UK industry watching closely as clients fear a repeat of the Independent Insurance fiasco and Wall Street trembles.
The UK’s major brokers and insurers were on red alert this week as AIG, the world’s biggest insurer, fought to stave off collapse in the midst of global financial turmoil.
Brokers were poised to pull their books of business out of AIG as they were inundated with calls from alarmed clients dreading a repeat of the carnage that followed the collapse of Independent Insurance in 2001.
AIG, a major player in commercial and personal lines with a focus on high-risk business, was struggling for survival as Insurance Times went to press. Sixty per cent was wiped
off the value of the insurer’s shares in 24 hours following reports that it had asked the US Federal Reserve for emergency funding to shore up its balance sheet.
Goldman Sachs and JP Morgan Chase were understood to be putting together a $75bn (£42bn) emergency rescue package at the request of the US government, but the insurer had already been hit by a string of rating downgrades: Standard & Poor’s downgraded it to A- from AA- and Fitch downgraded it to A from AA-.
Biba made a confidential briefing available to worried brokers, with contact details for AIG’s head of commercial lines, who was ready to offer reassurance.
The chief executive of one of the biggest brokers said: “Everyone is holding fire, but there is a lot of nervousness around the market. This is a very, very strange time we find ourselves in.”
The chief executive added that much of AIG’s specialised business – for example, aviation – would be difficult to place with other insurers.
“If it goes it will be a big, big loss,” said the source.
A separate broking source said the UK major players would all be exposed if AIG failed, and so were reluctant to pull their business in case it started a panic.
AIG UK issued a statement on Tuesday that read: “AIG UK Limited is regulated by the FSA. It has capital of over £900m and continues to comply with all applicable regulatory requirements.”
The insurer said it was awaiting developments in the US and could not comment further.
It is understood that the FSA has been in talks with US regulators and is monitoring the situation. An FSA spokesman refused to comment.
AIG’s woes was one of three great shocks to hit Wall Street this week. Lehman Brothers, the American investment bank, filed for bankruptcy – the biggest in US corporate history – and the Bank of America bought Merrill Lynch for $50bn. It was widely regarded as the worst week on Wall Street since the great crash of 1929.
The Lehman collapse left Libero Ventures, an alternative risk transfer business, looking for other backers.
In a statement on Tuesday, Aviva said it had total debt exposure of £270m to Lehman, but expected actual losses to be smaller.
Ascot boss heads to New York to find out his fate
The chief executive of Lloyds underwriter Ascot, Martin Reith, flew to New York on Tuesday as his parent company, AIG, went into meltdown.
Ascot is one of several assets tipped by analysts to be sold off as the beleaguered insurer tries to shore up its balance sheet.
The other favourites for disposal include AIGs consumer finance group, which is part of its reinsurance business, and its financial products unit. AIG has attracted the attention of a number of private investors including Kohlberg, TPG and JC Flowers.
Reports from the US have also suggested that AIG may look to sell its aircraft leasing division and that it was in talks with Warren Buffett, the investor and richest man in the world, over a potential deal.