Risk Managers Looking to AIG's Competitors

NEW YORK, Oct 02, 2008 (A. M. Best via COMTEX) -- AIG | Quote | Chart | News | PowerRating -- Nearly three-quarters of risk managers in a survey said they will seek quotes from American International Group Inc.?s commercial competitors in the wake of the liquidity crisis that forced the giant insurer to take an $85 billion federal loan.

Insurance buyers are ?wary but calm? about AIG?s (NYSE: AIG | Quote | Chart | News | PowerRating) financial viability, and its efforts to protect its market share could increase the already intense price competition in the soft insurance market, according to the survey by insurance analytics provider Advisen Ltd.

?AIG is under intense pressure from competitors, but there is no consensus among insurance buyers as to how the situation will influence market capacity and the pricing cycle,? Advisen?s report on the survey said. ?One likely outcome is that AIG will compete vigorously to retain business, potentially intensifying price competition in an already soft insurance market.?

The survey of 1,000 risk managers between Sept. 23 and Sept. 25 found that although 68% are very or somewhat confident in AIG?s financial strength, 71% of AIG commercial lines policyholders plan to get quotes from AIG competitors when their policies renew.

The report said that while the risk managers believed that AIG?s insurance companies were strong, they were concerned about reputational damage and the possibility of AIG losing key individuals or underwriting teams, as well as possible changes in ownership of the insurance subsidiaries.

Fewer than 8% reported being ?highly concerned about the financial security of the AIG insurance companies.?

?Many insurance buyers recognize the crisis at the AIG ultimate parent level didn?t affect the solvency of the insurance subsidiaries, but nonetheless there was immediate reaction among brokers and buyers to look at all options,? said David K. Bradford, Advisen executive vice president, in a statement.

Edward Liddy, AIG?s chief executive, is scheduled to announce on Oct. 3 which assets the company will sell off to repay the loan from the Federal Reserve Bank of New York.

Last week, an Advisen report said the list of likely assets does not include core insurance assets, speculating that the properties will include AIG?s profitable aircraft leasing arm, its stake in reinsurer Transatlantic Holding, and its consumer lending and variable annuities businesses.

However, due to the size of its liabilities, Advisen said it believes AIG must sell some of the insurance subsidiaries that are ?autonomous and which serve well-defined sectors" such as Hartford Steam Boiler Inspection & Insurance Co.; 21st Century Insurance Co.; and Audubon Insurance Co. (BestWire, Sept. 23, 2008).

The current Best's Financial Strength Rating of A (Excellent) of most of AIG's insurance units is under review with negative implications.

Shares of AIG were trading at $3.98 in the afternoon of Oct. 2, up 0.76% from the previous close.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)

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