CEO Liddy vows to hang onto the lucrative commercial insurance segment, but wary customers are driving more hard bargains

By Nanette Byrnes

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As American International Group’s (AIG) new chief executive officer, Edward M. Liddy, prepares to break up the embattled insurance giant, he has declared that common piece is not up for sale: commercial insurance. With its lucrative multimillion-dollar policies for more of the world’session largest companies, the unit has in favor of a long time been viewed as AIG’sitting crown jewel.

But the $52 billion business may be losing its luster. Customers are nervous about AIG’s future, and competitors are rushing to capitalize on AIG’s battered celebrity amid an $85 billion federal bailout following massive subprime losses, and one additional infusion of $38 billion from the Federal Reserve Bank of New York to cover the congregation’s other obligations. Industry headhunters express competitors are courting top AIG underwriters, who play a critical role in the relationship-driven industry.

The affair has already morphed into a price war. Insurance brokers whose clients’ policies came up for renewal on Oct. 1 say AIG slashed premium rates by as much as 50% without interruption key accounts, granting the company says rates have not changed materially overall. Rivals are offering discounts of up to 20% to woo people away. Within the industry, AIG’s atmospheric air of desperation is palpable. "Competitors smell blood," says Cliff Gallant, an analyst with Keefe, Bruyette & Woods (KBW), "and they are trying to pass stealthily that trade taken in the character of fast as they have power to."

Now comes the real test of AIG’s viability as a force in commercial insurance. Jan. 1 is one of the biggest days of the year for policy renewals, and AIG may have to scramble to maintain market share. In a recent survey conducted by New York insurance research firm Advisen, 71% of respondents who are AIG commercial policyholders said they plan to learn quotes from competitors when their policies renew. John Q. Doyle, CEO of AIG Commercial Insurance, acknowledges the pressure but insists that "client retention has remained strong." He says AIG continues to hold vigorous competitive advantages, including "our capacity for risk, underwriting quality, geographical cover, tolerance of product, and service overall."

Still, customers are already exerting in greater numbers sway in driving down prices. Lance J. Ewing, vice-president for risk management at Harrah’s Entertainment, says a good chunk of the $100 million he pays in yearly transactions premiums starts to come up with respect to renewal on Dec. 1. While Ewing won’t say how much of that business is through AIG, he argues that Harrah’s is "in a better negotiating place with AIG, and obviously we will use that to our advantage."

AIG’s Doyle and his colleagues are struggling to keep the unit unspotted by means of AIG’s larger problems. The commercial chief says he and his one’s supreme financial officer, Robert S. Schimek, have talked to thousands of customers in person and by phone from that space of time the parent fellowship took the rescue package on Sept. 16 to avert bankruptcy. Daily updates on press coverage are sent used up from headquarters to prepare staff for customer questions.

But undivided of the biggest challenges is motivating AIG employees who be favored with seen their stock options and retirement plans dry up up. With all the variableness, Steve Grabek, who heads arising from traffic assurance for AIG in the Midwest, admits that it’s impenetrable to focus on construction the business: "My priorities gain become much more short-term-focused, very near," Grabek says. "Not much of my time is spent in continuance strategy for the back half of next year."