A June webinar provided an excellent opportunity for a panel of excess and surplus insurance lines experts to weigh in on market cycles, workers' comp and professional lines
to name a few. Hosted by A.M. Best and the National Association of Professional Surplus Lines Offices, participants included Lee McDonald and Duncan McColl of A.M. Best, Richard Kerr of MarketScout, Kevin Westrope of Westrope, Marla Donovan of Burns & Wilcox and Paul Springman of Markel Corp. The panel was moderated by McDonald. The original transcript was edited by Dan Reynolds, senior editor, Risk & Insurance®.
MCDONALD: Last time when we had this panel with different panelists, one of the things that dominated the conversation was AIG. They were in the midst of the first round of the bailout, and there've been several after that.
There were questions at the time as to whether they would continue, and I believe many of those questions have been answered at least in the short term and, hopefully, in the long term. At that time everyone was telling us that submissions were up like crazy, and there were concerns about what's going to happen to pricing. And my question is, how did that play out and where does AIG and AIU Holdings (Now Chartis) sit in today's market? So, Marla what did we see in the fall through the beginning of the year, and what are we seeing now and have things calmed down?
DONOVAN: Things have definitely calmed down, and I think that's good for the whole industry. Nobody was prepared for what happened last fall, and obviously it was so destabilizing and so disconcerting. Clearly AIG's been identified as the institution that is too big to fail. Whatever you feel about that, whatever your politics, that is a fact. So, AIG as we knew it, however, will no longer be around. AIU Holdings (Chartis), the special-purpose vehicle to separate AIG property/casualty operations from the toxic area of the company is a good thing for the business and it seems to be stabilizing. And I believe that AIG--AIU--in a much smaller form will continue to serve a vital role in the marketplace, and I think that's good for all of us. There have been reports of some artificial suppression of rate, if you will, by AIG in their attempts to keep business, but we haven't personally experienced that in our market space.
MCDONALD: Paul, Tony Markel was here, and he talked about the fact that everyone was seeing increased submissions. Apparently that hasn't gone back to quite normal. I'm still hearing submission activity is up so we don't know whether that's just the general market or at that point they thought it was AIG. What are you seeing in terms of just the submission turn?
SPRINGMAN: I have to tell you my AIG crystal ball broke a long time ago, and of all of the predictions and forecasts that I made, probably the only one that's been accurate was that the original bailout and the $75 billion at that time wouldn't scratch the surface of what they actually would need to survive. Clearly, they won't be able to repay the debt, so the company will emerge or at least it appears it will emerge under the AIU Holdings banner as a smaller, leaner, different type of structure.
I think when the news originally hit last September it was all hands on deck, and we did receive a bevy of activity for maybe a two- to four-week period of time. But it was really a lot more shoppers than serious buyers, and that bevy of activity did not equate to a lot of additional new business as we though that it would.
Our submission counts continue to remain at historically high levels. Part of it's due to AIG shoppers as accounts come up for renewal, and we're starting to see some risk managers perhaps pare down limits that used to be at $25 million or $50 million with an AIG company to perhaps a limit lower than that. But what we anticipated would happen last September simply has not materialized.
MCDONALD: Kevin, I know you place a lot through AIG and continue to do so.
WESTROPE: We really haven't seen much change. We certainly had a lot of phone calls and folks asking for alternatives, but very little movement. Once buyers saw what terms and conditions and premiums were going to be to replace some of that business, they decided to remain where they were. I think it's important when talking about AIG, whatever your feelings about AIG and the company are, is that the insurance companies were always solvent. It's important that we remember that the state system of regulation was an effective model, and there's an awful lot of talk in Congress right now about "insurance" failed. Insurance did not fail.
Frankly, the failure was at the federal level.
MCDONALD: I just want to jump to Duncan for a quick second here: Could you just refresh for us the current rating opinion and outlook that A.M. Best has on AIG?
We have an A rating. An A financial strength rating on AIG and most AIG companies with a negative outlook. That reflects the continued financial support of the federal government as well as our view that capitalization and market profile at the insurance company level is consistent with A rated companies.
MCDONALD: Richard, I know you're very active with AIG. What's been your experience?
KERR: We certainly do not see AIG unnecessarily cutting prices. They're not. I actually know AIG quite well, and I agree: I think that the company, AIU Holdings, is going to emerge as a good, vibrant shareholder of the marketplace. So, you can imagine, you're running your own division. Your combined ratios are doing well, and you wake up one day and this explosion happens, which, frankly in my view, didn't have anything to do with the insurance operation.
So we see them continuing. I think they'll still be vibrant. I think it would be a very foolish and unwise person that would be dancing on their grave, because they'll be back and they'll be strong.
MCDONALD: Throughout the whole AIG saga, there was a whole lot of sniping about possible irrational pricing or just stupid pricing, but from what I'm hearing from you, that's really not the case?
KERR: Not from what we've seen. And, as you know, we monitor that pretty carefully. On occasion there may be a very competitive position, but now it's gotten to the extent because of complaints that have come to Congress from various other CEOs that AIU Holdings is, in my view, fearful to be too competitive.
It's almost a Hobson's Choice. You're darned if you do and you're darned if you don't. So, the summary to your question is, I think they are pricing responsibly, and I think their combined ratios will reflect that.
WESTROPE: AIG is not necessarily a friend to the specialty lines, surplus lines of business or NAPSLO members, frankly. But, we place more business with AIG companies currently than we do anywhere else, and they're kind of the 800-pound gorilla. My hope, as they move forward, and we have begun to see it, is that we will see a kinder, gentler organization without some of the arrogance that I think was really emanating from the financial side of things.
October 1, 2009
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