Brokers say insurance premiums will rise (The Irish Times)

04 November 2011
The irish arm of insurance giant AIG, which was rescued late on Tuesday by the US Federal Reserve, has reassured clients and brokers that its operation here is ringfenced from the acute fiscal troubles that brought its parent to the brink of collapse

However, price rises at AIG and other Irish insurance companies are inevitable, according to brokers.

Following a signal from the Fed that AIG will sell "certain of its businesses in an orderly manner", it was speculated yesterday that the Irish unit might be put on the market, along with its operation in Britain, as AIG works to repay $85 billion in loans from the US central bank.

A more likely scenario, according to certain sources, is that the Irish operation and other insurance units would be retained by AIG as it seeks to rebuild the company by concentrating on its core insurance business.

AIG Ireland Ltd, which made no public comment yesterday on the rescue deal, is understood to have told commercial and consumer clients in recent days that the business operates as a stand-alone entity within the AIG organisation and has "more than enough" assets to meet its obligations.

There was never any danger that policy-holders would not be paid, the company has told clients.

AIG Ireland, which controls about 5 per cent of the Irish non-life market, also told clients that the business had the confidence of the financial regulator, which oversees its operations.

A major commercial insurer with annual premiums in the region of €200 million, AIG Ireland saw its profits rise to €44.1 million in 2007 from €24 million the previous year. The firm employs 400 staff at three offices in Dublin.

It is expected that AIG will decide in the coming weeks what assets to sell.

Possible suitors for the Irish and British operations include Allianz and Aviva.

Sources acknowledged the strength of the Irish business and its high standing in the commercial market, where AIG insures many large business organisations.

However, they warned that the disruption in international money markets was likely to curtail the valuation on the business if it was put on the market quickly. "You could get a firesale price."

The Irish Brokers' Association said the volatility would lead to "significant" increases in insurance premiums.

Insurance reserves funds were under threat as share market falls and blue chip financial stocks falter, said Canice O'Reilly, president of the association.

"Insurance companies are likely to become more cautious following these issues and those in the global insurance market by shoring up their reserves and taking a much more conservative approach to pricing.

"All of this is likely to lead to a 10 to 20 per cent increase in overall general insurance premiums over the short-term and 20 per cent plus over the medium term."