American International Group's (AIG.N: Quote, Profile, Research, Stock Buzz) mounting losses threaten to deepen another vexing problem for the giant insurer -- how to stem an increasing customer exodus.
AIG, which counted 74 million customers at the end of 2007, has said it has been losing business and finding it harder to win new clients since it nearly collapsed under bad mortgage bets last September -- a situation that threatens to cut into revenue and further undermine its already precarious financial situation.
AIG, which had to be rescued by the U.S. government, is expected to report a fourth-quarter loss of $60 billion, the largest in corporate history, on Monday.
Fortune 500 CFOs are reading the newspapers about AIG and turning to their brokers to say, 'Have you moved our business yet?' said Andrew Barile, a consultant to the insurance industry in Rancho Santa Fe, California.
While the heavy financial bleeding at AIG, the parent company, largely stems from losses on toxic mortgage assets and does not threaten the solvency of its insurance units, harried clients are deluging brokers with calls.
No one is clear on the implications (of recent developments), but if there is a downgrade, clients will demand to move their business, Barile added.
AIG declined to comment, saying it was in a quiet period before releasing quarterly results.
The size of its bailout swelled to $150 billion in November when AIG again ran short of cash. It may grow by billions of dollars more, with the ailing insurer once again at risk of collapse.
AIG is having to negotiate for more federal assistance after its plan to sell assets to repay the government foundered. Mounting losses threaten credit downgrades.
It is working furiously with government officials and rating agencies to head off rating cuts, which would drive crippling collateral calls and trigger cancellation clauses in customer contracts.
Our biggest challenge is informing customers that none of the noise surrounding AIG has anything to do with our insurance operations, an AIG employee who did not want to be named said recently.
Andre Eichenholtz, president of insurance broker Krauter & Co, said there had been a surge in calls from concerned AIG customers in recent days.
Each time AIG is in the headlines clients call to ask, 'Is it OK to place business with them?' Based on what we know right now, we are telling them, yes, said Eichenholtz.
AIG's troubles have, in recent months, driven some customers to seek coverage from rivals, say analysts, naming Ace Limited (ACE.N: Quote, Profile, Research, Stock Buzz), Zurich Financial Services (ZURN.VX: Quote, Profile, Research, Stock Buzz) and Travelers Cos Inc (TRV.N: Quote, Profile, Research, Stock Buzz) as beneficiaries.
Mario Vitale, chief executive of Zurich Global Corporate, declining to speak to AIG's situation directly, told Reuters on Friday that it is seeing greater business opportunity.
Buyers are increasingly less comfortable, and our submission activity is rising, said Vitale. There have been no drastic rating changes, but if there is, there will be a larger flow, he added.
Travelers Chief Executive Jay Fishman, at an investor conference this week, said the company is also winning business from troubled rivals.
In one case in particular, the win-loss ratio is quite positive, he said, without being more specific.
(Reporting by Lilla Zuill, editing by Matthew Lewis)