WASHINGTON–The Government Accountability Office and Pennsylvania insurance commissioner told Congress today that there is no evidence American International Group is engaged in predatory pricing of its property-casualty business.
Their comments came at a packed hearing on AIG before the Capital Markets Subcommittee of the House Financial Subcommittee.
Orice Williams, director of the GAO's financial markets and community investment unit, said, "State insurance regulators, insurance brokers and insurance buyers said that while AIG may be pricing somewhat more aggressively than in the past in order to retain business in light of damage to the parent company's reputation, they did not see indications that this pricing was inadequate or out of line with previous AIG pricing practices."
And Joel Ario, the Pennsylvania regulator, said, "With the caveat that these issues are very complex, we have not seen any clear evidence of underpricing to date, though we continue to look both at individual cases and at aggregate numbers on both renewals and new business at AIG."
Their testimony came in response to requests from Rep. Paul Kanjorski, D-Pa.., chairman of the panel, and Rep. Spencer Bachus, R-Ala., ranking minority member of the parent House Financial Services Committee, for information on whether predatory pricing was hurting AIG's competitors in the marketplace.
In testimony on the same issue last week before a hearing on AIG held by the Senate Banking Committee, New York Insurance Superintendent Eric Dinallo had said the same thing.
In other testimony, GAO cast doubt on whether AIG will ever fully repay the government for its current $173 billion investment in the company–a stake that under current agreements could rise at least another $30 billion if AIG needs or wants it.
"AIG's ability to repay its obligations to the federal government has also been impaired by its deteriorating operations, inability to sell its assets and further declines in its assets," Ms. Williams testified.
"All of these issues will continue to adversely impact AIG's ability to repay its government assistance," she added.
In her comments on the pricing of AIG's p-c products, Ms. Williams told Rep. Kanjorski and Rep. Bachus that accurately evaluating whether AIG is unfairly competing in the market presents a number of "challenges."
These challenges include the unique, negotiated nature of many commercial insurance policies, the subjective assumptions involved in determining premiums, and the fact that for some lines of commercial insurance it can take several years to determine if premiums charged were adequate for the related losses, she said.
In his response, Mr. Ario said the Pennsylvania department didn't take the allegations lightly, but at the same time asked members of Congress to keep in mind that both sides had good reason to complain.
"The Pennsylvania department has devoted special attention to the current allegations because both AIG and its competitors may have distorted incentives to put their competitive engines into overdrive–to preserve business on one side and to deliver a knock-out blow on the other side," Mr. Ario testified.
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