell

(1976) z-statistic to test whether daily abnormal returns are significantly different from zero.

The Boehmer, Musumeci, Poulsen (1991) z-statistic adjusts for event-induced variance and is

defined as follows:


                                                                         (4)



       Where          is the standardized abnormal return for firm i, calculated as firm i’s abnormal

return divided by the standard deviation of the estimation period residuals. The Patell (1976) z-

statistic normalizes the residuals is defined as follows:




                                                  10
                                                                      (5)



         Where    is the number of days in securities i’s estimation period. A significant negative

     or        for both AIG and its rival firms on event dates would suggest contagion effects

whereas, a significant negative        or      for AIG and a positive       or        for AIG’s

rivals would imply a completion effect.



6. Results

         Figure 1 reports the cumulative abnormal returns (CAR) of AIG and its rivals over the

entire event window. Over the entire event window we see a gradual and then sharp

downward trend in AIG’s CAR. We also observe a general positive increase in AIG’s rival CAR

with the largest increase coming simultaneously with AIG’s sharp decline. These results

support a net competition effect over the event window. Our results are consistent with the

hypothesis that information about AIG lead to positive abnormal returns for other insurance

firms.

         Figure and Table 2 report abnormal return and CAR results surrounding February 11,

2008 when AIG was forced to write down $4.88 billion due its exposures to subprime

mortgages. This marked the first major event in AIG’s decline. On February 11 AIG experience

a statistically significant abnormal return of -12.40%. AIG’s rivals also experienced statistically

significant negative abnormal returns on February 11. This simulations decline in abnormal

returns is consistent with a net contagion effect on the event day. This result is also consistent


                                                 11
with the hypothesis that information about AIG led negative abnormal returns for other

insurance firms.




                                             12
                                                                                                                 Figure 1
                                                                                                   AIG and Rivals Event Period Window
                               50.00%




                                0.00%




                              -50.00%
                                         February, 12, 2008: AIG forced to
                                         write-down $4.88 million because                                                                                                            October 8, 2008: Fed
Cumulative Abnormal Returns




                                         of loses on exposures to subprime                                                                                                           expands AIG loan an
                                         mortgages                                                                                                                                   additional $37.8 billion


                              -100.00%
                                                                                          May 8, 2008: AIG report $7.8
                                                                                          billion 1st quarter loss.
                                                      February, 28, 2008: AIG reports                                                              September 15, 16 2008: AIG
                                                      $5.29 billion fourth-quarter loss                                                            share price falls 92% over a 2
                                                                                                                                                   day period.
                                                                                                                                                   After hours September 16 : Fed
                                                                                                                 August 8, 2008: AIG report $5.4   announces $85 billion AIG loan.
                                                                                                                 billion 2nd quarter loss.
                              -150.00%




                              -200.00%


                                                                                                                                                                    Rivals     AIG




                              -250.00%
                                                                                                                     13
                                                                                                Figure 2
                                                               AIG Forced to Write Down $4.88 Billion due to subprime Mortgage Exposures
                                                                                         (Feb 11, 2008=Day 0)
                                                  2.50%

                                                  2.00%

                                                  1.50%

                                                  1.00%
                   Cumulative Abnormal Returns




                                                  0.50%

                                                  0.00%                                                                                        Rivals
                                                          -4       -3       -2       -1       0        1        2        3        4        5
                                                 -0.50%

                                                 -1.00%

                                                 -1.50%

                                                 -2.00%

                                                 -2.50%

                                                 2.00%


                                                 0.00%
                                                          -4       -3       -2       -1       0        1        2        3        4        5

