At a recent conference in Florida about two dozen bankers were discussing issues in the bank-insurance world when one asked the $64,000 question: Had anyone faced a backlash over offering American International Group's annuities?
The answer was unlikely to embolden AIG's competitors. Not one bank executive said yes.
The meeting took place a few weeks after the March 15 resignation of M.R. "Hank" Greenberg, the chief executive officer of the giant New York insurer. Mr. Greenberg gave up that job amid accusations that AIG had manipulated earnings. He soon was forced to retire as its chairman too.
[Last Thursday, in a civil suit in New York State Supreme Court, Attorney General Eliot Spitzer accused AIG, Mr. Greenberg, and former chief financial officer Howard I. Smith of using deception and fraud to make the company's financial results appear better then they actually were.]
Fixed annuities, considered a conservative product - and an alternative to certificates of deposit - are wildly popular in the bank channel. No one sells more of them than AIG. It made $8.8 billion of fixed annuity sales through banks last year, according to Kenneth Kehrer Associates, a Princeton, N.J., consulting firm that tracks insurance and investment product sales through banks. Allstate, at $3.6 billion, was No. 2.
If the sales of the second-, third-, and fourth-largest fixed annuity providers through banks were aggregated, the total would still be less than AIG's by nearly $1 billion.
"I'd expect it will remain that way, because they have a good book of business," said Geoff Bobroff, an investment consultant in East Greenwich, R.I.
An AIG spokesman said the company is not commenting on its regulatory issues.
AIG also has solid ratings, and that's a big advantage in the world of commodity products said Craig Whitehead, a senior consultant at Milliman Inc. in Chicago.
"The underlying ratings are one of the few differences between the products," Mr. Whitehead said.
Though its ratings remain strong, AIG could be in for a challenge.
Moody's Investors Service cut its long-term senior debt ratings on AIG to Aa2, from Aa1 on May 2; and it kept the ratings under review for a possible further downgrade. The debt and insurance financial strength ratings of several supported entities, including the group's supported life insurance and mortgage insurance subsidiaries, and of members of AIG's domestic brokerage group, were also cut.
Standard & Poor's reduced most of AIG's ratings to AA-plus from AAA on March 30 and said the company would remain on CreditWatch because "there has been increased market speculation about larger charges to GAAP shareholders' equity."
"The number and scope of inappropriate financial transactions have diminished S&P's assessment of management and internal controls" at AIG, the ratings agency said last week. It also deplored "the potential breadth of management involvement in these transactions and the potential of material restatement of financial statements."
"That will hurt them. Clearly, they will lose some of their appeal," Mr. Bobroff said.
But thus far the backlash against AIG has been nothing like what mutual fund companies such as Putnam faced after the mutual fund scandals broke in 2003.
Michael White, the president of the bank-insurance consulting firm Michael White Associates in Radnor, Pa., said that is because most investors are no longer fazed by financial scandal. "People responded. Now it happens so often it doesn't have the same effect. It wears off," he said.
Mr. White also said that Mr. Spitzer's crusade against the financial industry has lost its luster with investors and financial experts. "It's really overkill, is how a lot of people view it," he said.
