WASHINGTON–The Property Casualty Insurers Association of America says the federal government should rethink its plans to possibly provide additional bailout money to American International Group, arguing that doing so creates an unfair competitive advantage for the company.
“Providing additional subsidized taxpayer loans to insurers who are also thrift holding companies could create unintended negative effects on consumers and the marketplace,” said David Sampson, president and chief executive officer of PCI.
His comment was prompted by reports that AIG will report on Monday a fourth-quarter loss that could reach $60 billion and the company is seeking additional government funding to prevent bankruptcy.
Calling AIG an “insurer that became a bank or thrift holding company,” Mr. Sampson said the company can get cheap federal loans through Treasury's Capital Purchase Program and then shift this subsidized capital to their insurance affiliates. This allows unhealthy insurers to grab more market share in the short term at levels that are unsustainable in the long term.
“Such actions potentially not only undermine healthy competitors but also spread additional risk to bank or thrift subsidiaries receiving the federal money,” Mr. Sampson argued. “This destabilization of the marketplace makes it increasingly impossible for the government to unwind the unsustainable market conditions it helped create.
“The unfortunate results for consumers and taxpayers are more risk, higher costs, less competition and an increasing reliance on government intervention and resources,” Mr. Sampson said.
Healthy providers that lose market share to the competition would have to reduce employment and increase premiums to make up for lost revenues, he added.
“And even highly profitable and fiscally sound insurers would have a duty to their shareholders to line up for federal largesse to avoid being boxed into a competitive disadvantage,” Mr. Sampson said. “The vast majority of insurers, who are healthy and sound, do not currently need federal investment in their businesses.”
According to news reports, AIG's board is scheduled to meet Sunday night in hopes of hammering out an agreement with the government. If it can't, AIG's lawyers are preparing for the possibility of bankruptcy.
An AIG spokesman said that is unlikely to happen.
The new funding is needed from write-downs AIG took on a variety of assets, including commercial real estate. Without additional capital, such a loss would likely trigger further downgrades in its insurance and credit ratings, forcing AIG to put up additional collateral it doesn't have.
The AIG official said the outcome of talks with the government is likely to be announced Monday.
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