AIG Stock Drops On $2.8 Billion Reserve Addition
By Daniel Hays
NU Online News Service, Feb. 4, 1:11 p.m. EST?American International Group's stock priced dropped nearly 10 percent in early trading today despite reassurance from management that a decision to take a $1.8 billion charge was of no consequence.
"This is not a major event for AIG?it's a blip," AIG Chairman and Chief Executive Officer Maurice Greenberg told analysts in a conference call this morning.
His comments came after the company announcement yesterday that the giant insurer would set aside $2.8 billion ($1.8 billion after taxes) in reserves for the fourth quarter to pay for greater than expected claims in its excess casualty, directors and officers and workers' compensation lines.
At 11:47 a.m. the stock was trading at $49.90 a share, a decrease of 9.81 percent.
Mr. Greenberg said that because it had seen a spike in claims in the affected lines the company decided to take a more conservative tack in estimating losses than it normally does. Using its normal approach, the reserve would have been $700 million less, he said.
As he has in the past, Mr. Greenberg said that, unlike other insurers who have taken big reserves for asbestos, his company faces little exposure on that front.
Mr. Greenberg attributed most of the spike in claims to unforeseen misbehavior by big corporate insureds and bigger than expected verdicts.
The affected lines, he said, are "suffering from the tort system."
Looking to the future, Mr. Greenberg said he expects the company to have a 15 percent return-on-equity this year. He recounted that a recent Washington visit to speak with Republican and Democratic senators, as well as members of the Bush Administration, convinces him that legislation will pass to reduce the affects of lawsuits.
He said he is "confident we're getting D&O under control" and noted that AIG's business in January has improved and that its cash flow broke a record.
Mr. Greenberg said he is convinced that the United States will wage a quick, successful war against Iraq after which the economy will stage a recovery.
AIG has changed its policy forms and raised its rates to account for future claims in D&O and excess casualty lines, Mr. Greenberg said.
After AIG's announcement Standard & Poor's said the company's rating would remain unchanged, but Fitch Ratings said it would put AIG on watch.
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