While 68 percent of risk managers are “very confident” or“somewhat confident” in American International Group's financialsecurity following the $85 billion federal bailout of its corporateparent, 71 percent will consider alternatives to AIG at renewal, anAdvisen survey revealed.

In written comments included with the study, buyers said theybelieve AIG's insurer entities have been effectively insulated bystate insurance regulations from the parent company's financialcrisis.

According to the survey, less than 8 percent of allrespondents–and only about 6 percent of those from companiesactually insured by AIG–said they are “very concerned” about thefinancial condition of AIG's insurance companies.

Only about 5 percent said they will consider replacing AIG evenbefore their current policy expires, but two-thirds indicated theywill consider alternatives to AIG at renewal time.

Although 68 percent said they are “very confident” or “somewhatconfident” in the financial strength of AIG's insurancesubsidiaries, 52 percent of AIG policyholders gave “uncertaintyover financial stability” as a reason they are consideringreplacing AIG.

Based on written comments included in the survey report, otherareas of concern include uncertainty about the future ownership ofAIG's insurers and the possibility that AIG carriers will lose keyindividuals or underwriting teams during the current turmoil.

Survey respondents were generally complimentary about how theirbrokers have handled the crisis. Brokers have contacted more than95 percent of AIG policyholders since Sept. 15. About 70 percenteither have not yet made any specific recommendations, or havecounseled their clients to not take any action at present. Only twoout of 1,000 respondents said their broker advised them to replaceAIG, even if at a higher premium.

“The insurance market appears to be responding to the AIG crisisin a calm and rational manner,” according to the survey report byAdvisen.

However, Advisen suggested, “the AIG insurance entities arevulnerable to competition, and responses to the survey stronglysuggest they will experience erosion in market share in the shortrun.”

The survey–conducted from Sept. 23-25, with 1,000 (14.5 percent)out of 6,885 who were queried responding–found that there “likelywill not be a stampede of AIG policyholders into the market lookingfor replacement coverage at any cost.”

However, “some buyers are concerned that the companies could bedamaged by the loss of too many policyholders, defections of keypersonnel, or by being sold to lower-rated companies,” according toAdvisen.

Still, “there is a surprisingly deep reservoir of good willtoward AIG–or at least a recognition that the company plays anumber of important roles in the insurance market,” Advisen said,adding that “commercial insurance buyers seem inclined to supportthe company to the degree that cautious and prudent behaviorpermits.”

Meanwhile, Advisen reported, “most respondents said that as aresult of AIG's problems, they believe the current soft market willbottom out and stabilize, or will reverse direction. Fewer than 10percent believe soft market conditions will intensify.” The firmadded that “based in part on survey responses, however, it seemslikely AIG will be forced to slash premiums to retain business,which could set off a pricing war throughout the commercialinsurance sector.”

Indeed, Advisen speculated, “since most AIG policyholders are'somewhat confident' or 'very confident' in the insurer's financialsecurity, many are likely to be won back by lower premiums. And sowhile AIG's competitors may be able to increase their market shareat AIG's expense, there will be a cost to winning thebusiness.”

The survey also found that 70 percent support the decision bythe U.S. government to loan AIG's corporate parent $85 billion,with the remaining respondents equally split between “Oppose” and“No opinion.”

Advisen said some respondents wrote that while they disapprovedof government bailouts on principle, “they believed the AIG loanwas necessary for the health of the economy and the insuranceindustry. Several respondents suggested the loan was a good dealfor taxpayers, since it would likely return a profit.”

In a related development, Joe McSweeney, president of theU.S./Canada Division of Marsh Inc., said clients have been askingmany questions of Marsh, warning buyers should be careful whenrelying on media reports for information.

Participating in the second part of a webinar put on by the Riskand Insurance Management Society on “Risk Management Strategies InAn Unsettled Financial Market,” Mr. McSweeney said buyers shouldlean on the fundamentals of the insurance business when makingdecisions, such as contract certainty and carrier selection.

Mr. McSweeney said the AIG situation does not call for “a newset of tools and methodologies.” Rather, he said brokers shouldfocus on a coordinated, methodical application of tools already attheir disposal, based on their experience.

He also noted that the events surrounding the financial collapseof AIG are not the only drivers in the market. Other factors aregetting lost in the shuffle, he said–such as the plummeting netincome of the property-casualty insurance industry due to asoftening market, deteriorating investment climate and underwritinglosses.

Don Bailey, CEO of Willis North America, said buyers shouldunderstand that the current situation in the insurance industry isever-changing. The way things look today, he explained, coulddiffer significantly tomorrow.

He said brokers should be careful about making broad“one-size-fits-all” statements to clients in conference calls. Now,he noted, is the time for up close and personal talks with buyerson an individual basis.

In the first part of the webinar, moderated by NU Editor InChief Sam Friedman, one AIG executive said recent changes in somecompeting companies' positions regarding the writing of excesscoverage over AIG primary policies, or co-surety policies with AIG,are not based on market realities.

Competitors are trying to take advantage of the uncertaintysurrounding the AIG liquidity crisis, suggested John Doyle,president and CEO of Commercial Insurance at AIG.

Regarding information revealed in an earlier Marsh conferencecall that Travelers and Chubb would no longer write co-suretypolicies with AIG as a partner, Mr. Doyle said other companies hadtaken similar positions in other lines of business, but it “quicklydissipated.”

He added that state insurance commissioners have not been happywith the actions of those companies, and said almost all stateregulators have released statements speaking to the strength ofAIG's insurance operations.

Mr. Doyle reiterated that the government loan was prompted byproblems with credit default swaps on mortgage securities writtenby AIG Financial Products, which is part of the company's financialservices operation and is outside AIG's insurance domain.

He said the insurance companies' surplus is the largest of anyin the United States, and that its financial strength and capitalare greater than any of AIG's competitors.

The insurance operations are still taking on risk and stillpaying claims, he added. If AIG had been forced to file forbankruptcy, Mr. Doyle said, the insurance companies would not havefollowed suit.

One webinar listener questioned why, if AIG's commercialinsurance operations are sound and profitable, A.M. Best downgradedthe company to “A” from “A-plus.” Mr. Doyle said he is in dialoguewith the rating agency and noted that Best had questions aboutwhether the commercial insurance operations would be broken up.

He pointed to recent statements by AIG's new CEO, Edward Liddy,affirming that commercial insurance operations will not be sold andare core to the company.

(To listen firsthand to the RIMS webinar, go tohttp://cf.rims.org/Template.cfm?section=Education&Template=/CourseDirectory/CDcoursesDescription.cfm&Course=526.)