Tom Broughton comments on the AIG situation.

One week on and AIG continues to fight for its life. Its UK boss, Lex Baugh, this week broke his silence to reassure the market and spell out how the insurance division of AIG UK is run as a separately capitalised trading operation from its parent.

His view is that it is unlikely to be sold off as part of the wider global restructuring. And Baugh’s key message is that it is ‘business as usual’ for its UK insurance operation which, incidentally, is performing well compared to its troubled global empire. Except it is not ‘business as usual’ is it?

There is a fire sale of assets about to go to auction, economic confidence is at an all time low, the state is having to intervene to bail out major financial institutions and the inquest has barely started into how laborious global regulation will be tightened in the coming months.

Meanwhile, rival insurers competing on the UK high street are desperately unhappy. They are unhappy that AIG is not getting its come-uppance. They believe that in a fierce competitive landscape, where price is often the decisive factor, AIG’s parent took a fierce blow that would have proved fatal for many of its competitors.

The view is that it only carried on trading as it was being propped up by the comfort provided to its clients by being effectively nationalised by the US government. For this same reason the status quo cannot continue for much longer. How can the competitive and regulatory landscape be maintained in the UK when one of the leading players in the field is being backed by Washington?

There is a belief that the situation simply isn’t fair, especially if you believe that AIG has been competing for many months by undercutting its rivals on prices propped up by the strength of its false investment returns or economy of scale. But insurer chief executives also view this unprecedented crisis as an opportunity.

If AIG’s competitors do not swallow up a whole chunk of the empire within the next two weeks [think Allianz], then its local rivals will continue to attempt to steal its new business or make inroads looking to pinch a whole raft of its £2bn premiums.

There is no question that AIG’s once powerful brand can absolutely maintain its strength and rely to an extent on the strength of its relationships and partners in the short term. But the UK market will want clarity and fairness brought to the global situation before it can move on.