California Insurance Commissioner Steve Poizner said Wednesday his department is closely monitoring the fate of troubled insurance giant AIG and the impact its $85 billion federal bailout may have in the state.
Poizner said two dozen companies under New York-based American International Group’s (NYSE: AIG) corporate umbrella are licensed to sell insurance in California. According to the California Department of Insurance, those AIG-owned companies cumulatively held 7 percent of the auto insurance market in California last year ($1.5 billion in 2007 premiums), 8 percent of the state’s workers’ compensation market ($725 million), and 1.5 percent of its homeowners market ($98 million).
“I have made monitoring the AIG issue the No. 1 priority of my department,” Poizner said Sept. 17, adding that the federal bailout “offers maximum protection for AIG insurance customers in California and elsewhere … (and) does not create any lien obligations on any of the AIG insurance assets, ensuring that their claims-paying capacity remains strong.”
Even before the $85 billion bailout, pulled together late Tuesday as giant AIG appeared headed for bankruptcy, Poizner said its subsidiaries in California “had the risk-based capital required to operate in the California market.”
The infusion of taxpayer funds will give the U.S. government an 80 percent stake in the giant insurer, and the right to remove senior management, according to an Associated Press story Wednesday.
But Poizner said AIG’s financial woes are concentrated in the parent company, “not its subsidiary insurance companies. The AIG-affiliated insurance companies remain solid. We will continue to closely monitor these companies for any changes in their financial condition.”
Poizner, who in mid-September announced plans to form an exploratory committee to raise funds for a potential gubernatorial run in 2010, added that he’ll continue to monitor the situation closely. If AIG decides to sell any insurance units based in California or doing business here, he said, “I will closely scrutinize those proposed sales to ensure that consumers receive the protections they deserve.”
Dennis Cusack, an insurance specialist and partner at San Francisco’s Farella Braun and Martel law firm, said clients, both nationally and in California, are watching the AIG situation, “to see how it plays out.”
Already, however, he’s seen significant changes both in the giant insurer’s behavior and how customers are viewing AIG in recent days, Cusack told the San Francisco Business Times. Not surprisingly, “clients have been very reluctant to sign up for new policies with AIG,” he said. At the same time, there are signs that AIG insurance entities are becoming “more proactive at settling claims and (are) moving to resolve claims sooner, (presumably) because AIG feels it needs to buy good will in the marketplace.”
Cusack said other insurance companies are moving aggressively to “snap up AIG’s market share,” which explains why AIG is taking steps to protect its turf, despite its internal difficulties.
Like Poizner, Cusack suggested that AIG’s insurance subsidiaries are “very solid companies” and that risk managers may find compelling opportunities to do business with them after the short-term crisis is past.
Published reports indicate that Zurich Financial Services, ACE, AXA and other multinational carriers could benefit from AIG’s woes. Cusack said Chubb, XL Insurance Co. and Liberty Mutual are others that could move to take advantage of the turmoil at AIG.
AIG owns more than two dozen companies licensed to offer insurance in California, according to the DOI. They include 21st Century Casualty Co.; 21st Century Insurance Co.; AIG Casualty Co.; AIG Centennial Insurance Co.; AIG Premier Insurance Co.; AIU Insurance Co.; American General Indemnity Co.; American Home Assurance Co.; American International Insurance Co. of California Inc.; Birmingham Fire Insurance Co. of Pennsylvania; Commerce And Industry Insurance Co.; GE Auto & Home Assurance Co.; GE Indemnity Insurance Co.; Granite State Insurance Co.; Hartford Steam Boiler Inspection and Insurance Co.; Insurance Co. of the State of Pennsylvania; Landmark Insurance Co.; National Union Fire Insurance Co. of Pittsburgh, Pa; New Hampshire Insurance Co.; Pacific Assurance; Putnam Reinsurance Co.; Transatlantic Reinsurance Co.; United Guaranty Commercial Insurance Co. of North Carolina; United Guaranty Credit Insurance Co.; United Guaranty Residential Insurance Co.; and Yosemite Insurance Co.
Chris Rauber wrote this story for the San Francisco Business Times, an affiliated newspaper.
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