AIG, which by September 30 had drawn down $61 billion of the $85 billion credit facility provided by the U.S. Federal Reserve two weeks earlier, is seeking to strengthen itself by selling off some of its subsidiaries. The company intends to make itself look good enough to avoid a flight by corporate insurance buyers from its core U.S. property-casualty insurance businesses, which it plans to retain, Ed Liddy, its new chief executive officer and chairman, told analysts in a conference call Friday.
Although the insurance giant’s policyholder retention rate for directors’ and officers’ liability coverage has “slipped six or seven points from what it used to be,” it is holding on to buyers of other lines of insurance, he said in response to an analyst’s question.
But because of the current uncertainty about the company’s financial fortunes, it’s important for the company to trim down “to show we are the AIG of old,” he said, acknowledging that the company wouldn’t really like the AIG of old once it has completed the divestitures it hopes to make.
Finance executives and corporate risk managers shouldn’t expect AIG to lower its premiums or make its insurance easier to obtain, however. “We will maintain our underwriting and pricing discipline,” said Liddy. “We are really good at that in our [property-casualty insurance] operation…. If you do that well, you’ll be around for another day.”
The company plans to retain its U.S. commercial property and casualty and foreign general insurance businesses and to continue to hold a stake in its foreign life insurance operations, according to an AIG press release issued Friday. Our insurance businesses — our regulated entities — are strong and well-capitalized,” the new CEO contended. “Our policyholders are secure.”
Otherwise, the company is looking to divest all or parts of its other salable businesses. Liddy, for instance, said he hopes to sell off AIG’s U.S. life insurance, annuity, and pension businesses to a single buyer, while divesting part of its non-U.S. life insurance operations.
Further, AIG wants to “monetize” the assets of its financial-products and securities-lending divisions, according to Liddy. Plummeting values of the financial-products division’s credit-default-swaps business led to the collapse of the company. “The financial-products operation has caused us a great amount of pain,” he said, correcting an analyst who had characterized it as a “fair amount of pain.” The subsidiary is “not entering into any new activity,” he added.
In line with trying to squeeze some revenue out of those ailing businesses, Liddy is likely to be paying special attention to the vote on the bailout bill in the U.S. House of Representatives. That bill provides the Securities and Exchange Commission with the power to suspend mark-to-market accounting “for any issuer,” and the insurance chief executive thinks such a suspension “could help us.” Top executives of insurers and banks contend that fair-value accounting tends to unnecessarily lower the value of currently distressed assets that may be worth more than market values suggest.
Still, he added, “I don’t hold out hope that we’re going to have a wholesale abandonment of fair-value accounting.”