The American International Building in lower Manhattan.

AIG Hawai‘i is not likely to go out of business, nor are its thousands of Hawai‘i insurance customers likely to lose their policies, as a result of the well-publicized financial problems of its parent holding company, American International Group. But AIG Hawai‘i and other local companies held by AIG may be sold off to repay the billions in loans that the parent company is getting from the federal government.

According to the AIG Hawai‘i Web site, “It was announced at the conference call to investors on October 3, that the AIG Personal Auto Group is on the list of assets for sale. This does not necessarily mean that the company will be sold, or a buyer has been identified.”

The state, meanwhile, says policy holders are safe.

“Edward Liddy, the fellow who took over AIG with the Fed’s blessing, has said that he doesn’t want to sell off the companies individually,” says Hawai‘i Insurance Commissioner Jeffrey P. Schmidt. However, Schmidt believes AIG’s local assets may be sold off as part of a larger package.

AIG Hawai‘i’s Web site also states that the “AIG Family of Companies” is Hawai‘i’s largest property and casualty insurer, with 11 percent of the market. AIG Hawai‘i is the state’s third-largest supplier of auto insurance, according to Schmidt. It also sells workers’ compensation and disability insurance. AIG’s in-state holdings also include American Pacific Insurance, Hawai‘i Insurance Consultants, Human Resources Solutions, 50th State Risk Management Services and a software consultant company called Veyond.

Paying for the parent company’s debt

“AIG Hawai‘i is in good financial shape, as are most of the insurance subsidiaries of AIG,” Schmidt says. “It is the financial services subsidiaries that have the problem. However, because they are affiliated, we are monitoring the insurance companies closely.”

Last October, the federal government granted the AIG holding company an $85 billion line of credit as part of its $700 billion financial bailout package. The L.C. later granted AIG another $37 billion in credit. Then, on November 10, The government sweetened the deal with a restructuring agreement: AIG will cover part of the loan by giving the U.S. government $40 billion worth of newly issued shares of stock, and the L.C. will extend AIG’s time to repay the loans from two years to five years and reduce the annual interest rate from 8.5 percent to 3 percent.

The catch-phrase of the day, repeated by commentators on several news networks, was that AIG was simply “too big to fail.” The logic being that the holding company and its 73 U.S.-based insurance subsidiaries, 176 financial service companies, and other domestic and foreign subsidiaries held such a huge share of the market that the company’s failure would be disastrous for the world economy.

As AIG Hawai‘i’s Web site puts it, its parent got into trouble, because it “took on more risk than it could handle when investing in collateralized debt instruments, such as credit derivative swaps on mortgage-backed securities. When the U.S. housing markets experienced a downturn, these risky investments lost a lot of money for the AIG holding company.”

If a sale of those companies happens, it will be the job of Schmidt’s state agency to assure that their Hawai‘i customers are protected.

A balancing act

“Anyone who acquires AIG Hawai‘i would, number one, have to have my approval,” Schmidt says. “I’m going to require that they have sufficient funds in their surplus and reserve in capital assets to pay any claims of their policy holders as they come due. That’s a fundamental part of insurance company regulation. I have the authority to require them to maintain sufficient reserves and to forbid them from making loans or risky investments that might impair the financial status of the company.”

Schmidt contends that those strong state regulations kept the insurance companies healthy while the parent company’s federally supervised financial service companies tanked on toxic investments. Ironically, Schmidt says there has been a concerted push in Congress to move the insurance companies out from under state supervision as well.

“In the past year, they had over 80 bills in Congress, proposing some form of federal regulation of insurance,” he says. “Particularly the large life insurance companies and some of the property and casualty insurances have been pushing hard for an optional federal charter, which is similar to how banks are regulated, that would allow large insurance companies to choose to have a license to be regulated by the federal government or to have a state license and be regulated by state regulators.”

The facts of current history make it clear that too much regulation set in stone is a bad idea, he explains.

Which brings up another regulatory question: Is it a good idea to let larger corporations buy smaller ones until the nation ends up with a company that’s “too big to fail”?

“That’s a very interesting question,” Schmidt says. “I do believe that AIG’s failure would have had a devastating effect around the world. … I do think it was appropriate to step in and help them get back on their feet and stabilized the market.”

But he notes concerns that L.C. bail-out money may be used by some companies to buy up others, and he questions whether that would be “the proper use of taxpayers’ money.”

When a stronger company acquires a weaker one, it does shore up the stockholders in the weaker company, at least temporarily. But with business consolidation, the greater and greater segments of the economy are gambled on the judgment of fewer and fewer managers.

“The answer is that you need a mix,” Schmidt believes. “You need to have regulations and government programs that encourage smaller entrepreneurial companies that come up with new ideas, new ways of doing things, while being closer to the consumer—while providing regulations for the larger companies that allow efficiency of operation. It’s a balancing act … it’s not a one-and-done kind of solution, where you implement the solution, you’re done and you walk away. The market is dynamic, and the government and regulation also have to be dynamic and have to adjust.”

The last time three Hawai‘i airlines went head-to-head in a price war, Aloha Airlines’ passenger service was shut down, leaving 1,900 people unemployed.

Today, Mokulele Airlines launched its inter-island jet service between Honolulu, Kona, and Lihu‘e. Mokulele joins its former business partner, Mesa Air Group’s go!, and Hawaiian Airlines in a three-way battle to survive through a hurting economy and historically cut-throat business practices.

Mokulele’s 70-seat Embraer 170 jet service is the result of a new service agreement with Indianapolis-based Republic Airways.

