AIG's Woes Point to Larger Insurance Crisis

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.
(More AIG stories.)