AIG Chairman Sees Property-Casualty Rate Hikes Beyond '03

   By Chad Bray

   Of DOW JONES NEWSWIRES

NEW YORK -- Property-casualty insurance rates, particularly in the casualty business, are likely to continue to increase beyond this year, American International Group's (AIG) chairman said Thursday.

Speaking at Sanford C. Bernstein & Co.'s Strategic Decisions Conference, M.R. Greenberg said he expects rates will continue to rise for some time.

Greenberg said not enough new capacity, or new entrants, are in the insurance industry to pressure rates. Also, the amount of capital raised by the industry is still inadequate to meet its needs, so rates will continue to rise, he said.

He noted that AIG has been seeing rate increases of 40% to 60% in many domestic casualty lines and directors & officers insurance continues to have significant rate increases.

Property rate hikes domestically are down from the 40% to 50% increases of recent years to 15%, Greenberg said.

The foreign property-casualty business remains strong, Greenberg said.

As he often does, Greenberg touched on the potential for tort reform in Washington this year.

Greenberg reiterated his optimism that there will be some sort of class-action lawsuit reform this year. He's not as confident on whether there will be reforms involving asbestos lawsuits, including a trust fund to resolve all claims.

He said the industry remains divided over its potential allocation to the fund. Under a current proposal, the industry would contribute about $45 billion to a $90 billion to $108 billion fund.

However, it's unclear how much, if any, reinsurers will contribute - their expected allocation is about $11 billion, Greenberg said. Also, the primary insurance industry is divided about how the remaining allocation will be divvied up.

Plus, labor and trial lawyers would like to see a larger fund, Greenberg said.

Greenberg remains hopeful Congress will make a move on asbestos this year, but there are many "moving parts" involved in passing the bill.

On the effect of severe acute respiratory syndrome, Greenberg said the outbreak will lead to a greater emphasis on protection, or life insurance products, in Asia.

AIG said previously that fear surrounding the SARS outbreak could have something of an impact on first-year life sales in Asia, but that it doesn't believe SARS will be a long-term issue.

At the same time, Greenberg said International Lease Finance Corp., AIG's airline leasing business, remains profitable. He said the unit has reduced some lease rates and canceled or delayed some orders for new planes, but continues to do quite well.

Earlier this week, Howard Smith, AIG's chief financial officer, said all but one of ILFC's about 600 planes was leased. That plane should be leased shortly, he said.

Greenberg said AIG continues to discuss the rating of its domestic brokerage company, or U.S. property casualty business, with Moody's Investor Services, which has placed that company's rating under review.

He said the majority of new premium in the domestic property-casualty business has been driven by rate increases, not new policies.

Updated June 5, 2003 10:17 a.m.