AIG Chairman: Sees Property Insur Rate Hikes Into 2003

   By Chad Bray
   Of DOW JONES NEWSWIRES

NEW YORK -- Property-casualty insurance rates are likely to continue rising into 2003, American International Group Inc.'s (AIG) top executive said Thursday.

During an conference call with analysts, M.R. Greenberg, AIG's chairman, said there's currently nothing in the cards that would foreshadow a decline in rates.

"Rates are rising, and will continue to do so, in my judgment, for some time," Greenberg said.

Insurers are rebuilding their capital base, which has been hit by drastically higher claims costs in some lines, by an estimated $70 billion in catastrophic losses from the Sept. 11 terrorist attacks, and by less than adequate rates in a number of lines as firms competed for market share in the 1990s.

At the same time, reinsurance rates are likely to continue to become steady in many classes of business for the next few years, Greenberg said.

Reinsurers, which have aggressively reduced their risks by limiting terms and conditions on policies in recent months, also will be less likely to take on a lot of business with less than adequate terms, he said.

"It will take them a long time to get over what happened in the world markets," Greenberg said.

Some have blamed the wide availability of reinsurance for inadequate pricing in the industry in 1990s. Insurers in a number of lines of business aggressively lowered rates in hopes of gaining market share in the 1990s because they could easily transfer a portion of their risk to reinsurers.

That has changed as reinsurers are expected to bear most of the brunt of the Sept. 11 losses.

Meanwhile, Greenberg said he's unsure if Congress will pass a federal insurance program for acts of terrorism. Some of the urgency has been lost as more pressing issues have come before Congress, he said.

After the attacks at the World Trade Center and the Pentagon, the insurance industry began inserting terrorism exclusions in policies on renewal. Companies have been able to obtain terrorism coverage, but at a higher cost and with greater limits over coverage.

The industry doesn't believe it can effectively cover terrorism because of its randomness and potential for great loss from a single event.

In other news, AIG said its International Lease Finance Corp. unit - its airline leasing business - has leased all of its fleet for this year, 90% of its fleet for 2003 and 50% for 2004.

The company also believes its reserves for the World Trade Center disaster are adequate.

-Chad Bray, Dow Jones Newswires; 201-938-5293; chad.bray@dowjones.com

Updated July 25, 2002 10:59 a.m. EDT