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Crisis threatens insurance giant Crisis threatens insurance giant
(10 minutes later)
Concerns are mounting about the future of US insurance giant AIG as investors fear a domino effect in the aftermath of Lehman Brothers' collapse.Concerns are mounting about the future of US insurance giant AIG as investors fear a domino effect in the aftermath of Lehman Brothers' collapse.
Credit ratings agencies, which assess the riskiness of debt, have downgraded AIG - making it more difficult for the firm to borrow money.Credit ratings agencies, which assess the riskiness of debt, have downgraded AIG - making it more difficult for the firm to borrow money.
In Singapore, customers queued outside an AIG office to check their policies. Talks between financial firms and officials aimed at helping the struggling firm will take place later.
On Monday, the insurer was a thrown a $20bn (£11.2bn) lifeline from New York state authorities. AIG shares fell 70% in early trade, having fallen 61% on Monday.
But reports said it may need further capital for its business to survive. Tough climate
On Monday, the insurer was thrown a $20bn (£11.2bn) lifeline from New York state authorities.
But analysts said it may need further capital for its business to survive:
"While there is a chance the company can work its way through its liquidity problems if it can secure substantial bridge financing, we think this will be challenging to execute it in the current onerous credit environment," said Thomas Gallagher, an analyst at Credit Suisse.
AIG is under pressure to raise money after posting three quarterly losses in a row totalling $18.5bn (£10.3bn).AIG is under pressure to raise money after posting three quarterly losses in a row totalling $18.5bn (£10.3bn).
Talks between AIG, financial services and officials firms will continue on Tuesday, a spokesperson for the New York Federal Reserve said.
Nervous customersNervous customers
Around 100 worried customers of an AIG subsidiary, American International Assurance (AIA), queued outside its Singapore office to check the status of their policies. About 100 worried customers of an AIG subsidiary, American International Assurance (AIA), queued outside its Singapore office to check the status of their policies.
AIG - KEY FACTS Employs 116,000 people in more than 100 countriesEmploys more than 2,000 people in the UKFounded in 1919 in ShanghaiNow based in New YorkSells insurance policies through Argos and Boots Source: AIG Q&A: AIG's problemsAIG - KEY FACTS Employs 116,000 people in more than 100 countriesEmploys more than 2,000 people in the UKFounded in 1919 in ShanghaiNow based in New YorkSells insurance policies through Argos and Boots Source: AIG Q&A: AIG's problems
Tan Peng Hock, 60, said he did not mind surrendering a policy worth about $42,000 despite possible losses.Tan Peng Hock, 60, said he did not mind surrendering a policy worth about $42,000 despite possible losses.
"I prefer to hold cash for the time being...It's better to be safe than sorry," Mr Tan told Reuters news agency. "I prefer to hold cash for the time being. It's better to be safe than sorry," Mr Tan told the Reuters news agency.
Singapore's central bank tried to reassure investors. It said that AIA "had sufficient assets in its insurance funds to meet liabilities to policy holders".Singapore's central bank tried to reassure investors. It said that AIA "had sufficient assets in its insurance funds to meet liabilities to policy holders".
Reports said that AIG was meeting the US Federal Reserve and investors overnight to come up with another funding facility.
Ratings agencies Moody's and Standard & Poor's downgraded credit ratings on AIG debt on Monday.Ratings agencies Moody's and Standard & Poor's downgraded credit ratings on AIG debt on Monday.
Wide influenceWide influence
AIG is much more than an insurance company. It also has a financial products division that acts like an investment bank and is at the heart of many of the firm's current problems. AIG is much more than an insurance company. It also has a financial products division that is at the heart of many of the firm's current problems.
FROM THE TODAY PROGRAMME More from Today programmeFROM THE TODAY PROGRAMME More from Today programme
"Its tentacles reach into every part of the economy," Matthew Bishop of the Economist told the BBC."Its tentacles reach into every part of the economy," Matthew Bishop of the Economist told the BBC.
He said the consequences of the firm's collapse would be devastating for the financial system.He said the consequences of the firm's collapse would be devastating for the financial system.
"It's worse than insurance policies not being valid. They are writing derivative contracts and these have the potential to leave a lot of other banks holding massive losses that they will have to deal with.""It's worse than insurance policies not being valid. They are writing derivative contracts and these have the potential to leave a lot of other banks holding massive losses that they will have to deal with."
Many of AIG's problems are thought to stem from credit default swaps, which insure against companies going bust.Many of AIG's problems are thought to stem from credit default swaps, which insure against companies going bust.
Sir Howard Davies, former chairman of the Financial Services Authority in the UK and a board member of Morgan Stanley, said that the US would be reluctant to let AIG collapse.Sir Howard Davies, former chairman of the Financial Services Authority in the UK and a board member of Morgan Stanley, said that the US would be reluctant to let AIG collapse.
"AIG is absolutely enormous. It would create knock-on consequences in insurance markets," he said."AIG is absolutely enormous. It would create knock-on consequences in insurance markets," he said.
"It is huge in China for example. That would export the American financial crisis there so it would have all kinds of political consequences.""It is huge in China for example. That would export the American financial crisis there so it would have all kinds of political consequences."
In the UK, AIG is best known as the sponsor of Manchester United.In the UK, AIG is best known as the sponsor of Manchester United.