Thursday, November 12, 2009

AIG’s Chartis ‘Walked Away’ From Business, CFO Says

liberty mutual

Nov. 12 (Bloomberg) -- Chartis Inc., the property-casualty division of American International Group Inc., will lose sales rather than cut rates to unprofitable levels, contrary to claims by rivals that it’s under-pricing insurance, the company said.

Comments from competing insurers that Chartis has been selling coverage at unsustainable rates “reflect a big degree of frustration by the marketplace that they’ve been unable to unseat the Chartis organization in the vast majority of business,” Chief Financial Officer Robert Schimek said today at an Ernst & Young LLP conference in New York, where AIG is based. “We are in an organization that has walked away from premium.”

Insurers including Chubb Corp. and Liberty Mutual Group Inc. have said AIG was offering coverage at below-market rates to retain clients after getting a U.S. bailout now valued at $182.3 billion. The Government Accountability Office, the investigative arm of the U.S. Congress, said in a March 18 report it found no evidence of under-pricing by AIG.

Chubb Chief Operating Officer John Degnan told investors on a conference call in January that AIG offered “irresponsible” prices to win policy renewals. Liberty Mutual Chief Executive Officer Edmund “Ted” Kelly said a year ago that AIG was “doing some very stupid things.”

More recently, Kelly compared unnamed competitors to alcoholics “who keep swearing off drink until they reach the next saloon,” and Ace Ltd. CEO Evan Greenberg said “some cowboys” in the industry are setting unreasonable prices.

Cowboys, Alcoholics

The comments are “based off their frustration we didn’t go away,” Schimek said today, and have come at times from companies that are adding customers. “Something about that story line seems really confused. You say ‘cowboys’ and ‘alcoholics’ and all those things, and then you say in the next breath that we grew 10 percent,” he said in a separate interview.

Liberty Mutual spent 100.6 cents on claims and expenses for every dollar it collected in premium in the quarter, and said the value of policies sold rose 11 percent from the same period a year earlier to $21.2 billion. The Boston-based insurer acquired Safeco Corp. on Sept. 22 last year.

Ace spent 88.1 cents on claims and expenses for every premium dollar in its property-casualty operations. Policy sales fell 3.7 percent to $3.16 billion. Chubb’s so-called combined ratio was 85.4, and the value of policies sold declined 6.7 percent to $2.7 billion.

Profit Margins

AIG’s policy sales shrank 13 percent in the quarter to $8.1 billion at its property-casualty operations. The insurer raised its estimate last week for the amount it will need to pay property-casualty claims from prior quarters, saying it spent 105.2 cents of every premium dollar on claims and expenses compared with 104.5 a year earlier.

U.S. commercial insurance rates fell 5.8 percent in the third quarter, exceeding price declines in the first half of the year, according to the Council of Insurance Agents and Brokers. Prices have declined in every quarter since 2004.

Workers’ compensation insurers, a group led in the U.S. by Liberty Mutual and AIG, are facing revenue declines as rates drop, said Bob Hartwig, president of the Insurance Information Institute, in a separate presentation today.

“Workers’ compensation is probably the softest of all lines right now,” Hartwig said.

In Business

“We are in the workers’ comp business and we want to still write it,” Schimek said in the interview. “We are not going to write it if pricing can’t end up providing profitable opportunities for us.”

AIG in July renamed the property-casualty division, formerly known as AIU Holdings, to distance it from the bailed- out parent company. AIG placed Chartis into a special purpose vehicle to further its independence and prepare it for a possible public offering of a minority stake. Chartis covers commercial property, insures airplanes and sells workers’ compensation policies.