Instead of providing a pricing ceiling, could AIG switch to being the floor?

My first experience of the gravitational pull of AIG came in the tight market of 1993.

It was Christmas Eve and I was rushing around picking up London lines for the 1 January renewal of a Spanish Banker’s Blanket Bond (BBB) risk on behalf of a colleague.

On top of the transitioning post-Andrew market Spanish banks were all coming through a difficult period of loss activity around the grey area of parallel banking. There had been some high-profile claims and disputes.

But as I went round seeking to place the firm order, there was no panic. We knew the order was filled because AIG had offered to write as much of it that we couldn’t place elsewhere.

My mission was simply to try to maximise the non-AIG portion of the placement. (Of course, this also meant maximising our brokerage – AIG were writing out of Madrid at a significantly lower commission level).

But the point was brought home to me – AIG could not be ignored. Its gravity pulled at my market and its actions put a ceiling on pricing. No-one in London could hold out for more because AIG was already happy with the premium and more than willing to put its money where its mouth was.

As brokers we always had to be aware of what this big unpredictable beast might do to us. Knowing AIG’s appetite was a very important part of knowing the market.

And what mattered 25 years ago still matters today. Back then AIG was almost certainly a destabilising force on the downside – it was a bogeyman, and a stick we used to beat other underwriters into submission.

Now, under Duperreault and his team, the opposite may be true. Today, AIG is beginning to march more in time with what other rational underwriters do, or at least that is the game it is talking.

Perhaps today AIG’s much-trimmed maximum line would already be down on our Spanish BBB and we would be scouring the markets to cover a shortfall? We might even be warning of a need to re-price to get a deal home rather than simply playing for extra brokerage?

Instead of providing a pricing ceiling, could AIG switch to being the floor?

AIG still really matters.

In case we needed reminding, after the global financial crisis the unseemly scramble to dislodge market share from a wounded AIG while it was wearing its Chartis hairshirt unleashed a painful US soft market wave that lasted at least a couple of years.

AIG’s latest quarterly results appear to be showing the first fruits of its turnaround plan. Loss ratios have moved in the right direction and return on equity has moved into double figures.

Given the scale of the change being attempted we may be calling it too soon, but a rational, strong and well-managed AIG is not just good news for its long-suffering shareholders – it is a huge asset for everyone in the global industry.

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