Announcements concerning the collapse of American International Group (AIG) leave many to question the financial solvency of insurance companies worldwide. The New York Times recently published a comprehensive article of the events leading up to AIG’s collapse.

The American International Group Financial Products (AIGFP) company in London, England, led by AIG executive Joseph J. Cassano until February 2008, made trillions writing insurance on Collateralized Debt Obligations (CDOs). High profile customers included Lehman Brothers, Goldman Sachs, and Bear Stearns, which all created loss obligations for AIGFP that could not be covered under the catastrophic collapse of the economy.

Rest assured, the “black box” of financial entities appear to be the only ones affected in this collapse. States regulate insurance companies to ensure claims can be paid as promised. In times of uncertainty, it is important to understand exactly what the problems are in order to make informed decisions.

In this instance, AIG policyholders were unaffected by the actions of Mr. Cassano. Lessons will be learned from this for years to come. Fortunately, insurance companies seem to be unaffected by this and appear to remain solvent for the time being.