“We welcome this agreement between Republic Airways and Mokulele Airlines,” Gov. Linda Lingle said. “This is very good news for the economy while providing the people of Hawai‘i an additional choice in inter-island service. This agreement also means new job opportunities, and that is very welcome news for our residents.” Read More

The land-based OTEC facility at Keahole on the Kona coast of Hawai‘i.

The increasing urgency to adapt to global warming has fueled the search for an economically viable source of renewable energy.

The state of Hawai‘i currently relies on imported fossil fuel for 94 percent of its energy.

Today, Governor Linda Lingle announced plans to build a 10 megawatt Ocean Thermal Energy Conversion (OTEC) plant in Hawai‘i to act as a pilot for further potential projects. The plant will be the product of an energy partnership between the Taiwan Industrial Technology Research Institute and the Lockheed Martin Corporation, the largest defense contractor in the world.

“As island economies in the Pacific, Taiwan and the State of Hawai‘i share very similar challenges of over-dependence on imported petroleum for their energy needs,” Governor Lingle said. “Taiwan and Hawai‘i also share a common vision and plan to increase renewable and clean energy generation based on indigenous energy resources.” Read More

The officers of the Aloha Toastmasters carry on a 60-year tradition in Hawai‘i.

For 60 years, the Aloha Toastmasters club has been bringing wit, sass, and aptitude to being the center of attention.

To clear things up, no, they don’t make toasters.

As an international organization, the Toastmasters have acted as an outlet for people in a variety of professions, arts, and cultures in order to perfect the craft of speech-making.

“A lot of things in life have to deal with selling an idea or convincing people about an idea of sorts,” says Chris Villanueva, president of Toastmasters club 601. “Imagine if you were able to convey your idea in a clear, concise, and convincing manner. Communicating is very important in everyday life.” Read More

After hours of testimony, seven members of the Hawai‘i County Council successfully overrode Mayor Harry Kim’s veto of a bill which would ban genetic engineering of coffee and kalo on the Big Island.

Bill 361, introduced by councilman Angel Pilago, was unanimously adopted last month. The council’s move came amidst overwhelming pressure from food growers on the island, many of whom were galvanized by the state Legislature’s failure to pass a similar ban on genetically-modified kalo earlier in the year.

The issue has become increasingly politicized, with multinational biotech firms and University of Hawai‘i researchers on one side, and independent kalo farmers, Kona coffee growers, and Native Hawaiian cultural advocates on the other.

Outgoing mayor Harry Kim vetoed the bill on Oct. 31, spurring Council Chair Pete Hoffman to convene a special session to override the veto.

The meeting began at 10 a.m. and continued until the council adjourned at midnight. More than 100 people came to the Council offices today to witness the override of the veto.

Bill 361 will now become an ordinance.

The debate over the dangers in consuming genetically modified food manifested last month in Big Island politics when Mayor Harry Kim vetoed an island-wide ban on testing genetically modified organisms.

Mr. Kim expressed concerns over the ability to enforce such a ban and supported genetic modification research as a way of meeting global food demands.

Members of the Hawai‘i County Council convened a special session this morning to overturn the veto.

“My position remains unchanged,” Councilman Bob Jacobson said. “I think we need to protect our coffee farmers and our taro growers from genetic drift.”

In October, the council heard testimony from taro and coffee farmers and Native Hawaiian cultural practitioners who supported a ban against genetic engineering in order to protect traditions associated with taro (kalo) and coffee in Hawai‘i. Read More

Protesters in San Francisco campaign for marriage rights for LGBT couples. Photo courtesy of AJ Alfieri-Crispin.

The election of America’s first African-American president last week helped to put an exclamation point on the the civil rights movement’s mission to bring the nation out of racial segregation. However, the California vote to pass Proposition 8, which eliminates the right of same-sex couples to marry, highlights a continuing struggle by the LGBTQ community in Hawai‘i to guarantee its own civil liberties.

Proponents for Proposition 8 were successful, with 52 percent of California voters checking “yes” on the ballot. Lobby groups such as ProtectMarriage.com, presidential candidate Sen. John McCain, and other religious organizations argue that defining marriage as a union between “any two persons” opens the door to far-reaching consequences.

The primary example that ProtectMarriage.com gives on its website is that “because public schools are already required to teach the role of marriage in society as part of the curriculum, schools will now be required to teach students that gay marriage is the same as traditional marriage, starting with kindergarteners” and that same-sex marriage would “undermine the value of marriage altogether at a time when we should be restoring marriage.” Read More

With U.S. Sen. Daniel Inouye expected to head the Senate Appropriations Committee under a president-elect with political, familial and historical interests in the islands, the state of Hawai‘i looks ready to reap the funding rewards of Congress’ next harvest.

The local mainstream press has lauded the change. “Isles hope Inouye brings home bacon,” the Honolulu Star-Bulletin reported on Saturday.

The promotion follows growing concerns over excess earmarks and pork-barrel spending, which were dragged through the mud for the entirety of the recent presidential campaign. Mr. Inouye, one of the outspoken voices to support a need for funding special projects, faces a difficult task of keeping Hawai‘i projects at the head of the table while facing the criticisms of government watchdog groups. Read More

New Zealand citizens voted on Saturday. And amid the election of a conservative prime minister, the Maori Party is now in a position where it can expect its demands to be met by Aotearoa/New Zealand’s next government.

“There won’t be a piece of legislation that can be passed without a Maori signatory to the treaty agreeing to it,” party president Whatarangi Winiata said at a recent campaign rally. “This journey we have been on is starting to change our experience in our own country.” Read More