The local life and general insurance arms of crisis-ridden US insurer AIG have moved to reassure intermediaries they are in a healthy financial state even as their New York-based parent teeters on the edge of collapse.

Reports from New York in the past few hours suggest the US Government will intervene in the crisis with an $US85 billion ($105.6 billion) loan package. The banks that were approached yesterday to provide a $US75 billion ($93.8 billion) loan package appear to have decided there’s too much potential downside. Besides that, they have their own problems with lousy subprime-linked investments – many of them insured by AIG.

Yesterday AIG was downgraded by the three major ratings agencies as the world’s largest insurer struggled to raise tens of billions of dollars in capital. The downgrades make it very difficult for AIG to raise additional capital.

Reports say the US Government has little option but to put together an enormous rescue package for AIG because if it falls over it will have a domino effect right across the US – and possibly global – financial sector.

A rescue package would give AIG the time to restructure and sell off assets in an orderly fashion.

AIG has sent messages to local brokers and planners assuring them all is well.

A note from AIG state managers to general insurance brokers says the parent company’s “challenges related to the extraordinary developments in the financial market’s operations… do not impact the foreign general segment’s capital positions”.

It says more than 50% of the assets of the Foreign General Segment – the AIG arm which handles business outside North America – are composed of fixed maturity instruments and cash which total $US26 billion ($32.3 billion) and that its ability to pay claims and its “commitment to writing challenging risks is undiminished”.

“The foreign general segment continues to exhibit strong financial performance, with 2008 second-quarter operating income of nearly $US800 million ($995.3 million), net written premiums of $US3.7 billion ($4.6 billion) and a profitable combined ratio of 88.3%.

“Operating income for the first six months of 2008 was $US1.5 billion ($1.8 billion) with net written premiums of $US8.1 billion ($10 billion) and a combined ratio of 85%.”

The statement from AIG Life Australia is similar. It says it is well-capitalised and operates as a separate entity.

AIG Life MD Stuart Harrison says the company operates as a “completely separate legal entity within the stringent Australian regulatory regime”.

“We continue to comply with regulations concerning capital adequacy and solvency. AIG Life in Australia has more than sufficient capital and reserves to meet our obligations to policyholders.”

NIBA CEO Noel Pettersen says the association is keeping a close eye on the situation, but that the Australian Prudential Regulation Authority’s (APRA) regulation of AIG locally “should ensure that all Australian liabilities can be satisfied from assets in Australia”.

“If APRA became aware that this was not possible it would inform the public,” he said. “Accordingly, the ball is largely in APRA’s (and AIG’s) court.”