That's why, in the wake of every disaster, you'll always see commercials with agents staying up to all hours finding customers and handing out checks. This is when the agents find their jobs fulfilling, it's when customers see the value in coverage and it's when price hikes are pretty easy to get.
Insurance is all about the odds, as my friend explained to me 35 years ago. What got AIG into trouble had nothing to do with the insurance markets, but what AIG chose to do with its money, which was to guarantee things such as Credit Default Obligations, CDOs, that were, in fact, guaranteed to blow up. The company lost its collective head and paid the price.
AIG shareholders paid the most fearsome price. Most were wiped out by the crash. The company's current price of about $45/share is misleading. It reflects the 1-20 reverse stock split of July 2009. An equivalent shareholding of AIG from mid-2007 was worth almost $1,500. At its current price AIG is, as they say, "cheap as chips."
Sandy represents a more normal turn of business. Loss ratios across AIG's property businesses are getting better, according to
its most recent quarterly earnings statement.
You can measure risk, you can balance this against rates, and when nothing bad happens you get to keep the money. Even if you don't get to keep the money, you get to invest it while you have it. The odds are always with the house.
Insurance is a great business, and I'm reminded of that again every time disaster strikes.
At the time of publication, the author was long AIG.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.