AIG Hit With More Negative Publicity

The company may be able to pay back the investment by the U.S. government, as well as some other debt as it sells off core assets, but the remaining company may generate low return on equity and be handicapped by high debt burden, he said.

The government has invested billions of dollars into AIG during the past year after the company ran into trouble over its CDS obligations that almost led to bankruptcy.

The analyst also questioned the ability of company Chief Executive Officer Ed Liddy to lead the company as he transitions out of his role once a successor is found.

Citigroup said there was a 20 percent probability that AIG would continue as a property and causally insurer, but the expectation is the business will be carved out in an initial public offering in 2010. There is a 10 percent probability of insolvency.

Adding to the negative press, in an interview with Bloomberg Television, New York Insurance Department Acting-Superintendent Kermitt J. Brooks said both his department and the Insurance Department of Pennsylvania were conducting examinations into the pricing practices of the insurer.

The examination follows complaints from several insurers that the company benefits from an unfair advantage in its pricing of risk because it is backed by the federal government with billions of loans and other investments.

Spokespeople for the New York and Pennsylvania departments confirmed to National Underwriter that their departments do have ongoing examinations, but refused to give any additional information.

AIG issued a statement by e-mail saying, "The Pennsylvania Department of Insurance, acting as lead regulator for other states including New York, is currently conducting an examination of our property casualty business, which includes among other items a review of pricing relative to the market. Several entities that have reviewed our pricing in the near past, including the GAO, have stated that they found nothing unusual about our pricing or actions in the marketplace. As we have stated previously, we believe that allegations that we are inappropriately underpricing business to retain market share are untrue and are being driven by competitors frustrated by their ability to win market share."

Back in March, the General Accountability Office and Pennsylvania Insurance Commissioner Joel Ario told Congress there was no evidence of predatory pricing by AIG.

Orice Williams, director of the GAO's financial markets and community investment unit, told Congress that while pricing is aggressive, it is not out of line with the company's previous pricing practices.

This story was updated at 3:00 p.m. EDT