AIG To Stay In N.J.
By Mark E. Ruquet
NU Online News Service, July 3, 4:20 p.m. EDT ? The New Jersey Department of Banking and Insurance said that New York City-based American International Group, the seventh-largest writer of auto insurance in the state, has agreed to remain in New Jersey at least through 2006.
The announcement follows the recent enactment in New Jersey of an omnibus auto insurance law designed to ease the regulatory climate for insurers, which state officials hoped would stem a large exodus by carriers of the past 10 years.
Under a consent agreement reached by the department and AIG, the company will receive rate increases of 8.7 percent for American International Insurance Co. of New Jersey and 8.8 percent for AIIC of Delaware. The company had sought a rate increase of 10.5 percent. The two AIG subsidiaries write auto insurance in New Jersey, with AIIC of Delaware assuming higher risk clients.
Under the agreement, AIG will remain in New Jersey at least through 2006. The company can then begin leaving the state if it does not reach certain benchmarks.
According to the consent order, the benchmarks include a combined ratio of 97 percent or lower by Dec. 31, 2005, and implementation of a rating plan that "provides sufficient flexibility for the AAIC Companies" to market its insurance in the state "consistent with their national business plan."
If the benchmarks are met, however, AIG would still have the option of leaving the state, but not until 2007. In either case, AIG agreed to a two-year process of non-renewals.
The company, like State Farm, was preparing to quit the state in the face of mounting losses. Like State Farm, said Mary K. Caffrey, assistant commissioner for the insurance department, the company is giving the state a chance to get its reforms in place and see if New Jersey is a place it can do profitable business in.
Ms. Caffrey said that AIG came into the state in 1996 writing premiums below the state average and has not been allowed to adjust its underwriting to reflect losses over the years.
"We believe this is sending a message to the insurance industry as a whole that New Jersey is getting its reforms in place," said Ms. Caffrey. "AIG is giving us time to do it."
While customers may complain about the increases, the alternatives would be far worse for the 4.5 percent of policyholders who would have to seek new policies, she noted. The state estimates that AIG covers more than 200,000 autos in New Jersey.
The state average for car insurance, by some estimates, is $1,063. The average premium for AIG customers overall in New Jersey would jump from $968 to $1,052. Ms. Caffrey said the state could not release its own calculations, but did say the paper's calculations were a good estimate.
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