BestWeek: AIG's Near Fall Sends Ripples Through Industry Pricing, Underwriting, Competition

OLDWICK, N.J.--(BUSINESS WIRE)-- A year after the near-fatal fall of powerhouse insurer American International Group Inc., the industry is still feeling shock waves. In the first of a two-part series, BestWeek presents The AIG Effect, a look at the impact the AIG crisis had on the industry, with ripples that have impacted pricing, underwriting, competition, risk management and regulation.

Some say a wounded AIG (NYSE: AIG), always a tough competitor when it came to pricing, became even more aggressive in an attempt to retain business, which may have prolonged the current soft market.

Edmund "Ted" Kelly, chief executive officer of Liberty Mutual, has been one of the more vocal critics of this cut-throat pricing. He said the federal money given to AIG gave it an unfair advantage, allowing the struggling enterprise to be "overly aggressive." In November 2008, Kelly said, AIG was trying to increase or at least preserve market share by "doing some very stupid things in the market."

Lloyd's, with its trademark subscription market, may turn out to be the major beneficiary of AIG's stumble, according to an article in the latest BestWeek Europe. Insureds, suddenly reawakened to the age-old wisdom of spreading risk, may be looking with fresh interest at a market that prides itself on its ability to combine expertise and assemble big policies from small pieces. Jeremy Brazil, president of Markel International Insurance Co. Ltd. in London, said he believes clients have become more interested in the subscription market. This reassessment, he added, has been influenced by the sheer size and muscle of AIG, which could easily absorb huge risks on its own. Not only are clients now more wary about giving too much business to one underwriter, Brazil said, but they fear that the banking crisis could have further, unwanted effects on the insurance sector.

Also, in BestWeek U.S./Canada, Pennsylvania Insurance Commissioner Joel Ario was hiking the Appalachian Trail when he got the news that AIG was in danger. It was a Saturday afternoon, Sept. 13, 2008. From discussions with then-New York Insurance Superintendent Eric Dinallo, Ario knew AIG was headed for ratings downgrades come Monday, but no one yet knew the extent of the problem. "I was just coming into Harpers Ferry, W.Va., and my BlackBerry rings, and it's Eric saying, "˜Remember that e-mail last night about AIG? Well, we need to talk about it right now,'" Ario recalled. "It was literally four hours later before I got off the park bench." One year later, Ario is still on the AIG trail.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.





A.M. Best Co.

Caroline Saucer, 908-439-2200, ext. 5774

caroline.saucer@ambest.com

Source: A.M. Best Co.