AIG's Woes Point to Larger Insurance Crisis
Federal aid may offer AIG a competitive advantage in ailing industry
By Clay Dillow,  Newser Staff
Posted Mar 30, 2009 9:13 AM CDT
In this March 19, 2009 file photo, a sign in front of AIG's financial products offices in Wilton, Conn.   (AP Photo/Stephen Chernin, file)
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(Newser) – AIG’s troubles were quickly blamed on a single, obscure wing of the company, but its problems extend to its core life-insurance division—underscoring dangerous weaknesses across the entire industry and pointing to the possibility of a second financial crisis, the Los Angeles Times reports. What's more, by offering AIG a federal lifeline, the behemoth at the eye of the storm may have an unfair competitive advantage over smaller rivals.

Investment losses and credit downgrades have pushed life insurers to the breaking point, but AIG has maintained higher credit ratings solely because of the $70 billion lifeline made available by the federal government, without which it would sink below investment-grade. Other life insurers have sought similar bailouts; without them, a second financial collapse may loom.