With almost any rise and fall, someone is bound to benefit. Below is a great article by Reuters explaining just who that is in the case of AIG.
By Simon Challis
LONDON (Reuters) - Insurance rivals stand to reap the benefits from the woes of American International Group Inc, snapping up assets AIG is forced to sell, while gaining greater pricing power as AIG pulls in its claws.
Zurich Financial Services AG (ZFS) and other insurance rivals are possible winners, say analysts who see AIG emerging from its current troubles with less weight to throw around.
"The first consequence we see is that it should be a positive for the P&C (property and casualty) industry," said JP Morgan analysts in a research note.
"This effectively represents a withdrawal of capacity (or capital) from the marketplace ... Pricing in the P&C market is driven by capital -- the less capital, the less pressure there is for prices to fall."
The likely withdrawal of billions of dollars of AIG capital from the sector will put a brake on the slide in prices in the commercial insurance market, where premiums had been expected to fall by up to 20 percent due to intense competition.
AIG has long been a dominant player in corporate insurance, with an 11 percent share in the U.S. market, as well as for other big-ticket risks such as aviation.
Now, intermediaries predict that although AIG will continue underwriting, it is likely to lose business clients.
"In our view, ZFS is probably the clearest winner," said JP Morgan.
One senior executive at an insurance broker who spoke on condition of anonymity saw others benefiting as well. "Zurich and ACE Ltd are likely to be the beneficiaries, maybe even AXA SA. Anyone with a multinational network will be a winner," the executive said.
"It's still early days, but it's my view that AIG is a wounded animal. It will be hard for us to say to clients, 'We'll place your business with a company who we have no idea what its ownership or management structure will look like in six months' time,'" the broker added.
Among lines of business, insurers providing specialized commercial coverage, such as directors' and officers' liability, could pick up business as AIG scales back participation, said Goldman Sachs analyst Tom Cholnoky, in a note Tuesday.
He named Ace, Travelers Cos Inc and XL Capital Ltd among the biggest and likely beneficiaries.
However, reinsurers could be worse off, seeing less business if AIG's gross premium volumes decline, Cholnoky added.
Many of AIG's chief competitors would likely highlight their own credit ratings and financial stability as a major selling point in an effort to attract business that was belonged to AIG, Citigroup analyst Joshua Shanker said in a note Tuesday.
FIRE SALE?
AIG's rescue calls for the U.S. Federal Reserve to lend it up to $85 billion for two years in exchange for a 79.9 percent equity stake.
AIG will pay interest at a steep 8.5 percentage points above the three-month London Interbank Offered Rate, equal to about 11.4 percent. That gives AIG a big incentive to embark on a massive asset sale program to pay back the loan quickly.
Insurance rivals are set to jostle to pick up attractive parts of the AIG empire, including profitable aircraft leasing arm International Lease Finance Corp (ILFC).
AIG's stake in reinsurer Transatlantic Re, its market-leading operations in Central and Eastern Europe and Asia would also be enticing, analysts say.
Munich Re has registered its interest in picking up AIG assets, but it is likely to face stiff competition, with Japan's well-capitalized and acquisitive insurers and Australia's QBE also seen as potential bidders.
Analysts say Canadian life insurance company Manulife Financial Corp, the biggest in North America by market value, might consider acquiring AIG's U.S. variable annuity business. Manulife executives have said they would like to enter the Japanese and Chinese wealth-management markets.
"If you take out all the financial services business, AIG had a classic life and property/casualty insurance business, and it was very profitable. They made good money," said Thomas Noack, insurance analyst at WestLB.
"This ... represents an opportunity for those companies either with cash, or with access to cash (via leverage), to build out their portfolios," said JP Morgan.
"AIG has some attractive assets in our view. We are now undoubtedly in a buyer's market in our opinion, although we expect a lot of competition for the assets."
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