AIG Issues ‘Clarification’ on Presentation Before Share Sale
AIG Chief Executive Officer Robert Benmosche
Andrew Harrer/Bloomberg
Chief Executive Officer Robert Benmosche is seeking to assure Wall Street that the New York-based company has sufficient reserves after it was forced to book a $4.2 billion fourth-quarter charge to make up for a shortfall.
Chief Executive Officer Robert Benmosche is seeking to assure Wall Street that the New York-based company has sufficient reserves after it was forced to book a $4.2 billion fourth-quarter charge to make up for a shortfall. Photographer: Andrew Harrer/Bloomberg
American International Group Inc. (AIG) set the record straight on its pitch to prospective investors, telling regulators on the day of its share sale that two government watchdogs hadn’t reviewed its insurance reserves.
“The Office of the Special Inspector General for the Troubled Asset Relief Program did not review either Chartis’ pricing or its reserves,” AIG said today in a regulatory filing about its main property-casualty unit. The Government Accountability Office also didn’t review reserves, AIG said.
Chief Executive Officer Robert Benmosche is seeking to assure Wall Street that the New York-based company has sufficient reserves after it was forced to book a $4.2 billion fourth-quarter charge to make up for a shortfall. The U.S. Treasury Department and AIG, which was bailed out amid record losses in 2008, plan to sell 300 million shares today to help replace government funds with private capital.
“To be clear, the U.S. government isn’t validating the reserves, nor really could they,” said Jonathan Hatcher, a strategist who covers financial institutions at Jefferies Group Inc. in New York. “This is basically saying, ‘Look as an investor, the U.S. government isn’t putting a stamp of approval on every fine point of this company.’”
AIG dropped 52 cents to $29.46 at 4 p.m. in New York Stock Exchange composite trading. The insurer has plunged 39 percent this year, the biggest decline in the Standard & Poor’s 500 Index.
Reserve Shortfalls
AIG reported shortfalls in reserves in each of the last two years, and the company is spending more on claims and expenses than it makes in premiums from policyholders. The company set aside $2.3 billion to bolster reserves in 2009.
The statements that needed “clarification” were made in AIG’s “retail roadshow presentation,” the company said in the filing. Mark Herr, a spokesman for the company, declined to comment.
The GAO had said in March 2009 that it found no evidence of under-pricing by AIG after its 2008 bailout. Rivals including Chubb Corp. (CB) and Liberty Mutual Holding Co. had said AIG charged unsustainable rates to retain market share as it was propped up by the government.
‘Raises Concerns’
Fitch Ratings said in February that AIG’s track record of reserve additions “raises concerns about the company’s ability to generate consistent run-rate underwriting results.” Rivals in the market for U.S. property-casualty coverage including Travelers Cos. and Chubb have reported gains in the last two years as the insurers reduced reserves.
AIG was the worst underwriter among 25 property-casualty insurers in 2010 and 2009, according to a study by A.M. Best. AIG paid about $1.29 on claims and expenses for every dollar it collected in premiums last year, according to A.M. Best. AIG’s Chartis unit, which sells coverage to companies, spent $1.19 per premium dollar in the first quarter.
AIG plans to sell 100 million shares, and Treasury expects to sell 200 million, according to data compiled by Bloomberg. The offering will reduce Treasury’s stake in the insurer to about 77 percent from 92 percent, AIG said in a regulatory filing.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net
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