Divorce AIG Style

By | March 15, 2009

Like spouses granted a divorce, AIG’s property/casualty insurance
executives are relieved and excited about their newfound freedom.

AIG is letting them form their own independent company called AIU Holdings. No longer will they have to answer for what their irresponsible partner-parent AIG has done or is doing.

AIG’s P/C executives have been victims of the other AIG operators
who have tarnished the family name. Their insurance operations
have remained profitable and their policyholders have remained protected. Their insurance monies are completely walled off so that they can’t be raided. They have not needed or received any of the billions of dollars doled out by the government to AIG.

But the marketplace hasn’t always listened to or trusted these assurances coming from inside AIG. AIG’s competitors have also been happy to create noise in the marketplace to confuse matters.

Now the AIG insurance pros are going to be judged on their own merits again.

Officially separating from AIG will take some time but the branding has already begun.

“Putting some distance will be good for everyone involved,” John Doyle, president of the Commercial Insurance Group for North America, told an Aon client conference a day after AIG announced that it would be spinning off the P/C business. “We appreciate that,” he added.

March 2, the day on which parent AIG reported the biggest quarterly loss in history– $61 billion — and accepted another $30 billion credit line from the government was nevertheless a “good day for us,” Doyle said of the insurance group.

Doyle said AIG’s insurance business around the world has continued
to perform well despite the challenges.

It’s performed well, perhaps, but not perfectly. There have been some high-profile executive defections, although Doyle maintains 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. “No major commercial customers are looking to move on,” Doyle said.

Attracting new business in a recession is 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.

The new AIU will start out with many advantages including $45 billion in total revenues — enough to be a Fortune 54 company. Its policyholder surplus is unmatched by any rival. Going solo should give AIU more financial flexibility.

Part of the new plan calls for AIU to sell a minority interest. Of course, whether capital markets will be in any shape to respond remains to be seen.

For all its history and size, the newly single AIU Holdings will not be immune to the fallout from a troubled economy. The marriage was good for a long time and made AIU the force it is today. Now it’s time for AIG and AIU to go their separate ways and focus on the future.

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