By DAN REYNOLDS, senior editor of Risk & Insurance®
Executives at the Water Street headquarters of American International Group Inc. (AIG) in New York have to be feeling some sense of vindication in the wake of a Pennsylvania Insurance Department report. The report, performed by Towers Watson, examined the underwriting and monitoring, along with the internal pricing practices, of six Pennsylvania-domiciled subsidiaries of Chartis Inc., AIG's property/casualty arm.
The subsidiaries include the Chartis Casualty Co., the Chartis Property Casualty Co. and the National Union Fire Insurance Co. of Pittsburgh.
"As a result of their review," the department wrote, "Towers Watson concluded that the Pool Participants' underwriting, pricing and price monitoring behaviors were not out of line with the underwriting, pricing and price monitoring behaviors of their competitors."
Chartis said that the report substantiates what the company had been saying all along.
"The Pennsylvania Insurance Department report underscores the fact that pricing was never a legitimate issue," said a Chartis spokesperson in e-mailed responses to questions about the report from Risk & Insurance®.
"Chartis' pricing has been consistent with the market, and in fact, we have performed significantly better than most industry measures," the spokesperson added. "This is a direct result of our underwriting discipline. We refuse to follow pricing to unacceptable levels of return."
Those words are very similar to language used by Kris Moor, then president of AIU Holdings Inc., the name Chartis used to be known by back in May of 2009, when AIG's property/casualty operations were buffeted by allegations that AIG was undercutting competitors to retain market share.
"Bottom line, we will not sacrifice top-line production at the expense of profitability," Moor told analysts in a conference call in 2009.
At the time, analysts with Citigroup said they had no way of knowing whether the underpricing allegations leveled against AIG by its competitors were accurate or not.
"Management vehemently denies competitors' repeated insinuations regarding AIG's aggressive pricing meant to retain business. We have no way of verifying either claim," wrote Citigroup analysts Joshua Shanker and Yaron Kinar in a note to investors.
In its analysis of underwriting files, underwriting monitoring reports and exception reports, the Pennsylvania Department of Insurance said that Towers Watson focused on the Chartis subsidiaries' three largest divisions--but which divisions those were was held confidential.
The Insurance Department report also doesn't say which Chartis competitors that Towers Watson used as comparison. Chartis said that Towers Watson didn't share its methodology with the company.
Towers Watson executives declined to comment, citing client confidentiality.
The methodology of the report is confidential under the Pennsylvania insurance exam law, according to Melissa Fox, a spokeswoman for the Pennsylvania Insurance Department. The report was paid for by Chartis, not the Commonwealth of Pennsylvania.
January 10, 2011
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