                                                 -2.00%


                                                 -4.00%
Cumulative Abnormal Returns




                                                 -6.00%


                                                 -8.00%                                                                                          AIG


                                            -10.00%


                                            -12.00%


                                            -14.00%


                                            -16.00%


                                            -18.00%




                                                                                                  14
                                                     Table 2
    Abnormal Returns Surrounding AIG Forced to Write Down $4.88 Billion due to subprime Mortgage
                                         Exposures February 11, 2008
                                         AIG                                     Rivals
                                        (N=1)                                   (N=147)
 Date            Event        Abnormal       Patell test     Abnormal       Patell test (z)      z(BMP)
                  Day          Return             (z)          Return
 20080204          -5             0.86%       0.71              0.40%      2.29**              2.42**
 20080205          -4            -0.37%       -0.31             1.07%      5.57***             3.70***
 20080206          -3            -0.51%       -0.42             0.42%      3.59***             3.72***
 20080207          -2            -1.78%       -1.47             -0.08%     -1.81*              -1.32
 20080208          -1            -1.26%       -1.04             -0.97%     -6.99***            -6.15***
 20080211           0           -12.40%       -10.24***         -2.45%     -15.87***           -9.78***
 20080212           1             2.31%       1.91              0.05%      2.63***             2.09**
 20080213           2            -2.99%       -2.47**           -0.51%     -2.91***            -2.60**
 20080214           3             1.74%       1.44              0.48%      1.39                1.44
 20080215           4             1.32%       1.09              0.44%      4.14***             3.40***
 20080219           5             2.19%       1.81*             0.22%      2.18**              1.67*
 Note: Abnormal returns are calculated using standard market model (as per equations xx-xx) where the
 market return is the S&P 500 daily return and the estimation period contains at least 150 trading days
 ending 21 day prior to the first event date. The significance of the abnormal returns is tested using the
 Patell test (equation 5) and the Boehmer, Musumeci, Polsen (1991) z-statistic (equation 4) that adjusts
 for event-induced variance. Statistical significance at the 1, 5, and 10 percent levels is indicated by ***,
 **, * respectively.


          Abnormal returns and CAR results surrounding September 16, 2008 which saw a one

day 61% decline in AIG’s share price are reported in Figure and Table 3. In day -2 AIG CAR

begins its sharp decline. In days -2, -1 and 0 AIG saw statistically significant abnormal return of

-31.01%, -54.73% and -23.35% respectively. For AIG’s rivals we observe statistically significant

positive abnormal returns of .80% and 1.05% in days -1 and 0 respectively. As was observed in

the overall event window, these results are consistent with the existence of competition effects

for AIG’s rivals.




                                                      15
                                                                                              Figure 3
                                                                           AIG Stock Price Plunges (September 16= Day 0)
                                                   6.00%


                                                   5.00%


                                                   4.00%


                                                   3.00%
                     Cumulative Abnormal Return




                                                   2.00%
                                                                                                                                                   Rivals

                                                   1.00%


                                                   0.00%
                                                            -5   -4   -3     -2        -1        0         1           2       3       4       5

                                                  -1.00%


                                                  -2.00%


                                                  -3.00%

                                                   0.00%
                                                            -5   -4   -3    -2        -1         0        1        2       3       4       5

                                                  -20.00%


                                                  -40.00%


                                                  -60.00%
Cumulative Abnormal Return




                                                  -80.00%
                                                                                                                                                    AIG

                                              -100.00%


                                              -120.00%


                                              -140.00%


                                              -160.00%


                                              -180.00%




                                                                                            16
                                                    Table 3
                                 AIG Stock Price Plunges September 16, 2008
                                         AIG                                      Rivals
                                        (N=1)                                    (N=147)
 Date            Event        Abnormal      Patell test (z)   Abnormal       Patell test (z)     z(BMP)
                  Day          Return                           Return
 20080909          -5          -14.88%       -12.29***       0.00%         2.89***             2.32**
 20080910          -4           -5.43%       -4.49***        0.03%         1.83**              1.15
 20080911          -3           -1.38%       -1.14           -1.75%        -11.07***           -7.83***
 20080912          -2          -31.01%       -25.62***       -0.31%        -3.40***            -3.17***
 20080915          -1          -54.73%       -45.22***       0.80%         4.52***             2.38**
 20080916           0          -23.35%       -19.30***       1.05%         8.17***             2.97***
 20080917           1          -39.28%       -32.45***       -1.26%        -9.44***            -3.61***
 20080918           2           25.81%       21.33***        3.84%         22.45***            4.41***
 20080919           3           38.11%       31.48***        2.61%         22.57***            4.423***
 20080922           4           27.53%       22.74***        -0.44%        -10.26***           -2.67***
 20080923           5           8.00%        6.61***         0.70%         4.61***             2.39**
 Note: Abnormal returns are calculated using standard market model (as per equations xx-xx) where the
 market return is the S&P 500 daily return and the estimation period contains at least 150 trading days
 ending 21 day prior to the first event date. The significance of the abnormal returns is tested using the
 Patell test (equation 5) and the Boehmer, Musumeci, Polsen (1991) z-statistic (equation 4) that adjusts
 for event-induced variance. Statistical significance at the 1, 5, and 10 percent levels is indicated by ***,
 **, * respectively.


        Figure and Table 4 reports abnormal returns and CAR results surround our final event of

interest, the FED’s $37.8 billion expansion of the AIG bailout loan. Consistent with the results

observed on February 11, 2008, we observe negative statistically significant abnormal returns

for both AIG and its rivals. These results are also consistent with contagion effects.

        In summary, our results suggest that informational events surrounding AIG’s decline

have evidence of mixed contagion and competition effects. These contagion and competition

effects vary in magnitude.




