GAO Report on AIG

As part of its review of the impact of federal assistance on the property/casualty insurance market the Government Accountability Office (GAO) has found no evidence to suggest that American International Group’s (AIG) commercial insurance companies are charging a price that is inadequate for the risk involved to gain a competitive advantage in the market. The GAO report was released as part of testimony given during last week’s hearing before the House Financial Services Committee. Some of AIG’s competitors have suggested that federal assistance has allowed AIG’s commercial insurance companies to offer coverage at prices that are out of line with its risks, according to GAO. However, while state insurance regulators, insurance brokers and buyers said AIG may be pricing somewhat more aggressively than in the past in order to retain business due to the parent company’s reputation, they have seen no indications that pricing was inadequate or out of line with previous pricing practices. Moreover, some have noted that AIG has lost business because of the problems encountered by its parent company. GAO  observed that there are a number of challenges to determining the adequacy of commercial p/c premium rates, especially in the short-term. These challenges include the unique, negotiated nature of many insurance policies, the subjective assumptions involved in determining premiums, and the fact that for some lines of commercial insurance it can take several years to determine if premiums charged were adequate for the related losses. Check out I.I.I. facts and stats on the property/casualty insurance cycle.  

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