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NY Insurance Chief: AIG Pricing Examination Routine

Source: WSJ

Posted on 14 Jul 2009

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New York continues to look at complaints that American International Group Inc. (AIG) is cutting insurance prices to an unprofitable level, but the state's acting insurance superintendent downplayed the seriousness so far of the inquiry.

"We respond to complaints of this type routinely, and we have gotten some complaints," Kermitt J. Brooks, acting insurance superintendent of New York, said in an interview Monday. Brooks stepped into the role at the beginning of the month. "It is more of an examination. 'Investigation' has a negative connotation that is not appropriate here."

Brooks wouldn't offer any specifics of his office's examination, but he said it would be completed by the end of the year.

The issue of under pricing is sensitive for AIG because the company has received substantial government support. The Wall Street Journal reported in March that some of AIG's commercial-insurance rivals complained that AIG was using its government rescue to gain an advantage over competitors by cutting prices below the level necessary to sustain profitability. A preliminary report by one government agency reported no evidence of wrong-doing.

An AIG representative said in an email: "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 [U.S. Government Accountability Office], have stated that they found nothing unusual about our pricing or actions in the marketplace." AIG also said allegations of under pricing "are untrue and are being driven by competitors frustrated" at being unable to gain market share.

Edmund "Ted" Kelly, chief executive of Liberty Mutual Group, has been a persistent critic of AIG's pricing practices. "AIG continues to be overly aggressive on pricing and terms," Kelly said during a March conference call. "But, of course, if you've got an implicit federal backstop, you can do that stuff."

Insurer complaints triggered an examination by the GAO and the insurance departments of Pennsylvania and New York, where AIG is headquartered. In March, the GAO said in a preliminary report that state insurance commissioners had found no indications of inadequate pricing.

One analyst said Monday it may take years before the validity of pricing complaints can be evaluated.

"Based on public data, it is basically impossible to determine," said Rob Haines of CreditSights Inc. "The regulators have access to more granular information, but even then it's difficult to prove unless there is something very egregious going on."

Some price-cutting could be warranted by the competitive environment, which has driven commercial-insurance rates down for the last few years.

AIG is "probably under pricing somewhat, but I would be surprised [if] it is to a level that would require actual intervention," Haines said. "In the end, the proof will be in future loss development. We may not get that data for some years, though."


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