                                                      17
                                                                            Figure 4
                                                       Fed Expands Bailout loan an additional 37.8 Billion
                                                                   (October 8, 2008=Day 0)
                                   4.00%


                                   2.00%
Cumulative Abnormal Return




                                   0.00%
                                            -5   -4   -3      -2       -1         0       1       2       3       4       5

                                   -2.00%
                                                                                                                                  Rivals
                                   -4.00%


                                   -6.00%


                                   -8.00%


                                  -10.00%
                                  35.00%


                                  30.00%


                                  25.00%
     Cumulative Abnormal Return




                                  20.00%


                                  15.00%                                                                                           AIG


                                  10.00%


                                   5.00%


                                   0.00%
                                            -5   -4   -3       -2       -1            0       1       2       3       4       5

                                  -5.00%

                                                                             18
                                                    Table 4
                             Fed Expands Bailout loan an additional 37.8 Billion
                                               October 8, 2008
                                         AIG                                      Rivals
                                        (N=1)                                    (N=147)
 Date            Event        Abnormal      Patell test (z)   Abnormal       Patell test (z)     z(BMP)
                  Day          Return                           Return
 20081001          -5           19.10%       15.78***        0.67%         -0.75               -0.21
 20081002          -4           6.46%        5.33***         0.04%         -6.36***            -2.01**
 20081003          -3           -1.70%       -1.41           0.18%         3.42***             1.34
 20081006          -2           5.22%        4.32***         -0.27%        -8.46***            -1.91*
 20081007          -1           -1.95%       -1.61           -0.66%        -4.32***            -1.50
 20081008           0           -7.60%       -6.28***        -3.06%        -26.34***           -5.92***
 20081009           1          -15.34%       -12.68***       -5.57%        -39.61***           -7.38***
 20081010           2           -0.94%       -0.77           4.95%         26.34***            4.08***
 20081013           3           -4.29%       -3.54***        3.28%         33.75***            4.84***
 20081014           4           9.71%        8.02***         2.96%         16.71***            2.98***
 20081015           5           -1.68%       -1.39           -0.03%        -4.89***            -1.56
 Note: Abnormal returns are calculated using standard market model (as per equations xx-xx) where the
 market return is the S&P 500 daily return and the estimation period contains at least 150 trading days
 ending 21 day prior to the first event date. The significance of the abnormal returns is tested using the
 Patell test (equation 5) and the Boehmer, Musumeci, Polsen (1991) z-statistic (equation 4) that adjusts
 for event-induced variance. Statistical significance at the 1, 5, and 10 percent levels is indicated by ***,
 **, * respectively.


5. Conclusion

        The months prior and posterior to AIG’s considerable decline in stock price and

subsequent Federal Government bailout loan were marked with several important

informational events. This unique set of circumstances provides scenario in which contagion

and competition effects could be explored.

        Using and event-study methodology we look for the existence of contagion and

competition effects surrounding informational events related to AIG’s crisis. We find evidence

of competition effects over the general event window and surrounding some events dates. We

also find evidence of contagion effects in the days surrounding several informational events.

                                                      19
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                                               22
Appendix A: Board of AIG Governors Press Release

Release Date: September 16, 2008

For release at 9:00 p.m. EDT

The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized
the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group
(AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions
designed to protect the interests of the U.S. government and taxpayers.

The Board determined that, in current circumstances, 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.

The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan
will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the
least possible disruption to the overall economy.

The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-
month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.

The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the
assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of
substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of
the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and
has the right to veto the payment of dividends to common and preferred shareholders.




                                                      23
Appendix B: Sample Firms

 Company Name
 BANCINSURANCE CORP
 ATLANTIC AMERICAN CORP
 AMBAC FINANCIAL GP
 ACA CAPITAL HOLDINGS INC
 AMERICAN PHYSICIANS CAPITAL
 ACE LTD
 ARCH CAPITAL GROUP LTD
 AEGON NV
 AMERICAN EQTY INVT LIFE HLDG
 AETNA INC
 AFFIRMATIVE INS HOLDINGS INC
 AMERICAN FINANCIAL GROUP
 INC
 AFLAC INC
 AMTRUST FINANCIAL SERVICES
 ASSURED GUARANTY LTD
 AMERIGROUP CORP
 ASPEN INSURANCE HOLDINGS
 LTD
 AMERICAN INTERNATIONAL
 GROUP
 ASSURANT INC
 ALLSTATE CORP
 AMCOMP INC
 AMERICAN INDEPENDENCE
 CORP
 AMERISAFE INC
 AMERICAN NATIONAL
 INSURANCE
 ANNUITY AND LIFE RE
 HOLDINGS
 AMERICAN SAFETY INS HLDG
 LTD
 ALLIED WORLD ASSRNC CO
 HLDGS
 AXA -ADR
 AXIS CAPITAL HOLDINGS
 ALLIANZ SE -ADR
 BERKLEY (W R) CORP
 BALDWIN & LYONS -CL B
 CHUBB CORP
 CIGNA CORP
 CITIZENS INC
 CINCINNATI FINANCIAL CORP

