States Open Examination of Alleged AIG Underpricing

American International Group Inc. said regulators in several states, led by Pennsylvania, are conducting an examination of its property/casualty businesses and alleged underpricing.

AIG denied allegations that its companies are underpricing policies to maintain market share.

"The Pennsylvania Department of Insurance, acting as lead regulator for other states including New York, is currently conducting an examination of our property/casualty business, which includes, among other items, a review of pricing relative to the market," AIG said in a statement. "Several entities that have reviewed our pricing in the near past, including the [U.S. Government Accountability Office], have stated that they found nothing unusual about our pricing or actions in the marketplace.

"As we have stated previously, we believe that allegations that we are inappropriately underpricing business to retain market share are untrue and are being driven by competitors frustrated by their ability to win market share."

A spokeswoman for the Pennsylvania Insurance Department confirmed an examination, expected to be complete in the fall, was under way, but declined to answer any questions.

Neither department would confirm that the examinations were coordinated or discuss what prompted the examination.

The GAO reported in March that insurance brokers and buyers reported no extraordinary underpricing by AIG?s commercial property/casualty subsidiaries. It conducted a review in response to allegations by major competitors that AIG was using the federal rescue plan of up to $182.5 billion in loans and other assistance to cut rates aggressively.

AIG's companies "likely received some indirect benefit to the extent that the property/casualty insurers would have been adversely affected by a credit downgrade or failure of the AIG parent," the report said (BestWire, March 18, 2009).

AIG has struggled to stabilize its finances and sell assets to repay federal loans under the federal rescue plan, which has kept the company solvent since September. Under the plan, the U.S. Treasury holds a 79.9% equity stake in AIG.

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

Shares of AIG were $14.70 in afternoon trading on July 14, up 0.95% from the previous close.

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