Paulson Won't Rule Out TARP for Insurers

American International Group (AIG Quote) is the biggest individual bailout recipient with $173 billion in aid, dwarfing the $45 billion that banking giant Citigroup (C Quote) was gifted. AIG, however, is not a bank holding company but an insurer, albeit a massive one.

Currently, the states' insurance commissioners oversee AIG's insurance companies, none of which were not the cause of company's problems., However, Paulson has made no secret of his belief that the group should be federally controlled.

This morning, Paulson stated the intention to link together the various federal agencies' plans to bring centralized control to the financial sector over this crisis. Paulson said that the financial crisis has expanded well beyond mortgage-backed securities. Allowing TARP funding for the insurance industry will complicate the issue of regulatory control over the insurance companies, as the individual states and the Treasury Department will likely both want regulatory oversight of the industry.

State insurance commissioners currently regulate all insurance companies, but Paulson believes that insurance companies should be under some form of federal supervision.

AIG could not purchase a bank, but potentially it could become a bank holding company. With the taxpayer in the driving seat as a shareholder, perhaps Paulson might consider indicating to the board that this is a desirable move.

Roger Sevigny, the incoming president of the National Association of Insurance Commissioners, said "We are not concerned [by Paulson's statement] and have extended a formal offer to Secretary Paulson regarding resources, data and expertise." Commenting on whether he believed that Paulson was using the financial crisis to undermine the NAIC's regulatory control, Sevigny said: "His concerns are for the country."

Sevigny went on to express optimism that the NAIC will be able to work collaboratively with the new administration but emphasized that the insurance commissioners believe that there is effective regulation at the state level and that by tapping into that strength, maybe they could help the financial regulators.

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