                                24
Company Name
CNA FINANCIAL CORP
CENTENE CORP
CONSECO INC
DELPHI FINANCIAL GRP -CL A
DONEGAL GROUP INC
EASTERN INSURANCE HLDGS
INC
EMC INSURANCE GROUP INC
ENDURANCE SPECIALTY
HOLDINGS
FIRST ACCEPTANCE CORP
FIRST AMERICAN CORP/CA
FBL FINANCIAL GROUP INC-CL A
FAIRFAX FINANCIAL HOLDINGS
FIRST MERCURY FINANCIAL
CORP
FIDELITY NATIONAL FINANCIAL
FPIC INSURANCE GROUP INC
GAINSCO INC
GENWORTH FINANCIAL INC
HALLMARK FINANCIAL SERVICES
HCC INSURANCE HOLDINGS INC
HARLEYSVILLE GROUP INC
HARTFORD FINANCIAL
SERVICES
HORACE MANN EDUCATORS
CORP
HEALTH NET INC
HEALTHSPRING INC
HUMANA INC
INDEPENDENCE HOLDING CO
UNITED AMERICA INDEMNITY
LTD
ING GROEP NV -ADR
INFINITY PROPERTY & CAS
CORP
IPC HOLDINGS LTD
INVESTORS TITLE CO
KANSAS CITY LIFE INS CO
KINGSWAY FINANCIAL SVCS INC
CHINA LIFE INS CO-ADR
LANDAMERICA FINANCIAL GP
LINCOLN NATIONAL CORP
LOEWS CORP
MBIA INC
MERCURY GENERAL CORP
                               25
Company Name
METLIFE INC
MANULIFE FINANCIAL CORP
MERCHANTS GROUP INC
MEADOWBROOK INS GROUP INC
MERCER INSURANCE GROUP
INC
MARKEL CORP
MOLINA HEALTHCARE INC
MONTPELIER RE HOLDINGS
MGIC INVESTMENT CORP/WI
MAX CAPITAL GROUP LTD
NATIONAL INTERSTATE CORP
NAVIGATORS GROUP INC
NATIONWIDE FINL SVCS -CL A
NATIONAL SEC GROUP INC
NATIONAL WESTERN LIFE -CL A
NYMAGIC INC
ONEBEACON INSURANCE
GROUP
ODYSSEY RE HOLDINGS CORP
OLD REPUBLIC INTL CORP
PAULA FINANCIAL/DE
PRINCIPAL FINANCIAL GRP INC
PROGRESSIVE CORP-OHIO
PHILADELPHIA CONS HLDG
CORP
PROTECTIVE LIFE CORP
PRESIDENTIAL LIFE CORP
PMA CAPITAL CORP
PMI GROUP INC
PHOENIX COMPANIES INC
PREPAID LEGAL SERVICES INC
PROASSURANCE CORP
PARTNERRE LTD
PRUDENTIAL FINANCIAL INC
PENN TREATY AMERN CORP
PLATINUM UNDERWRITERS
HLDG
PRUDENTIAL PLC -ADR
RAM HOLDINGS LTD
RADIAN GROUP INC
EVEREST RE GROUP LTD
RLI CORP
RENAISSANCERE HOLDINGS LTD
SAFECO CORP
                              26
Company Name
SAFETY INSURANCE GROUP INC
SCOR -ADR
SCOTTISH RE GROUP LTD
SEABRIGHT INSURANCE HLDGS
STANCORP FINANCIAL GROUP
INC
SELECTIVE INS GROUP INC
SUN LIFE FINANCIAL INC
STEWART INFORMATION
SERVICES
STATE AUTO FINANCIAL CORP
SPECIALTY UNDERWRITERS
CNA SURETY CORP
21ST CENTURY HOLDING CO
TRIAD GUARANTY INC
HANOVER INSURANCE GROUP
INC
TORCHMARK CORP
TRANSATLANTIC HOLDINGS INC
TRAVELERS COS INC
TOWER GROUP INC
UNITED FIRE & CAS CO
UNIVERSAL AMERICAN FINL CP
UNICO AMERICAN CORP
UNITEDHEALTH GROUP INC
UNUM GROUP
UNITRIN INC
WELLCARE HEALTH PLANS INC
WELLPOINT INC
WHITE MTNS INS GROUP LTD
XL CAPITAL LTD
ALLEGHANY CORP
YADKIN VALLEY FINANCIAL
CORP
ZENITH NATIONAL INSURANCE
CP




                             27

				
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