AIG Fights For Survival Amid Crisis; Clients Weigh Options A
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March 2, 2009
AIG IN CRISIS; Pg. 1
1165 words
AIG FIGHTS FOR SURVIVAL AMID CRISIS; Clients weigh options as turmoil continues for insurance giant
SALLY ROBERTS
NEW YORK-While some American International Group Inc. policyholders are losing patience with the troubled insurer, many remain committed to AIG despite reports last week that it will report the largest quarterly loss in U.S. history and is prepared to file for bankruptcy unless the government provides further assistance.
Brokers said they once again were fielding calls from concerned clients and are keeping them abreast of the situation as it unfolds.
Much of the concern, brokers said, centers on possible ratings downgrades at AIG's insurance operations and what would happen if AIG's parent company files for bankruptcy. Clients also want to know what their peers are doing in terms of maintaining relationships with AIG or moving their business elsewhere, they say.
``We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges,'' a spokesman for the New York-based insurer said last week. ``We will provide a complete update when we report financial results in the near future. AIG's commercial insurance companies remain very well capitalized and committed to retaining the financial strength of their operations in the best interests of their policyholders,'' he added.
Since the near collapse of the insurance giant last September and subsequent government bailout efforts, policyholders have been looking to diversify business away from AIG where that has been commercially viable. Most, however, have maintained relationships with the insurer.
But last week's news that AIG is expected to report a roughly $60 billion fourth-quarter loss this week and is in discussions with the government to secure additional funds to keep operating ``has people shaking their heads, trying to figure out what's the end game for this,'' said Eric Andersen, New York-based chief executive officer of Aon Risk Services' U.S. retail business.
``People intellectually understand that (AIG's) insurance companies remain solvent and have retained their ratings,'' Mr. Andersen said. What clients are trying to determine, he said, is ``What is everybody else doing'' in the marketplace in terms of moving business, and what is likely to happen to the insurance subsidiaries' ratings.
``Currently, I am hearing a much greater degree of nervousness in the marketplace from clients, risk managers and brokers with respect to AIG,'' said Mark Keenan, a partner with Anderson Kill & Olick P.C. in New York, who said he fielded many calls last week about the implications of AIG filing for bankruptcy (see related story). ``They want to know, `When are we going to hear the end of the bad news?' And while they realize that AIG is now effectively owned by the U.S. government, they also realize that somewhere along the line, someone may decide `I don't want to hold up AIG anymore.'''
Neil C. Krauter, chairman and CEO of broker The Krauter Group in New York, said many clients are losing patience with the troubled insurer.
"Even though they understand the backstops of the assets held at the state level and all the inherent protections that exist regarding the inability of insurance companies to file bankruptcy vs. be taken into rehab by state regulators, clients are reaching a point of intolerance,'' Mr. Krauter said.
Indeed, one AIG policyholder contacted by Business Insurance said he has lost trust in AIG's parent company.
Not only has the insurer restated its maximum credit default swap exposure several times, but the bailout funds provided by the government also have increased substantially, yet the insurer is still expected to report a huge loss, said the risk manager, who is based on the East Coast but asked not to be identified, in an e-mailed response.
"The taxpayer is being forced to pay good money after bad. What will we discover next, that the government failed to ask AIG if the financial information supplied is correct and more losses are to follow?'' he said.
"At the core of it all is, what happens if the parent goes bankrupt,'' said another East Coast risk manager, who asked not to be identified. "Many risk managers are comforted, as am I, that the insurance subsidiaries are not subject to a parent bankruptcy under insurance laws and the subsidiaries are well-capitalized.''
So the question then becomes what effect would bankruptcy of the parent company have on AIG's insurance operations? "We do worry about there being deterioration of the insurance subsidiaries through credit ratings...and them not having the ability to capitalize themselves. But I think that's why it's so important that the government gets this right and ensures that the insurance subsidiaries... remain protected and are long-term viable.''
