AIG Commercial Insurance Battles Back

Execs Say Balance Sheet, Underwriting Appetite Remain Strong as Ever

Exclusive Insurance Journal Interview with AIG Commercial Insurance CEO John Doyle and CFO Rob Schimek

The very strengths in its balance sheet, surplus, underwriting and personnel that have made the Commercial Insurance unit of American International Group (AIG) a market leader are keeping it competitive even while the parent company struggles with its financial crisis, according to AIG Commercial Insurance executives, who maintain they are encouraged by the number of clients and brokers who have stuck with AIG during the crisis.

Staying in the game under current circumstances has taken some work, however, and nothing is being taken for granted, say John Q. Doyle, president and CEO of AIG Commercial Insurance, and Rob Schimek, chief financial officer.

“We know we have a lot of work to do, but we are encouraged with where we are in a relatively short period,” says Doyle.

AIG Commercial Insurance companies, to name just some, include AIG Casualty, American Home Assurance, Commerce and Industry, Granite State, Illinois National, National Union Fire, New Hampshire Insurance, AIG Excess Liability Insurance, American International Specialty Lines Insurance, Lexington Insurance and AIG Excess Liability.

While AIG may be downsizing overall by selling off some companies, AIG Commercial Insurance is expected to remain sizable. Its worldwide property/casualty businesses generated $40 billion in revenues in 2007, which would rank it 59th on the Fortune 500, still ahead of all of its primary commercial property/casualty competitors. The surplus behind its domestic commercial lines business alone tops $26 billion.

In the following excerpts from an interview (conducted Oct. 8, 2008) with Insurance Journal‘s Andrew Simpson, Doyle and Schimek discuss how AIG Commercial Insurance is working to retain, even add, business and the effects the current financial crisis at AIG and on Wall Street are having on AIG Commercial Insurance. The entire interview is available on www.InsuranceJournal.com.

What can you say about AIG Commercial Insurance today in light of the pending sales of assets? Will Commercial Insurance units be sold?
John Doyle: We are telling our customers and our brokers in the commercial insurance space that AIG Commercial Insurance is the focus of the company going forward. Our new CEO, Ed Liddy, made that statement within, I think, 24 hours of him taking office at the company. He confirmed it again last Friday at an investor conference. So, our global commercial insurance operations are core to the new AIG.

Mr. Liddy also said that the focus for AIG right now would be on retaining current customers. What specific steps have you taken to communicate with brokers and risk managers and customers? What’s the message and what has been the response?
Doyle: While we are working hard on retaining current customers, we are also working hard on writing new business as well. Our entire team of underwriting staff has been aggressively getting in front of our customers and brokers over the last several weeks.

Our message is fairly straightforward and it is to emphasize the financial strength of our insurance companies. It is to talk about the competitive strengths that we’ve had in our business and making sure that we continue to emphasize those competitive strengths because they have not gone away.

Some of those strengths are our risk appetite, the breadth of products that we offer, our geographic footprint, our commitment to markets and the services that stand behind our policies, be it loss control or claim services. Those attributes of AIG Commercial Insurance are different than the folks we compete with.

I would say that message has been well received. Our client retentions remain strong and we appreciate the fact that our clients and brokers are giving us the opportunity to share that information with them and get that information to them. They’ve been patient with us and are willing to work with us and the early results are positive. We know we have a lot of work to do, but we are encouraged with where we are in a relatively short period.

Are the early retention signs stronger in certain lines than others?
Doyle: Sure, they vary a little bit from line to line although not radically from any one line of business to another.

I think of AIG as being willing to write things that others won’t sometimes. Is that an advantage?
Doyle: I think so and I was referring to that issue when I talked about our risk appetite. We’re known for having a broad risk appetite and I think it’s one thing for a competitor to stand up and say, “Hey, I’m ready to step in and write AIG business” and then it’s another thing for them to actually look at the risk and do it and so far so good.

Are you cutting prices to keep or get business?
Doyle: There is no indication in the rate change results in our business that would indicate that we have needed to do anything differently on pricing since the event. I think when it comes right down to it and customers ask us why they should continue to do business with AIG Commercial Insurance, I think the simplest way to respond to that is to state the fact that the balance sheet of these companies are stronger than they were the last time you renewed with us.

