AIG, the global insurance and financial services giant, has been pulled back from the edge of bankruptcy by the federal government with a two-year, $85 billion line of revolving credit. It’s secured by AIG’s numerous operating subsidiaries — many of them insurance companies that sell everything from life, home, accident and health insurance, to high net worth and identity theft insurance.

AIG’s board of directors issued a statement in an attempt to quell any concerns from policyholders.

“Policyholders of AIG companies around the world can rest assured that AIG’s commitments will continue to be honored. AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis.”

In a mess of quicksand

AIG was chin-deep in Wall Street quicksand, thanks in large part to credit default swaps, or CDS. A credit default swap is like an insurance policy against a debt obligation defaulting and, of course, defaults are in vogue, so AIG got into big trouble.

Fortunately for consumers who have AIG insurance policies, what happened on the financial services side of AIG had little, if any, impact on the other side — the insurance business, says David Schiff, editor of Schiff’s Insurance Observer.

“It really has to do with guarantees that they made through AIG Financial Products — they basically engaged in derivatives and swaps. A lot of AIG’s problems stem from the fact that they had a triple-A rating. Everybody wanted them to be a counter party, so they did things like guaranteeing these securities — pools of mortgages. Some weren’t so good, but you throw them all together and AIG got paid for guaranteeing them. But there really was risk there and they didn’t even realize it.”

AIG has several lines of business, and within those lines there are dozens of companies.

“One of them is AIG American General, which issues life insurance policies,” says Ron Adair, Certified Financial Planner and partner at The Resource Group in Glendale, Calif.

“AIG American General is a subsidiary within the parent company, AIG. The parent company can’t gain access to those assets because AIG American General operates as a separate legal entity.”

Adair’s assertion that AIG would have a tough time robbing Peter to pay Paul stems from the tightly regulated insurance industry.

“The insurance company subsidiaries of AIG are regulated and monitored on a state basis,” says Donald Light, senior analyst in the insurance group at Celent, a consulting firm. “The duty of state insurance departments is to make sure there are sufficient assets and sufficient quality of assets on hand to pay claims. Say what you will about them, but they take their responsibilities seriously to make sure that every insurance company they regulate is financially solid. That includes the amount of assets, the quality of assets and the accuracy of understanding the claims upon those assets.”

Consumer responsibility

The AIG situation highlights the disadvantage consumers have when trying to select an insurance company. As we’ve seen so often in this financial debacle, ratings assigned to financial companies may be meaningless.

“After you put your eggs in whatever number of baskets, keep your eye on those baskets,” Light says. “In a way, that’s harsh, but it’s common sense. If we’ve learned nothing else, it’s that ratings don’t last and financial conditions change. It’s the responsibility of every consumer and every agent that a consumer relies on to stay current with developments.”

Light says he’s not suggesting that consumers make fast decisions and change policies, because there are costs and risks associated with that, too. But don’t assume that because you see its ads on TV that the company must be good — and don’t buy a policy and forget about it.

If you have any questions about your AIG policy, the New York State Insurance Department has set up a hot line. Call (800) 339-1759 between 9 a.m. and 8 p.m. EST. Or contact them by e-mail at consumers@ins.state.ny.us.

To compare insurance policies and quotes, visit Insureme.com, a Bankrate company.