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Ok, AIG's problem wasn't that it wasn't profitable - it was and is. Their equipment leasing business alone makes money hand over fist. Most of the insurance entities average in the low 90's for their combined ratios every year (basically income divided claims plus other expenses). That's good for an insrance company. Lexington (the part I deal with most often) sent something out saying that they were paying out $76M in claims A DAY with no problems at all.
The problem came up because the parent didn't have enough liquidity to pay some notes that came due. They couldn't refinance them and had a problem. It had nothing to do with the insrance piece. The day it went down, I was projecting that Berkshire Hathaway (Buffett) or WR Berkeley would step in to buy the insurance pieces, but those deals didn't get done in time (they were apparently in the works, though).
There's a lot to this, but I'm on my handheld and don't feel like explaining spirals, segregated companies and the real nitty-gritty. When I'm home and have time I'll try.
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