Well, obviously, that is not something you would take from reading kind of mainstream media but that is the case. So if you have been comfortable with us, you should continue to be comfortable with us. We obviously don’t take that for granted. We know we have to earn the business and we work hard to earn it and continue to do so.

So there has been no change in your underwriting appetite?
Doyle: No, our fundamental strategies, underwriting strategies remain unchanged. We obviously change our strategies from time to time and our underwriting strategies from time to time, but those changes or any changes like that are unrelated to our parent company’s issues.

Have you been surprised by competitors’ attempts to take advantage of the situation?
Doyle: No, not at all, but I think at the end of the day if the dialog moves from an inspection of AIG insurance companies and their balance sheets to a similar level of review of our competitors’ balance sheets, then we will fare very well in the long run.

Are you gaining business?
Doyle: Well, we are writing lots of new business. We wrote quite a bit of new business in September. … So we’re out there, as I said, we’re out competing for business just like we did before Sept. 15. We are out trying to earn brokers’ and customers’ or prospects’ business; as much business as we can.

Do you have meetings, teleconferences or how do you communicate?
Doyle: Yeah, it’s everything. Rob and I and again, I don’t mean to make it sound like it’s just the two of us, but Rob and I have been on many conference calls with all the large brokers and their staffs and their clients. In fact, one of the calls at least had more than 10,000 people on it alone, but we’ve done countless face-to-face sessions, countless webinars and conference calls.

In fact, Rob and I spoke to a group of customers and brokers this morning in Midtown and we’ve done a couple of other calls with clients. We’ve done a face-to-face with a client today and it’s kind of the average day right now.

Some Insurance Journal readers, agents and brokers say some clients are asking them to move their accounts from AIG. What do you tell agents or brokers who have to navigate their commitment to their clients, but also to AIG which has been, in many cases, a long time business partner?
Doyle: Well, obviously their commitment first is to their client and what we try to articulate to the broker is how that fiduciary responsibility is best served by placing their business with AIG. And you know again, when you examine our insurance company financial statements, they are very, very competitive.

One of the challenges in a time like this is that there may have to be layoffs or employees may leave. What steps are you taking to try to keep them?
Doyle: Our staffing levels are unrelated to our parent company’s challenges. Again, our business and our operations are fundamentally sound. We continue to apply historical staffing models for our business. And employee retention is obviously critical. Our business is about balance sheet and people. As Rob said, we think we have the best balance sheet in the business and we also think we have the best people in the business.

We are working hard to make sure that we retain our staff by creating an environment for them, a new incentive compensation structure that will challenge them and motivate them and retain them. Staffing levels at this point or turnover I guess I should say, turnover levels at this point remain kind of set at historical norms.

On Sept. 15 your Lexington unit arranged property reinsurance with Berkshire. Why?
Doyle: Certain property risks that we write require “AA” or better ratings from the financial credit ratings from S&P. We had a “AA” rating, but the recent downgrade changed that. So we sought some support from Berkshire Hathaway, essentially what is a credit wrap around certain property risks, to essentially meet the commitment that we had made, to continue to honor the commitment that we had made to those policyholders when we entered into those contracts.

Would similar deals be anticipated going forward?
Doyle: No, I wouldn’t anticipate any other deals; it is again some unique characteristics surrounding our property portfolio that led us to the deal with Berkshire Hathaway.

Do you see the overall financial and credit crisis affecting your commercial lines? I am thinking of the directors and officers line in particular.
Doyle: Well you know sure, the financial markets and credit markets and the economy generally have an effect on a number of different lines and it can affect us in a lot of different ways. It can affect exposure units and, as a result, production, obviously — there is less construction going on, transportation has been under pressure. But it can also affect very much the risks that we take in financial lines or employment practices or workers’ compensation for instance. So those are important components and factors you have to take.

You’ve had three CEOs in the past six months. What’s the mood like in AIG offices? How do you keep employees focused on the day-to-day?
Doyle: We have a remarkable staff. The company has been through a lot over the last three years and I was very impressed with how our staff managed to maintain its focus through the challenges of 2005 and I continue to be impressed, although not surprised, at our ability to remain focused through the challenges of today. We have a lot of fighters and very competitive people who really like to win on our team. I can’t say enough about how proud I am of how they have handled themselves.

Does this in anyway bring people together more?
Doyle: It does, both figuratively and literally. I haven’t left Rob’s side.

Topics Agencies Commercial Lines Excess Surplus Business Insurance Underwriting Property AIG