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AIG CEO Benmosche Says Insurance Units Won't be Tapped for Funds in Taxpayer Repayment Plan

Source: WSJ

Posted on 01 Oct 2010

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AIG's plan for repaying U.S. taxpayers isn't expected to touch any of the money that currently protects policyholders according to state regulators who oversee some of the insurer's biggest insurance units. But some emphasized that full documentation isn't yet available for their review.

Company Chief Executive Robert Benmosche called key regulators Wednesday to brief them on basic terms. He told them the insurance units wouldn't be tapped for funds, they said in interviews Thursday.

"Any transaction has to protect policyholders, and management has assured us it will," said Robert L. Pratter, acting insurance commissioner in Pennsylvania, where some of AIG's biggest property-casualty units are based.

The repayment transactions don't appear to require any approvals from state authorities, but Pennsylvania Deputy Insurance Commissioner Stephen Johnson said his office would evaluate final terms "and determine if we think there are issues."

In New York, Insurance Superintendent James Wrynn said his department's understanding is that "the policyholders are definitely protected." He added: "It's an involved plan."

Under the repayment plan announced Thursday, it is divesting its overseas life-insurance units to raise the bulk of the money needed to pay off government loans.

AIG is holding onto its world-wide presence in property-casualty insurance. Rebranded as Chartis, the unit sells insurance for airplanes and oil rigs, factories and restaurants, among other things. It also sells protection to high-end homeowners and art collectors.

In the U.S., AIG is expected to remain a major player in life-insurance and retirement-income products.

Michael Moriarty, a deputy insurance superintendent in New York, said many of the units today have capital cushions at least as strong as before the crisis. But capital adequacy is just part of the picture, he said. Other concerns have been "their ability to keep good people and to keep their [policyholder] accounts" amid the negative headlines.

On those fronts, he said, AIG has "been pretty resilient."

In recent months, AIG's life-insurance sales have been on the upswing, said Andrew Edelsberg, an analyst at A.M. Best Co. Gaining ground can be tough, though, because many consumers are favoring insurers that came through the 2008-09 financial turmoil relatively well, with double-A or better ratings.

Those include New York Life Insurance Co., now the biggest seller of fixed annuities, while AIG has slipped to second place, according to Limra, an industry-funded research firm.

Thomas Considine, New Jersey's commissioner of banking and insurance, said AIG's insurance units were "never in true jeopardy" because of their solid capitalization, and AIG's repayment plan "will help to further establish the AIG enterprise as a vibrant, independent" entity.

Still, some financial advisers are cautious in placing business with AIG units. "I need a [premium-rate] advantage with [AIG unit] American General just because of the PR," Peter Katt, a fee-only life-insurance adviser in Mattawan, Mich.