Posted On: December 12, 2008, 6:49 am CST

Posted By: Peter Polstein

Lex - let's put this in some prospective. Lexington under Kevin Kelly has been the major driving force of the AIG group. It has been an underwriter of a wide variety of risk, which has not, and will not be much of an appetite for others in the industry if it comes on the market. It has been one of the AIG group insurers who has "managed their profits" as well as the rest of the group, and has, as the rest of the group, taken liberties with their reserving practices. If you are indeed an actuary, you will understand that reserving as expected over a protracted period of time, irrespective of the quality of the claim, will after a period of time leave you with a less than authentic development posture. This is not unusual for this group, and when you consider some of the interior reinsurance deals that have been negotiated, you will then understand how this group has been able to continually have a loss ratio under 100.00. Don't give me this garbage of classically good underwriting, and a tough claims posture, it is nothing more than managing your P&L, it is that simple.

There will come a time, in the very near future when regulators, who generally don't have a clue, and are nothing more than political hacks will take up the hue and cry, along with the SEC and other enforcement agencies asking, when did you know, how did you know, why didn't you know, and who did know. It will fall ultimately on the shoulders of PWC, their auditors, who will obviously claim, that they were either lied to, or substantial amounts of information was with held from them, which is closest to the truth.

This is a group who continues to be in serious trouble, let no one misunderstand that. They are not alone, and during the next 24 to 48 months, we will see, some significant changes within the industry which may well reshape it.

The changing scenario of rating, from the out dated formulas, and so called models, to a risk/adequacy basis, if properly implemented, will have some interesting and telling effects.

Be well.