AIG's Loss Of Commercial Business Less Than Expected - UBS

   By Alistair Barr 
 

American International Group's (AIG) share of the commercial insurance market hasn't dropped as much as expected since the company was bailed out last year by the government, UBS analyst Brian Meredith said Wednesday.

Market share losses may be less in future, which means rivals including Ace Ltd. (ACE), XL Capital (XL) and Chubb Corp. (CB) may not gain as much share as expected, the analyst added.

At the height of the financial crisis last year, Meredith and his colleagues estimated that AIG's General Insurance division, now known as Chartis, would lose 25% to 30% of its $51 billion global commercial line premiums from forced asset sales, damage to AIG's reputation, and the potential for substantial employee defections.

By the end of June, Chartis had lost 19% of its U.S. U.S. commercial lines market share and market-share declines were much less in the first half of 2009 versus the fourth quarter of 2008, Meredith said in a note to investors.

"While we expect Chartis to continue to lose market share, it is likely that the ultimate market share lost will be less than our original 25-30% estimate," the analyst wrote. "We now estimate 17-22%."

Meredith and his colleagues recently surveyed corporate risk managers who purchase commercial insurance and found that 57% of respondents had reduced the amount of insurance placed with Chartis over the past year. However, none of the risk managers polled expected further reductions in the year ahead, the analyst noted.

Travelers Cos. (TRV) has seen the largest gains in its share of the U.S. commercial insurance market in the past year, seeing an increase of 32 basis points, Meredith said.

Other market share gainers include Chubb, Arch Capital (ACGL), Ace, Axis Capital and WR Berkley (WRB)

"We now believe market-share gains for Ace, Arch Capital, Axis Capital, Chubb, and WR Berkley will be around half to two thirds of our original expectations, while Travelers does not change," Meredith said.

-By Alistair Barr, 415-439-6400; [e-mail]