Spinning Off, Not Out of Control

The new AIU will start out with $45 billion in total revenues — enough to be a Fortune 54 company all by itself.

State insurance regulators, like Texas Insurance Commissioner Mike Geeslin and Louisiana’s Commissioner of Insurance Jim Donelon, have consistently maintained that the property/casualty insurance operations under the American International Group umbrella are solid and solvent even while their parent slides deeper into a black hole.

The good news, now, is that AIG is letting go of its P/C units, spinning them off into an independent company called AIU Holdings. AIG’s P/C operations — although tainted in the press by the actions of other AIG operations that have ruined the family name — have remained profitable and policyholders have been protected. Their insurance monies are completely walled off so that they can’t be raided. They have neither needed nor received any of the billions of dollars in welfare doled out by the government to AIG’s other units.

AIG CEO Ed Liddy said the spinoff is being done to prevent further “franchise erosion” of the insurance brand — in other words, to keep the disease from spreading.

Now the AIG P/C insurance pros are going to be judged on their own merits again. Their new company will include all domestic and global commercial insurance operations, and the personal lines private client group. Officially separating from AIG will take some time and lots of lawyers but the branding has already begun.

March 2, the day on which parent AIG reported the biggest quarterly loss in corporate history — more than $61 billion — and accepted another $30 billion credit line from the federal government — was nevertheless a “good day for us,” said John Doyle, president of the Commercial Insurance Group for North America.

The new AIU will start out with $45 billion in total revenues — enough to be a Fortune 54 company all by itself. Its policyholder surplus is unmatched by any rival.

But for all its history and size, the new AIU Holdings will not be immune to the fallout from a troubled parent or a troubled economy.

Doyle said AIG’s P/C business around the world has continued to perform well despite the challenges. It’s performed well, perhaps, but not perfectly. Doyle acknowledged there have been some high-profile executive defections, although he maintained that overall employee retention even at the senior management level is well within the normal range. Premium retention is down a bit, about five percent. But client retention is at normal levels.

Attracting new business in today’s recession would be a challenge for any insurer but it has been especially difficult for AIG as it tries to also overcome client doubts about its financial future. New business premium fell 37 percent in 2008 and that trend has continued in early 2009.

Still, going on its own will give AIU more financial flexibility and allow it to attract capital on its own, rather than having to go through AIG.

Even though AIG the parent is spinning out of control, there are indications that its spin off AIU Holdings is on solid ground. Let’s hope it stays that way.

Topics Property Casualty AIG