Lehman Brothers declared bankruptcy on 15th September 2008, when the Federal Reserve was unable to persuade other Wall Street banks to bail it out. The very next day, AIG – the world's largest insurance company – was on the verge of bankruptcy, due to its exposure to Credit Default Swaps on the US housing market. AIG was bailed out initially in the form of an $85bn loan, with the Fed taking ownership of nearly 80% of AIG's equity. Over the coming years, following restructuring, the bailout then rose to over $150bn in total.
Key learning objectives:
Understand the statistics for the UK insurance industry
What is the Financial Services Compensation Scheme?
Understand how insurance companies view the strength of their balance sheets