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The $24.5 billion loss AIG posted for the third quarter does not reflect the value of its businesses, said Chief Executive Officer Edward Liddy during a conference call with equity analysts discussing a revamped bailout agreement and its earnings.
Kristian P. Moor, AIG executive vice president for domestic general insurance and president and chief executive of AIG Property Casualty Group, said that of more than 700 employees in the senior manager ranks, recent turnover is less than 6%. ?Any open positions have been quickly and suitably filled," Moor said.
The AIG (NYSE: AIG | Quote | Chart | News | PowerRating) officials rejected what they termed allegations by some competitors that AIG was using extremely low rates to maintain market share.
?Commercial insurance is not sacrificing underwriting integrity to retain market share. ? Terms and conditions continue to remain stable. I believe that allegations of excessive price cutting are coming from certain carriers frustrated by their inability to win significant market share from us," Moor said.
Officials from several AIG competitors said AIG is leveraging rates to maintain share, during a Best's Review-sponsored webinar last month (BestWire, Oct. 30, 2008).
Nicholas C. Walsh, executive vice president for foreign general insurance, said business retention is strong, exceeding 90% in some areas. ?We are achieving this by the support and loyalty of our long-term partners, customers, intermediaries and sponsors, not by cutting rates, despite the claims of certain competitors and despite competitor attempts to restrict our access to business and deprive customers of choice," he said.
Liddy said AIG's third-quarter loss "reflects a confluence of really unprecedented events, rather than the core earnings power of AIG's insurance businesses. ? Our insurance companies remain disciplined in their underwriting, they are well-capitalized and they continue to meet or exceed all regulatory requirements.?
AIG is continuing to grow business even as it works with federal assistance to stabilize its finances and avoid bankruptcy, he said.
?Despite financial market turmoil, continuing price competition in property/casualty and all of negative publicity about AIG, our consolidated premiums and other considerations were still $21 billion, up almost 7% from last year,? Liddy said.
Officials also said the company is retaining key personnel.
During the conference call AIG officials discussed a new federal assistance plan that greatly reduces the interest AIG will pay for federal loans and extends the term to five years from two, and it establishes two entities that will allow the company to cap its losses on its two most serious financial wounds ? multisector credit default swaps and AIG?s securities lending program.
Under the new plan, U.S. taxpayers would own 77.9% of equity in AIG and will hold warrants to buy another 2% equity interest.
Included in the third-quarter loss was a pretax charge of $7.05 billion for net unrealized market valuation losses related to AIG Financial Products Corp., the entity largely responsible for AIG's credit default swap problems. The unit also took a $1.09 billion charge for a credit valuation adjustment on assets and liabilities.
AIG's third-quarter result reflected net realized capital losses of $15.1 billion, compared with net losses of $600 million a year ago, arising primarily from other-than-temporary impairment charges on its investment portfolio. Those charges included $11.7 billion against AIG's securities lending program and $3.9 billion from the "severe, rapid decline in fair value of securities outside the securities lending program, for which AIG concluded it could not reasonably assert that the impairment period would be temporary."
AIG also recorded $1.39 billion in pretax catastrophe losses for the quarter.
Shares of AIG closed on Aug. 10 at $2.29 a share, up 8.53% over the previous close.
A.M. Best Co. has affirmed the financial strength ratings and issuer credit ratings of the insurance subsidiaries of American International Group Inc., removed them from under review and assigned them a negative outlook. Most currently have a Best's Financial Strength Rating of A (Excellent). In addition, A.M. Best has affirmed the issuer credit rating of bbb of AIG.
A.M. Best?s removal of the ratings from under review reflects the protracted time frame necessary for an orderly sale of AIG?s assets, which exceeds the usual near term time frame incorporated in an under review status. According to A.M. Best, the issues affecting these ratings continue to be reviewed as they change or emerge, and the ratings could be downgraded at any time if events do not meet expectations.
(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)
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