Dec. 22 (Bloomberg) -- American International Group Inc., the insurer that’s promised more than $450 million to employees to get them to stay, has lost at least 20 managers to competitors including Zurich Financial Services AG, Ace Ltd. and Allianz SE.

The defections may lend credibility to Chief Executive Officer Edward Liddy’s claim that he needs to pay employees extra to remain on the job as he tries to sell units and repay a government loan. A worker may receive four times annual salary, with the highest award totaling $4 million. As many as 7,000 people may get payments, said a person familiar with the matter.

“There have certainly been defections, but overall we think it’s been successful in maintaining the continuity of our leadership during a very unstable time,” AIG spokesman Nicholas Ashooh said of the retention payments.

Rivals have wooed AIG executives with expertise in areas including aviation, terrorism and environmental risk, or those with a stable of client relationships. Defectors include Mark O’Dell, who stepped down as manager of AIG’s Singapore life- insurance operations to go to Manulife Financial Corp., Kevin Kelley, now CEO of Ironshore Inc., and three hires announced by Zurich.

“We’re in the market for talent,” said Mike Foley, CEO of Zurich’s North American commercial-insurance operations, who declined to discuss AIG executives specifically. “We’ve had much better access to, and discussions with, talent across the industry and have actually found on the offers that we have made that people are quite willing to move. We’ve had some real success there.”

Critics of Payments

Hiscox Ltd., the Bermuda-based insurer that’s expanding in the U.S., said today it hired two AIG employees as vice presidents at units covering terrorism and construction, after saying Dec. 17 it hired two others for its management liability team. Validus Holdings Ltd. said today it was launching a technical property insurance unit after making an AIG hire.

Lawmakers including U.S. Representative Elijah Cummings, a Democrat from Maryland, have criticized the retention pay, saying AIG underreported the number of people who were getting the payments and that it’s unnecessary to give so much cash when job markets are weak. U.S. finance companies have announced 220,506 job cuts this year through November, placement firm Challenger Grey & Christmas Inc. said in a Dec. 3 report.

“Most companies would say in this environment that they can use the rifle-shot approach as opposed to a shotgun,” said John Gayley, a consultant at Stamford, Connecticut-based Towers Perrin, who advises financial firms on executive pay. “We don’t have to do something for everybody in order to keep the people we absolutely have to keep.”

Unit Sales

AIG needs to repay a $60 billion U.S. loan, part of a $150 billion rescue package intended to prevent losses at companies that did business with the insurer. The company posted more than $60 billion in losses and writedowns on bets tied to mortgages.

AIG said today it was selling its Hartford Steam Boiler unit to Munich Re, the world’s largest reinsurer, for $742 million to help pay back the U.S. Hartford Steam Boiler CEO Douglas Elliot will stay on to run the business.

AIG has already agreed to sell AIG Private Bank, a unit catering to wealthy clients in Asia and the Middle East, to Abu Dhabi-based Aabar Investments PJSC for 307 million Swiss francs ($279 million). It is also selling a stake in an insurance joint venture in Brazil for $820 million.

AIG, once the world’s largest insurer, operates in more than 100 countries and sells life, health and accident protection to individuals and businesses. It insures against some of the biggest risks, insuring planes and commercial shipping and providing coverage against terrorist attacks.

Credit Ratings

Assistant Treasury Secretary Neel Kashkari, who supervises the U.S. financial rescue program, has called some of AIG’s payments to workers “excessive for a failing institution.”

Standard & Poor’s cited the prospect of employee departures on Nov. 5 when the ratings firm said it was considering cutting credit ratings on AIG subsidiaries.

Liddy has said that managers are among the chief assets at the units that AIG is hoping to sell to repay loans included in the government rescue package, which now totals about $150 billion and entitles the U.S. to a 79.9 percent ownership stake.

“You have to keep those people in place,” Liddy said today in an interview with CNBC, adding that it was not AIG’s intention to hide information about the payments. “If you don’t use retention bonuses, those people are some of the best in the insurance industry, they will go elsewhere and we won’t have anything to sell.”

Liddy told the network that fewer than “dozens” of executives have defected.

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: December 22, 2008 15:55 EST