"What scares me the most, coming from a risk manager who has dealt with insurer liquidations in the past, is the potential for my long-tail liability claims being involved in some type of regulator takeover,'' said a risk manager located on the West Coast, who asked not to be named. ``It scares the living daylights out of me when I think about the scale of AIG and the many, many years we've had them on our cover.''
"We are still loyal to AIG and hope they can work out their financial situation,'' the risk manager added, noting that AIG continues to pay claims. ``We are currently working on an (April 1) renewal and AIG is in the game, but it will probably not be our front runner.''
Other risk managers contacted by last week also say they remain committed to AIG, despite ongoing concerns.
"Myself and a lot of my other risk management colleagues continue to think that despite the recent talent drain that AIG's insurance side has had, they still have the potential to pay claims and to write policies,'' said Lance J. Ewing, vp risk manager for Harrah's Entertainment Inc. in Memphis, Tenn., and a member of AIG's client advisory board.
"The real issue is if boards of directors and other risk managers get cold feet because the parent is looking rather ill...and say it's time to move some of our business,'' he said.
Mr. Ewing said he's aware of some companies that have done that, but very few have totally pulled everything from AIG.
"AIG continues to play a vital role in our current insurance portfolio,'' Mr. Ewing said.
Bill Milaschewski, director of risk management with Boston-based Cabot Corp., said he looked at non-AIG options for his Oct. 1 casualty renewal, but ultimately opted to stay with the insurer. ``At this point in time, if my renewal was March 1, we'd probably make the same decision,'' he said.
He noted, however, that the AIG policy contained an endorsement that allows Cabot to cancel midterm without any penalty if AIG's ratings fall below a certain level.
At the end of the day, it's not really a salvation because when you're talking casualty, you're talking long-tail claims anyway,'' he said. "All this does is stop future claims from going into the same hole.''
Other risk managers said they have worked out similar endorsements on their AIG policies.
Art Credit: Edward M. Liddy, chairman and CEO of AIG, has struggled to find ways to repay federal bailout funds since he joined the insurer last year.
March 5, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
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March 2, 2009
AIG IN CRISIS; Pg. 1
1165 words
AIG FIGHTS FOR SURVIVAL AMID CRISIS; Clients weigh options as turmoil continues for insurance giant
SALLY ROBERTS
NEW YORK-While some American International Group Inc. policyholders are losing patience with the troubled insurer, many remain committed to AIG despite reports last week that it will report the largest quarterly loss in U.S. history and is prepared to file for bankruptcy unless the government provides further assistance.
Brokers said they once again were fielding calls from concerned clients and are keeping them abreast of the situation as it unfolds.
Much of the concern, brokers said, centers on possible ratings downgrades at AIG's insurance operations and what would happen if AIG's parent company files for bankruptcy. Clients also want to know what their peers are doing in terms of maintaining relationships with AIG or moving their business elsewhere, they say.
``We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges,'' a spokesman for the New York-based insurer said last week. ``We will provide a complete update when we report financial results in the near future. AIG's commercial insurance companies remain very well capitalized and committed to retaining the financial strength of their operations in the best interests of their policyholders,'' he added.
Since the near collapse of the insurance giant last September and subsequent government bailout efforts, policyholders have been looking to diversify business away from AIG where that has been commercially viable. Most, however, have maintained relationships with the insurer.
But last week's news that AIG is expected to report a roughly $60 billion fourth-quarter loss this week and is in discussions with the government to secure additional funds to keep operating ``has people shaking their heads, trying to figure out what's the end game for this,'' said Eric Andersen, New York-based chief executive officer of Aon Risk Services' U.S. retail business.
``People intellectually understand that (AIG's) insurance companies remain solvent and have retained their ratings,'' Mr. Andersen said. What clients are trying to determine, he said, is ``What is everybody else doing'' in the marketplace in terms of moving business, and what is likely to happen to the insurance subsidiaries' ratings.
