AIG’s announcement yesterday, of yet another loss of $5.4 Billion brings their total loss to $18.5 Billion in the last 3 quarters, shook Wall Street. The announcement caused the 5th largest daily decline in the value of its stock. Yesterday alone, AIG stock fell 18% in value as the NYSE fell 224.64 points.
Since AIG is a major component of the national workers’ compensation scene, the devaluation of the company will most probably have financial repercussions thought the workers’ compensation sector. If AIG is unable to meet its obligation in some jurisdictions then an automatic insolvency procedure will be implemented. The ultimate cost will flow into the system itself.
Compounding this issue is the fact that workers’ compensation premiums that are to be collected are heading south. Also announced yesterday was that the job market in the US had become further restricted as unemployment claims rose to 455,000 last week which is a 6 year high.
The NCCI also reported recently that claims nationally were down 2.5% in 2007. These factors may demonstrate that reforms to restrict access to the system are becoming effective, but the massive infrastructure that has been amassed for handling the dwindling claims will need to be ramped down at even a faster rate that anticipated because of the declining economic base signaled by the AIG announcement.