AIG’s Lexington Planning on Repeat of 2004, Not 2005

March 29, 2006

Mindful of the increased hurricane activity and rising coastal values, Lexington Insurance Group, the largest U.S.-based surplus insurance company, said it is assuming this year will look more like 2004 than 2005 as it goes about deciding where and what properties to write at what prices and terms.

In 2004, the industry lost $27 billion, compared to twice that or $55 billion in 2005. If the patterns of 2004 reoccur this year, Lexington would make a profit, Kevin Kelley, Lexington chairman and chief executive of the American International Group affiliate, told investors during a Domestic Group Brokerage presentation.

As part of its 2006 strategy, the company said it would reduce its net coverage in catastrophe areas by 20 percent to 25 percent this year. New Orleans and Hawaii are among the locations where Lexington will cut back in 2006.

Noting that the company suffered more than $2 billion in hurricane losses in 2005, Kevin Kelley, Lexington chairman and chief executive, told investors during a Domestic Group Brokerage presentation that “our market couldn’t swallow a repeat of 2005 right now.”

In 2005, the company began reducing its exposure in Florida, Texas and California.

Kelley said his company will employ a number of strategies including raising rates up to 30 percent in catastrophe-prone areas, raising wind and flood deductibles, and placing more limits on coverages to achieve better results in 2006.

Kelley described a market that has seen coastal values skyrocket to where insured property in Florida alone is now over $2.25 trillion.

Due to a typographical error, the original presentation materials and subsequent press reports indicated that Lexington would reduce gross and net coverage by 20 percent to 25 percent in catastrophe areas. The presentation should have indicated that Lexington would reduce net (not gross and net) coverage by 20-25 percent.

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