Interview with AIG's John Q. Doyle

AA&B: You've been the public face of AIG's commercial property-casualty unit throughout the financial crisis. What are the major concerns of agents and brokers in all this?

Doyle: It's been an enormous communications effort, but we have been pretty effective at getting the message out that our commercial insurance operations continue to be in excellent financial condition. The good news is that people have been willing to listen, and that when they hear about our financial strength, they continue to do business with us. We appreciate that very much.

We want to make sure brokers and customers understand that while AIG has had some challenges, they're outside of our commercial insurance operations. Our assets are available to satisfy policyholder obligations and protected by regulation. What's widely reported in the media are the challenges of our parent company. The main point I've tried to make clear is that our commercial insurance operations have not taken any money from the federal bailout; we don't need it because we don't have the liquidity issues our parent company had.

Our brokers are asking us to help them explain these issues to our policyholders and to demonstrate the strength of our balance sheet. In response, on Dec. 18 we sent out an e-mail including a peer comparison on statutory surplus, net written premium and expense ratio, and information on our invested assets. What we're really pushing out is our policyholder surplus, which is really the strength of our balance sheet relative to our peers, and how stable our balance sheet was in the third quarter, despite Hurricanes Ike and Gustav and the obvious challenges of the financial markets.

We're also trying to create dialogue in the industry that it's not just about us so that brokers and customers better understand that as insurers, we stand behind the obligations we have when we write an insurance policy. AIG Inc. is not an insurance company. In spite of its problems, I think what's happened has been an opportunity for our marketplace to better understand how insurance companies operate.

AA&B: There has been a lot of press coverage around AIG dramatically cutting prices to keep business. If true, what's the thinking behind this?

Doyle: We continue to be disciplined about how we price our business. For example, we have written approximately $500 million less in guaranteed cost workers' comp in the first 9 months of 2008. We're still a major writer in the U.S., but pricing has been inadequate in certain markets around the country so we're walking away from some of that business. Our top-line performance in the third quarter declined by 7 percent at a time when many of our harshest critics saw growth, so it's hard to reconcile those numbers with talk that we're slashing prices.

What I can say is that the marketplace remains relatively competitive, although pricing continues to stabilize. Prices that have been down in our portfolio by about 10 percent year to date in September are now running down about 5 percent. Some pricing improvements are relative, although rates are still down modestly year over year, with a number of products-including cat property, financial lines, D&O and E&O-moving into price increase territory over the last 60 to 90 days.

Our competitors continue to be frustrated by their inability to win significant business from us, which is the only explanation I can come up for why they comment as they have-either that or a lack of understanding regarding the strength of our operations.

AA&B: How is AIG addressing executive defections, such as Kevin Kelley's recent departure from Lexington?

Doyle: Although we're disappointed that Kevin decided to move on, we are confident in the team in place and we are using retention strategies to keep them there. We have a very talented and deep team within commercial insurance, over 12,000 strong. Our employee retention through the end of November was consistent with 2007 levels. We have more than 700 senior managers in the commercial insurance ranks, with a turnover rate in the 6 to 7 percent range. Our competitors certainly didn't start getting interested in recruiting our people beginning on Sept. 15, so it's not a new phenomenon, although they have had more to talk about since then.

AA&B: Would you be willing to go out on a limb and predict how the next 1-2 years will shake out for AIG?

Doyle: Within our commercial insurance operations at AIG, our competitive strengths remain the same. We have a strong balance sheet, a very diversified portfolio of business, and our commitment to the marketplace and appetite for risk is something that sets us apart. Our geographic and global footprint is a competitive advantage, and our people support services that fit all the policies we write.

We have more than 450 products and services, and various markets don't operate in lockstep. We've already seen some reasonably big changes in pricing within the property cat market, which we expect to firm in 2009. Other markets remain relatively competitive, but overall, I believe the market will see more stability in 2009.

I see a lot of challenges for our industry next year. The pricing environment will continue to be tough, and financial markets will likely remain difficult. Loss costs were on the rise in 2008, and the poor economy has clearly had an impact on the business in a number of different ways. A lot of challenges are ahead, but I like how we are positioned in the marketplace and I'm confident in our ability to perform well in what will be a difficult year.