At AIG Old Habits May Die Hard

Last Updated Jul 15, 2009 6:55 AM EDT

One would think that after having been tied to the whipping post and flagellated by everyone from Rep. Barney Frank (D-MA) to Federal Reserve Chairman Ben Bernanke that American International Group is a reformed company. But its detractors, and there are many, see it differently.
Rep. Paul Kanjorski (D-PA) wonders if AIG should give out those big "retention bonuses," particularly since the last dollop of $180 million to executives at its failed Financial Products unit caused such an uproar.

And New York and Pennsylvania state regulators aren't completely buying AIG's line that it isn't using its federal dollars to undercut other insurers' prices in the market.

"We're conducting an investigation with Pennsylvania into those allegations, and we are in the middle of an examination to determine whether AIG is writing policies at adequate rates," Kermitt Brooks, New York's acting superintendent of insurance told Bloomberg television (although he later backed off a bit in a Wall Street Journal story).

AIG has always had a reputation for playing hardball, both with competitors and clients who had a hard time collecting on their policies. Old habits die hard.

Take Texas for example. State Rep. Vicki Truitt discovered a possible miscarriage of justice by the Variable Annuity Life Insurance Company (Valic). Valic is an AIG subsidiary that, along with most of the company, is up for sale.

"Valic was going to school districts and offering to be the administrator of their retirement programs if they could have exclusive rights to their educators," Truitt told BNET Finance in an interview. This exclusive franchise allowed AIG's Valic to squeeze out other retirement plan administrators, she said. "The little guys were told either to pay (fees to Valic) or get knocked off the list."

Anti-competitive practices are illegal in Texas, but Truitt says the state closed this particular loophole with a new law that stops an insurer from using free administrative services as a way to eliminate competition. It also beefs up penalties to a maximum fine of $1 million.

Linda Skolnick, corporate communications manager for Valic, said her company's services were "fully compliant" with the rules set forth in Texas statutes prior to the new law, and they will continue to be maintained consistent with the way the law has been amended.

Truitt would have gone further except for opposition from the Houston school district. Houston, we have a problem: Valic calls Houston home. Sure, there's real value in AIG. But, given its ability to step in Texas-sized regulatory cowpies, would you buy a used insurer from this company?
  • Ed Leefeldt

    Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and been contributed to the Wall Street Journal and the New York Times. He is also the author of The Woman Who Rode the Wind, a novel about early flight.

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