``Currently, I am hearing a much greater degree of nervousness in the marketplace from clients, risk managers and brokers with respect to AIG,'' said Mark Keenan, a partner with Anderson Kill & Olick P.C. in New York, who said he fielded many calls last week about the implications of AIG filing for bankruptcy (see related story). ``They want to know, `When are we going to hear the end of the bad news?' And while they realize that AIG is now effectively owned by the U.S. government, they also realize that somewhere along the line, someone may decide `I don't want to hold up AIG anymore.'''
Neil C. Krauter, chairman and CEO of broker The Krauter Group in New York, said many clients are losing patience with the troubled insurer.
"Even though they understand the backstops of the assets held at the state level and all the inherent protections that exist regarding the inability of insurance companies to file bankruptcy vs. be taken into rehab by state regulators, clients are reaching a point of intolerance,'' Mr. Krauter said.
Indeed, one AIG policyholder contacted by Business Insurance said he has lost trust in AIG's parent company.
Not only has the insurer restated its maximum credit default swap exposure several times, but the bailout funds provided by the government also have increased substantially, yet the insurer is still expected to report a huge loss, said the risk manager, who is based on the East Coast but asked not to be identified, in an e-mailed response.
"The taxpayer is being forced to pay good money after bad. What will we discover next, that the government failed to ask AIG if the financial information supplied is correct and more losses are to follow?'' he said.
"At the core of it all is, what happens if the parent goes bankrupt,'' said another East Coast risk manager, who asked not to be identified. "Many risk managers are comforted, as am I, that the insurance subsidiaries are not subject to a parent bankruptcy under insurance laws and the subsidiaries are well-capitalized.''
So the question then becomes what effect would bankruptcy of the parent company have on AIG's insurance operations? "We do worry about there being deterioration of the insurance subsidiaries through credit ratings...and them not having the ability to capitalize themselves. But I think that's why it's so important that the government gets this right and ensures that the insurance subsidiaries... remain protected and are long-term viable.''
"What scares me the most, coming from a risk manager who has dealt with insurer liquidations in the past, is the potential for my long-tail liability claims being involved in some type of regulator takeover,'' said a risk manager located on the West Coast, who asked not to be named. ``It scares the living daylights out of me when I think about the scale of AIG and the many, many years we've had them on our cover.''
"We are still loyal to AIG and hope they can work out their financial situation,'' the risk manager added, noting that AIG continues to pay claims. ``We are currently working on an (April 1) renewal and AIG is in the game, but it will probably not be our front runner.''
Other risk managers contacted by last week also say they remain committed to AIG, despite ongoing concerns.
"Myself and a lot of my other risk management colleagues continue to think that despite the recent talent drain that AIG's insurance side has had, they still have the potential to pay claims and to write policies,'' said Lance J. Ewing, vp risk manager for Harrah's Entertainment Inc. in Memphis, Tenn., and a member of AIG's client advisory board.
"The real issue is if boards of directors and other risk managers get cold feet because the parent is looking rather ill...and say it's time to move some of our business,'' he said.
Mr. Ewing said he's aware of some companies that have done that, but very few have totally pulled everything from AIG.
"AIG continues to play a vital role in our current insurance portfolio,'' Mr. Ewing said.
Bill Milaschewski, director of risk management with Boston-based Cabot Corp., said he looked at non-AIG options for his Oct. 1 casualty renewal, but ultimately opted to stay with the insurer. ``At this point in time, if my renewal was March 1, we'd probably make the same decision,'' he said.
He noted, however, that the AIG policy contained an endorsement that allows Cabot to cancel midterm without any penalty if AIG's ratings fall below a certain level.
At the end of the day, it's not really a salvation because when you're talking casualty, you're talking long-tail claims anyway,'' he said. "All this does is stop future claims from going into the same hole.''
Other risk managers said they have worked out similar endorsements on their AIG policies.
Art Credit: Edward M. Liddy, chairman and CEO of AIG, has struggled to find ways to repay federal bailout funds since he joined the insurer last year.
March 5, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
Terms and Conditions Privacy Policy
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