AIG Property Insurance Update
We have all watched the spectacle at AIG with a combination of horror, anger, and awe at how an enterprise so large and apparently stable could come unraveled so quickly, and with so much collateral damage. While the press regularly paints AIG as a singular entity, it is, in fact, an amalgamation of about 400 separate business units, primarily in finance, asset management, and insurance. AIG’s collapse was caused by activity at just one of those units, the now-infamous AIG Financial Products group, which created and sold credit default swaps to financial institutions around the world.
A number of Aspiriant clients have homeowner’s, automobile, and liability insurance provided by AIG’s Private Client Group (PCG) subsidiary, so we have spent a lot of time over the last 6 months understanding the risks to the PCG’s ongoing viability. Our research, which included meetings with the PCG’s president, Charles Williamson, and with several third-party property insurance experts, concluded that PCG is in strong shape financially and is protected from the direct financial and legal woes of its parent.
PCG is very well capitalized, with $90 billion of conservatively-invested assets, of which $26 billion is “policyholder surplus” (i.e., the difference between assets and expected claims), the largest surplus of any property insurance company in the world. By law, this capital cannot be touched by the parent company without regulatory approval; moreover, PCG is immune from the parent company’s bankruptcy proceedings. PCG’s reinsurance companies serve as an additional check on PCG’s own estimates of their exposures and their financial stability. PCG successfully renewed their 2009 reinsurance contracts at a discount and/or the same rate as their 2008 contracts.
PCG appears to be operating nearly independently of the corporate parent. And while the business continues to experience robust growth and little turnover among clients, employees and affiliated brokers, the very fact that they are associated with AIG poses some long-term problems for PCG. The stigma of the corporate parent and the compensation restrictions being placed on AIG could result in the loss of clients and employees over time.
Recognizing these issues, AIG recently announced plans to spin off PCG into a separate insurance holding company, to be called AIU Holdings, Inc. The new company will have a separate board of directors, contain the management team from PCG, and have a brand distinct from AIG. The establishment of AIU Holdings, Inc. will assist AIG in preparing for the future sale of the business.
In light of this positive development, we continue to recommend that clients who already have AIG PCG insurance remain with PCG. Moving to another similar carrier (e.g., Chubb or Fireman's Fund) would likely involve a rate increase and/or a poorer underwriting fit. That said, if you are uncomfortable with your PCG coverage, or would simply prefer to reassess your coverage options, your Aspiriant client service team can coordinate that for you.