In a week that saw American International Group lose one of its senior officials, the carrier defended its controversial payments to retain key executives, warning it could lose valuable employees and even reinsurance contracts if it does not act to keep critical personnel.

The war of words over retention bonuses in the wake of AIG’s massive federal bailout intensified as one major defection was announced–with Kevin H. Kelley leaving as chief executive officer of Lexington Insurance and president of AIG Domestic Personal Lines to become CEO of Ironshore Inc. (To replace Mr. Kelley, AIG promoted Peter Eastwood from executive vice president to CEO of Lexington.)

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