American International Group (AIG) has suffered a barrage of accusations that it is cutting prices since it had to be bailed out by the US government in September last year. Today (June 9), Nicholas Walsh, vice-chairman of AIU Holdings, hit back.
He says it is his competitors cutting rates, not AIG.
“A lot of stuff has been chucked at us about pricing,” he told Reactions. “It is just not true. What has happened is our competitors have not been good enough at outplaying us. They are not going to beat us on product, technological expertise or claims service so the only thing they can beat us on is price.”
He says the view that AIG is not cutting rates has been backed up by independent sources, such as Ernst & Young. “We have had more people look at it than you can shake a stick at,” he says.
Walsh says, however, there is some scary price cutting occurring – but on the business that AIG has given up.
“What no one tells you, as no one knows, is what is happening on new business,” he says. “We have walked away from some business where the rate cutting that has gone on would shock you.”
Walsh says, however, that price cutting has stopped in some areas. “There are a number of areas where we are seeing price increases – such as US wind exposures and anything to do with financial institutions. In foreign business we were down in pricing about 13% in the first quarter of 2008. In the first quarter of 2009 we are just about flat, so it is moving in the right direction.”
AIU Holdings is the holding company for AIG’s commercial insurance, foreign general insurance, and private client group units, and is being transferred to a special purpose vehicle. The rest of AIG’s businesses will be sold.
AIG plans to separate AIU from AIG and may even float a minority stake of the business in an initial public offering. Walsh did not comment on how long the process would take or what name the unit would end up with. But he says AIU is now looking forward to the future after a tough time.
“These entities have a premium volume of $35bn to $40bn, 33,000 employees across the three units and 500 products. We are going through very strict process while getting ready to become a public company. We are on a course now and we just want to get on with it.”
Walsh says the firm has been less affected the further away you get from New York, where AIG is headquartered. AIG has received a lot of criticism from the US public and politicians over its bail-out and bonuses paid to its executives for 2008.
“It was much tougher for the staff in New York,” he says. “It has been in your face, to borrow a New York phrase. Who would have known that insurance would get on Jay Leno? But the further away you get from New York it has been less of an issue until you get to Asia and the Far East, where they are familiar with it but not exposed to it in the same way.
“We will stick to what we do best. It has been very difficult for people to concentrate on that at times but you have to put aside the blows, and get on with doing what we do. We had a trial run in 2005 when Hank Greenberg left. We have a lot of close relationships now, although we wouldn’t choose to get them this way.”