An infusion of federal funds has not allowed American International Group to under-price its insurance products, according to Pennsylvania Insurance Commissioner Joel Ario and the U.S. Government Accountability Office.

In written testimony for the subcommittee, Ario said that some of AIG‘s property-casualty competitors have argued that the insurer is under pricing its insurance “in a desperate attempt to maintain premium volume at a time when policyholders might otherwise move their business to a safer competitor given AIG’s uncertain future.”

Conversely, he said, AIG claims that its competitors are making disparaging remarks about the company and under pricing their offerings “in an unfair bid to take business away from a vulnerable competitor.”

Ario, testifying on behalf of the National Association of Insurance Commissioners, said state regulators, including the Pennsylvania Insurance Department, have spent “considerable time” listening to the allegations and collecting information. Of AIG’s 71 U.S.-based insurance companies, Pennsylvania is the domestic regulator for 11, he said.

The department, Ario said, “has devoted special attention to the current allegations because both AIG and its competitors may have distorted incentives to put their competitive engines into overdrive – to preserve business on one side and to deliver a knock out blow to the other side.”

“With the caveat that these issues are very complex, we have not seen any clear evidence of under pricing to date, though we continue to look both at individual cases and at aggregate numbers on both renewals and new business at AIG,” Ario said.

Orice Williams, director of financial markets and community investment for the Government Accountability Office, also testified to claims of under pricing by AIG to offer coverage at prices “inadequate for the risk involved.”

A review by her office has found that while AIG “may be pricing somewhat more aggressively than in the past in order to retain business in light of damage to the parent company’s reputation, they did not see indications that this pricing was inadequate or out of line with previous AIG pricing practices,” according to written testimony.

The GAO continues to evaluate the matter, she said, but faces a number of challenges “associated with determining the adequacy of commercial property-casualty premium rates, especially in the short term.”

“These challenges include the unique, negotiated nature of many commercial insurance policies, the subjective assumptions involved in determining premiums, and the fact that for some lines of commercial insurance, it can take several years to determine if premiums charged were adequate for the related loses,” Williams’ testimony said.

AIG CEO Edward Liddy said that the property-casualty division “writes really big risks,” including new hotels and tunnels, and if that business when away, “I’m not sure it could all be replaced.”

Regarding the property-casualty and life divisions of AIG, Liddy said both can be successful, but given the current economy, there are “no buyers.”

“We could sell for a fracture of what it is worth, but that is not a good idea in repaying the government,” he said.