News Release

Commissioner Holly C. Bakke

For Immediate Release:   July 2, 2003

For Further Information::  Mary Caffrey or
Ellen Lovejoy - (609) 292-5064



TRENTON, N.J. - Banking and Insurance Commissioner Holly C. Bakke today announced a broad-ranging agreement to protect consumer access to automobile insurance in New Jersey, in which subsidiaries of American International Group (AIG) - the State's seventh largest auto insurer -- agree to cancel or postpone by up to four years its plan to end coverage for more than 200,000 cars and withdraw from the New Jersey market. Under that prior plan, AIG could have begun non-renewing its New Jersey policyholders in December of this year.

The agreement, a Market Stabilization Consent Order, includes commitments by the AIG companies to expand their administrative claims facilities in the state and appoint an additional Urban Enterprise Zone agent in South Jersey. In 2006 AIG will also consider canceling its withdrawal plan entirely, if certain financial benchmarks have been met.

"The Governor's auto reform initiatives are already beginning to change the marketplace," Commissioner Bakke said. "Consumers are the winners today because more than anything, consumers need competition in the auto insurance market to offer choices and keep rates in check with market realities.

"Major insurance companies are taking a second look at New Jersey because of our commitment to common sense regulation and a competitive marketplace. This is a hopeful sign in a state where consumers are having trouble finding coverage at any price."

Highlights of the Market Stabilization Order include:
· The AIG companies will examine New Jersey's auto reforms and measure their effectiveness during a two-phase process based on benchmarks established jointly with the Department.
· No withdrawal can begin before April 2006. The withdrawal process that was originally scheduled to start this year could instead start April 1, 2006, ending December 31, 2007, but only if benchmarks set forth in the Order are not met.
· If the benchmarks are met, the AIG companies could decide either to remain in New Jersey or to withdrawal starting on January 1, 2007 and ending on June 30, 2009.

A second Consent Order announced today settles a dispute with the AIG companies regarding rate adequacy that began during the Whitman Administration.

AIG entered the New Jersey market in 1996 with rates that were below the state average, based on the assumption that the company would be permitted to take "flex rate" increases that were available at the time. The Legislature in 1997 replaced flex-rating with an expedited rate review process, but that process was not implemented until late 2001. After auto insurance rates were rolled back 15 percent under the Automobile Insurance Cost Reduction Act of 1998, AIG's rates proved to be inadequate to cover the losses it was experiencing and to assure protection to policyholders.

The AIG companies sought a 10.5 percent increase but agreed in the Consent Order to an increase of 8.7 percent for one of the subsidiaries, American International Insurance Company of New Jersey, and 8.8 percent for the other subsidiary, American International Insurance Company of Delaware. The order defers any additional rate consideration until 2004. The approved rates will still leave most AIG customers with rates at or slightly below state averages.

"AIG is a prime example of how the old auto insurance system put policyholders at risk of losing their coverage," Commissioner Bakke said. "New Jersey changed the rules of the game after AIG came here in 1996, threatening the company's ability to compete in the marketplace. We then prevented AIG from making the adjustments needed to maintain financial stability. So the company filed to withdraw from New Jersey.

"Governor McGreevey's auto insurance reform package has already demonstrated that it is protecting AIG policyholders by encouraging AIG to stay, and all consumers will win when new carriers enter the market."

Commissioner Bakke said that the AIG Market Stabilization Order was modeled after a similar Order issued last year to prevent the immediate withdrawal of the state's then-largest auto carrier, State Farm Indemnity Insurance Co. That Order also established benchmarks for measuring the financial progress of a company as well as the state's progress toward a more competitive marketplace.