AIG defends its terror insurance pricing.American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. Inc., facing charges from state regulators that it's charging too much for terrorism coverage in its workers' compensation policies, said it's simply trying to make sure it can continue to fund the huge amount of risk it has underwritten. The Terrorism Risk Insurance Act The Terrorism Risk Insurance Act (TRIA) is a United States federal law signed into law by President George W. Bush on November 26, 2002. The Act created a federal "backstop" for insurance claims related to acts of terrorism. is unusual in that a company's retention is based on a multiline, all-states approach, when normally, insurers buy catastrophe coverage piece-by-piece, said Richard Thomas, senior vice president and chief underwriting officer at AIG AIG addressee indicator group (US DoD) AIG American International Group, Inc AiG Answers in Genesis (religious group in defense of Scripture) AIG Artificial Intelligence Group AIG Australian Industry Group . "Every dollar of premium we write in the lines of business subject to TRIA TRIA Terrorism Risk Insurance Act of 2002 TRIA Term Requirement in Average goes into the determination of our retention--every dollar," Thomas said. "Whether or not the customer is in a 'target' area, the fact that we wrote their premium goes into the calculation of our retention." AIG figures its 2004 retention is a little more than $1.9 billion. In 2003, the retention was about $1.2 billion, and the forecast for 2005 grows to about $3.3 billion. The retention is what AIG would have to pay before the federal government would start paying money under TRIA. To put the 2004 retention in perspective, AIG's gross loss from the Sept. 11, 2001, terrorist attacks was about $1.8 billion, with a net loss of around $800 million because of reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. . "None of that reinsurance we had then is available to us now. If 9-11 happened again, we would not be able to get any recovery from the federal government because our retention is $1.9 billion," Thomas said. This is the scenario AIG has to live in as it makes underwriting and pricing decisions. But its methodology for pricing terrorism within workers' compensation has also led to disputes with regulators in a number of states. Thomas declined to talk specifically about individual state disagreements, but said, in general regulators were taking their positions based on the work of industry rating organizations Insurance Services Office Insurance Services Office, Inc. (ISO) is a provider of data, underwriting, risk management and legal/regulatory services to property-casualty insurers and other clients. Headquartered in Jersey City, New Jersey, the organization serves clients with offices throughout the United and the National Council on Compensation Insurance The National Council on Compensation Insurance (NCCI) is a U.S. insurance rating and data collection bureau specializing in workers' compensation. Operating with a not-for-profit philosophy and owned by its member insurers, NCCI annually collects data covering more than four . Terrorism Funding This chart illustrates AIG's projections for accumulating terrorism funding compared with TRIA retention over a period of time. AIG's objective is for the two lines to eventually match. [GRAPHIC OMITTED] |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion