NU Online News Service, April 10, 9:07 a.m. EDT

WASHINGTON–Two property-casualty insurance trade groups have argued to Congress that American International Group is off the mark in saying that its bankruptcy would pose a “systemic risk” to the property-casualty insurance industry.

“There is no basis to believe that consumers would suffer any significant or long-term adverse consequences in the event any of AIG’s p-c operations exited the marketplace,” the letter and accompanying PowerPoint presentation from American Insurance Association and Property Casualty Insurers Association of America (PCI) argued.

The presentations to the leadership of financial services congressional committees Wednesday were made in response to a document provided to the Treasury Department and Federal Reserve Board by AIG to justify an infusion of additional funds to the company as it reported a $61.7 billion loss March 2.

The letter was obtained by National Underwriter late yesterday.

The documents were given to the majority and minority staffs of the Senate Banking Committee and House Financial Services Committee April 8 by officials of AIA and PCI.

Specifically, the letter accompanying the presentation said, “If AIG’s p-c companies ceased operations, there is available capacity, existing competition and institutional readiness within the remaining members in the industry to meet the needs of the insuring public.”

Moreover, the letter added, “Our message is straightforward–the traditional P&C industry does not today pose a systemic risk like other financial segments.

“We are competitive, well capitalized and able to respond to policyholder needs, as we have demonstrated in the past, when a competitor of any size leaves the market,” the groups wrote.

The Treasury and Fed used the document to revise its policy on how to recover funds the government has advanced to AIG, from one of repaying the government through the sale of its life businesses to one of giving the government a stake in some of its operating businesses as collateral for the government loans.

AIG in its justification for additional aid argued that “AIG continues to pose a systemic risk” and requires immediate additional federal assistance; otherwise its failure would cause “multiple and potentially catastrophic unforeseen consequences.”

The document noted up front that AIG’s systemic risk derives primarily from its financial products subsidiary and, with respect to insurance, “the systemic risk is principally centered in the ‘life insurance’ business.”

The property-casualty groups said in their presentation April 8 that it “recognizes that there may be systemic issues with respect to AIG’s non-insurance operations and we do not speak on behalf of the life insurance industry.”