insolvent is a tough word. I don't know if it applies as their books are so complex. The problem is that their investments should never have gotten this complex. AIG and others should never have been allowed to underwrite with such volatile investments. Running an investment bank as the back end to your underwriting is a fairly new thing. 20 years ago, Insurance companies were not allowed to do this. I know because I built IT systems for some of the largest insurers. One thing they all had on their radar was the ability to add investment banking and change the rules that enabled them to invest in other classes of assets. They kept chipping away at the rules until they got it.

The root of this problem is simply that insurance is supposed to be backed by securities that are significantly _less_ volatile than the security they are underwriting. If AIG doesn't have the assets to cover their bets, they clearly did not achieve this goal. The big question is why and which parties deserve blame. My money is on multiple parties.