Rivals move to fill AIG's shoes

TARA PERKINS AND JANET MCFARLAND

From Wednesday's Globe and Mail

September 17, 2008 at 9:16 AM EDT

Canadian competitors of American International Group Inc. are moving to take advantage as its Toronto-based unit reassures worried policy holders.

Elan Pratzer, chief executive officer of Toronto-based Executive Risk Insurance Services, said yesterday it was "crazy times" at his company, which has already been approached by brokers seeking new coverage for clients who hold AIG policies.

Executive Risk Insurance specializes in liability insurance to protect directors and officers if they are sued, and AIG is one of the largest players in the industry in Canada, Mr. Pratzer said.

The policies, bought by virtually every public corporation and many private companies, can be fairly easily cancelled and clients can quickly move to new insurers if they are concerned about AIG's liquidity.

Executive Risk has been actively targeting AIG's Canadian clients this week, a move Mr. Pratzer defended.

"A lot of directors and CEOs are asking the question, 'Why do we want to take the risk of having an AIG policy?' " he said.

AIG has property, casualty and specialty lines of business in Canada through American Home Assurance Co. and Commerce and Industry Insurance Co. of Canada.

Meanwhile, the head of AIG Life Insurance Co. of Canada was seeking to reassure worried policy holders this week that the Canadian life insurance business is secure.

New York-based parent company AIG has been taking "all possible action" to improve its financial performance, AIG Life of Canada chief executive officer Peter McCarthy said in a letter obtained by The Globe and Mail.

He suggested that the insurer's operations in Canada will be insulated from the parent company's troubles.

AIG Life of Canada is a separate legal entity that has not been affected by the U.S. credit crisis and remains strong and well capitalized, the letter said. Policies held with the firm are "safe and secure," it added.

Reached in his office yesterday, Mr. McCarthy declined to comment or confirm the veracity of the letter, referring calls to the New York office.

An executive at a rival Canadian life insurer said that, in general, insurance customers tend to be easier pickings when a firm is in trouble and the company does expect to benefit from AIG's troubles.

Besides watching for business that could come their way, Canada's insurers were looking at their own exposure.

Toronto-based insurance conglomerate Fairfax Financial, for example, got a lift yesterday thanks to credit default swaps it holds on AIG that amount to a bet that its financial condition would worsen. But shares of Manulife Financial and many other Canadian institutions dropped on worries about potential exposure.

Fairfax has long held a pessimistic outlook on a number of major global financial institutions, and a spokesman confirmed it holds credit default swaps on AIG. Scotia Capital analyst Tom MacKinnon estimated Fairfax has AIG swaps with a notional value of $1-billion, which are likely worth about $300-million, up from $135-million at the end of June. That would translate into $6 per Fairfax share in the company's third quarter.

Sun Life Financial, Great-West Life and Manulife appear to have immaterial exposure to AIG, Mr. MacKinnon said in a note to clients.

Late yesterday, Manulife reported that, in total, about one-half of 1 per cent of its total $164-billion in assets is exposed to struggling U.S. financial firms, including AIG and Lehman Brothers.

"In avoiding the perils of many other parts of the capital market, we made the decision to invest in what were deemed to be highly rated, sophisticated and regulated financial institutions. While these developments are extremely disappointing, to date we have avoided the worst problems in the credit markets and our track record remains exemplary," stated chief investment officer Donald Guloien.

Manulife expects to take a charge in the third quarter as a result of its exposures.

A spokesman for Toronto-Dominion Bank said yesterday that the bank's exposure to AIG is "within reasonable limits," and that a failure of the New York-based insurer "would have no material impact" on TD's overall operations.

A spokeswoman for RBC said the company limits its exposure to any single name.

Other banks declined to comment.