With the federal government's $85 billion bailout of American International Group, the New York-based insurance titan has been extended a lifeline to restructure and divest itself of troubled assets. But AIG's financial difficulties raise questions among advisors about whether to recommend selling or replacing products from a carrier whose long-term outlook is in doubt.
Chief among advisors' concerns: Whether AIG's products will make for a more difficult sale. On this question, much will depend on AIG's ultimate standing with credit rating agencies A.M. Best, Moody's, Standard & Poor's and Fitch. A slight decline from a stellar rating will not have a significant impact on the marketability of the products, sources tell National Underwriter. But a more substantive drop could prompt advisors to hold back.
"When a company's rating is at or near the top end of the scale, it usually doesn't have a significant impact because the company is still financially sound," says Ron Angarella, a chief operating officer at RD Marketing Group, Sacramento, Calif. "But if the decline is more significant, it would be a different situation."
Adds David Barrist, vice president of Barrist Insurance Group, Bala Cynwyd, Pa., "A lot of financial planners and estate planning attorneys will want to know about the company's credit rating before making a recommendation. If it goes below two or more ratings levels, say, from an [S&P rating] of AA-plus to B-minus, then you have issues in terms of the company's ability to back up its product guarantees."
Until AIG's rehabilitation is complete some observers think it advisable to defer recommending AIG products. Neal Sullivan, chairman of the board of the Independent Insurance Agents & Brokers of New York (IIABNY) and president of Sullivan Financial Group, Mahopac, New York, says that if AIG's financial strength remains an issue, then advisors should look to other carriers that offer products with comparable features and benefits of interest to prospects.
Sources add they also need to be proactive in reaching out to existing AIG clients–starting with their best customers and those most heavily invested in AIG solutions–to offer reassurance that they're closely monitoring the situation and will keep clients informed. They need to be mindful, too, of their choice of words so as not to scare off clients.
"To say, 'we're reevaluating our relationship with AIG might make a client think you're dropping the company," says Steven Spiro, a national director at IIABNY and president of Spiro Risk Management, Valley Stream, N.Y. "Reevaluating is a premature word."
