We Called It: AIG's Pricing Advantage

American International Group is being probed by New York and Pennsylvania for allegedly using its government support to undercut rivals' prices -- which TheStreet.com detailed four months ago. Following is Lauren LaCapra's story, originally published March 2:

American International Group's (AIG Quote) competitors have found it more complicated than imagined to take advantage of the troubled insurance giant while its down.

The competition smelled blood in the water amid massive losses, a government bailout and a major restructuring plan. But AIG rivals are grumbling the company is using its leading position and government support as tools to drastically undercut prices. AIG declined to comment on those charges, but sources inside and outside the firm say the accusations are merely a tactic to kick the insurance giant while it's down.

Despite its struggles, AIG is still a leader in the insurance world. It holds the top position for life insurance, commercial lines and workers' compensation insurance and the No. 2 spot for property & casualty insurance, according to the Insurance Information Institute. It remains within the top 10 for passenger and commercial auto insurance.

Overall, AIG was the No. 2 insurer in 2007, underwriting a total of $37.7 billion in premiums and investments, topped only by State Farm, which underwrote $49.4 billion, according Highline Data.

Its leading position engendered bitterness among sales reps from other insurers, who were frustrated by AIG's constant one-upsmanship, and harbored ill will toward boastful AIG sales reps, according to Joseph Paduda, a former marketing director at AIG. When AIG's struggles first came to light last fall, he says, those with sour grapes felt the company was getting what it deserved.

"The attitude was, 'They're a greedy bunch of people and we're glad to see them fall apart,'" says Paduda, now a principal of managed-care consulting firm Health Strategy Associates. "They were arrogant, cocky and very self-confident and a lot of their competitors spent a lot of time complaining about it, and now they're happy they're getting their comeuppance."