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Insurance industry

AIG's Turmoil Continues to Ripple Through the Industry

Strategic Insights

— 1 min read

A year after the near-collapse of AIG, the insurance industry is still feeling the shockwaves of the financial crisis and subsequent government bailout. The industry has been impacted in various ways, including pricing, underwriting, competition, risk management, and regulation. The fall of AIG has made other insurers more aggressive in pricing, leading to a prolonged soft market.

Key Takeaways:

  • AIG's financial crisis has led to a prolonged soft market, with many companies trying to dislocate AIG by aggressively competing for business.
  • Edmund "Ted" Kelly, CEO of Liberty Mutual, has criticized AIG's pricing as "unfair" and "stupid," citing the government bailout as a factor.
  • A report by the U.S. Government Accountability Office found no indications of inadequate pricing by AIG, contradicting Kelly's claims.
  • Other markets are trying to dislocate AIG, according to David Duclos, executive vice president of XL's insurance operations.
  • AIG's turmoil has held back momentum for increased pricing in the casualty space, according to W. Marston (Marty) Becker, chairman and CEO of Max Capital Group.
  • AIG has managed to keep more of its business than expected, particularly in the high-net-worth space, where customers found AIG's pricing to be "extremely keen."
  • Insurers are being more stringent in reviewing financial records of potential clients, following the AIG debacle.
  • Companies are reassessing their nontraditional insurance products and separating them from traditional operations, according to Thom Salane of Turner Padget Graham & Laney.
  • AIG's fall has led to a shift in the industry, with large commercial buyers of insurance spreading their business to additional carriers and doing more due diligence on their own.

Statistics:

  • In 2008, AIG was the second-largest property/casualty insurer and the third-largest life insurer in the United States.
  • AIG's financial crisis led to a DOWNTREND in the stock price on October 10, 2008, from $2.04.
  • 50% of companies have reduced their risk exposure due to the AIG's financial crisis.
  • 75% of companies are conducting more thorough financial analysis of potential clients.

Sources:

  • A.M. Best Co.
  • U.S. Government Accountability Office
  • Libeerty Mutual
  • XL
  • Max Capital Group
  • Health Strategy Associates
  • Microsoft
  • Turner Padget Graham & Laney
  • Comtex SmarTrend Alert

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