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

In written comments included with the study, buyers said they believe AIG's insurer entities have been effectively insulated by state insurance regulations from the parent company's financial crisis.

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

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

Although 68 percent said they are “very confident” or “somewhat confident” in the financial strength of AIG's insurance subsidiaries, 52 percent of AIG policyholders gave “uncertainty over financial stability” as a reason they are considering replacing AIG.

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

Survey respondents were generally complimentary about how their brokers have handled the crisis. Brokers have contacted more than 95 percent of AIG policyholders since Sept. 15. About 70 percent either have not yet made any specific recommendations, or have counseled their clients to not take any action at present. Only two out of 1,000 respondents said their broker advised them to replace AIG, even if at a higher premium.

“The insurance market appears to be responding to the AIG crisis in a calm and rational manner,” according to the survey report by Advisen.

However, Advisen suggested, “the AIG insurance entities are vulnerable to competition, and responses to the survey strongly suggest they will experience erosion in market share in the short run.”

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

However, “some buyers are concerned that the companies could be damaged by the loss of too many policyholders, defections of key personnel, or by being sold to lower-rated companies,” according to Advisen.

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

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

Indeed, Advisen speculated, “since most AIG policyholders are 'somewhat confident' or 'very confident' in the insurer's financial security, many are likely to be won back by lower premiums. And so while AIG's competitors may be able to increase their market share at AIG's expense, there will be a cost to winning the business.”

The survey also found that 70 percent support the decision by the 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 disapproved of government bailouts on principle, “they believed the AIG loan was necessary for the health of the economy and the insurance industry. Several respondents suggested the loan was a good deal for taxpayers, since it would likely return a profit.”

In a related development, Joe McSweeney, president of the U.S./Canada Division of Marsh Inc., said clients have been asking many questions of Marsh, warning buyers should be careful when relying on media reports for information.

Participating in the second part of a webinar put on by the Risk and Insurance Management Society on “Risk Management Strategies In An Unsettled Financial Market,” Mr. McSweeney said buyers should lean on the fundamentals of the insurance business when making decisions, such as contract certainty and carrier selection.

Mr. McSweeney said the AIG situation does not call for “a new set of tools and methodologies.” Rather, he said brokers should focus on a coordinated, methodical application of tools already at their disposal, based on their experience.

He also noted that the events surrounding the financial collapse of AIG are not the only drivers in the market. Other factors are getting lost in the shuffle, he said–such as the plummeting net income of the property-casualty insurance industry due to a softening market, deteriorating investment climate and underwriting losses.

Don Bailey, CEO of Willis North America, said buyers should understand that the current situation in the insurance industry is ever-changing. The way things look today, he explained, could differ 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 buyers on an individual basis.

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

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

Regarding information revealed in an earlier Marsh conference call that Travelers and Chubb would no longer write co-surety policies with AIG as a partner, Mr. Doyle said other companies had taken similar positions in other lines of business, but it “quickly dissipated.”

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

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

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

The insurance operations are still taking on risk and still paying claims, he added. If AIG had been forced to file for bankruptcy, Mr. Doyle said, the insurance companies would not have followed suit.

One webinar listener questioned why, if AIG's commercial insurance operations are sound and profitable, A.M. Best downgraded the company to “A” from “A-plus.” Mr. Doyle said he is in dialogue with the rating agency and noted that Best had questions about whether 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 and are core to the company.

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

Special Reports /

Risk Managers 'Confident' About AIG's Security, But Plan To Shop, Just In Case

Related Stories

Recommended For You