NU Online News Service, Feb. 16, 11:32 a.m. EST
American International Group Inc.'s $4.1 billion charge to bolster the reserves of its property and casualty unit, Chartis, means AIG will need to raise prices, said William R. Berkley, chief executive officer of W.R. Berkley Corp.
Mr. Berkley said his competitor will need to increase prices because "they [AIG] are not so well capitalized. They are not so, 'we can go anywhere.'"
"Candidly, the reinsurance marketplace is not going to be so open to them," Mr. Berkley added, speaking at an insurance conference in New York City hosted by Bank of America.
AIG declined to comment on Mr. Berkley's comments.
"If anything, there will be more pressure on AIG, not less, and more pressure on the rest of the industry to face reality," Mr. Berkley said. The chief executive has said the industry is pricing business irrationally.
AIG expects to record the charge in the fourth quarter. The decision was made after the company's year-end review of loss reserves. About 80 percent of the charge will be put toward adverse development from accident years 2005 and older for four classes of business: asbestos, excess casualty, excess workers' compensation and primary workers' compensation, AIG said.
"Most people perceived AIG as being not particularly well reserved for an extended period of time," Mr. Berkley said. AIG was "very aggressive and made up for it in good times," he added.
To keep business, AIG was "required to be an aggressive competitor" the last few years, he noted.
Competitors have argued the $182.3 billion government bailout given to AIG to prevent its collapse allowed it to undercut the market on pricing of commercial policies in order to keep them. However, the U.S. Government Accountability Office and Pennsylvania's insurance commissioner have said there is no evidence AIG engaged in pricing misconduct.
Mr. Berkley said he hopes AIG addresses possible reserve deficiencies in years after 2005 before its public offering. In its recapitalization plan to pay back the bailout, AIG has said it would like to offer stock early this year, subject to market conditions. AIG will report fourth-quarter earnings on Feb. 24 after the market closes.
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