This week, National Underwriter presents an analysis of the commercial multiple-peril line–one in a series of “Data Insights” that was scheduled long before regulators starting looking into the accounting practices of AIG.

It would seem those two events should have absolutely nothing to do with one another, but anyone who reads the last few paragraphs of the article accompanying our charts and graphs (starting on page 12) will see the AIG saga indeed has some impact.

Anyone putting together an analysis based on property-casualty industry data will find that AIG–ranked the second largest p-c insurer in 2003–affects overall results.

For the CMP line, AIG was the 11th biggest writer based on net written premiums in 2003. Due to reporting delays, net data for some of AIG's largest member companies for 2004 is not yet available in the database of National Underwriter Insurance Data Services, which is based on statutory annual statements filed with regulators. Using only the AIG company reports available to date for 2004, the group ranks as the 77th largest CMP insurer.

As the article notes, this means that an overall 2004 estimated net combined ratio result of 101.0 for CMP based on carrier results reported through May 2005 might in fact be incorrect.

In 2003, we noted that AIG's underwriting figures swung the industry result from a slight loss to a profit in this line. Excluding AIG's $0.5 billion in CMP net premiums and related losses and expenses from industry numbers for 2003 would produce a CMP combined ratio of 100.1, instead of the 99.7 that is already recorded in industry history books.

This is a relatively minor issue. Like one of the most distant ripples created when you throw a stone into a pond, you may know it's out there, but you can't see it from the water's edge–nor would you ever strain to look for it.

In the myriad of discussions about the ramifications of investigations into AIG's books, its accounting disclosures and restatements, the question of whether the CMP line came in with roughly an $82.5 million pre-tax underwriting profit (0.3 points on $27.5 billion in premium) or a $27.5 million loss is not an issue that would keep anyone up at night.

Questions about the future of finite reinsurance, the effectiveness of auditing practices and procedures, the scope and value of insurance regulation, the impact on thousands of AIG employees, shareholders and business partners, and potential reactions from credit rating agencies are all among the more obvious and dangerous waves that loom in the wake of AIG's disclosure and Eliot Spitzer's lawsuit.

But are there other ripples that haven't yet been recognized that might be worthy of consideration? After all, AIG is not simply big enough to skew industry results for a single line of business. The insurance giant has considerable clout in most markets.

How has the preoccupation with probes and accounting issues at AIG–and throughout a giant swath of the commercial and reinsurance marketplace–played out in terms of its effect on the underwriting cycle?

Could underwriting decisions escape the attention of upper-level managers preoccupied with prior-year accounting, allowing for aggressive pricing? Or will the desire to report very conservative earnings going forward–without the potential support of some forms of reinsurance and other mechanisms–cause executives to pull the plug on any aggressive underwriting practices, with the potentially positive impact of smoothing out insurance cycles?

Time will tell if, and how, AIG's ripples flow through the market.

Susanne Sclafane

Managing Editor

Quotebox, with mug:

“How has the preoccupation with probes and accounting issues at AIG and others throughout the market played out in terms of its effect on the underwriting cycle?”

Special Reports /

Ripples From AIG

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