AIG
Risk Management MSF 515
Cindy Depina
Chris McClean
Scott Vickery
Mary White
November 14, 2010
AIG Background
Until Recently American International Group (AIG) was one of the world’s largest
international insurance and financial service companies, operating in more than 130 countries.
AIG’s primary business is offering traditional insurance products underwriting commercial and
industrial insurance. Previously AIG also had a small division of financial services that offered
products such as credit default swaps. This division was one of AIG’s smallest revenue
generators, but it significantly increased the company’s risk profile.
In September 2008 pressure from the failing mortgage market took a heavy toll on AIG,
which was exposed to significant risk from its practice of issuing credit default swaps (i.e.
insuring mortgage-backed securities). The economy as a whole took a severe downturn leading
to one of the deepest recessions the US has ever faced, and ultimately AIG needed a bailout by
the Federal Reserve of $182 billion dollars in order to stay in business. This bailout came in the
form of loans and warrants, which gave the US government majority control of AIG. Since then,
AIG has been selling off assets to pay back government debts, and executives are working
towards a restructure that would make the company primarily a property and casualty insurer
with life insurance offerings in the U.S.
The following is from Plunkett Research Ltd:
“During 2009, AIG divested a number of its assets and subsidiaries, including AIG Life
of Canada; Hartford Steam Boiler; AIG Retail Bank Public Company Limited; AIG Card
(Thailand) Company Limited; AIG Private Bank Ltd.; its consumer finance operations in
Argentina, Colombia and Mexico; 21st Century Insurance Group; its energy and
infrastructure investment assets; AIG Finance (Hong Kong) Limited; and its majority
investment in Nan Shan Life Insurance Company, Ltd. In March 2010, the company
agreed to sell its Asian unit, AIA, to Prudential PLC for $35.5 billion; and agreed to sell
American Life Insurance Company (ALICO), an international life insurance company, to
MetLife, Inc. for $15.5 billion. In August 2010, AIG agreed to sell an 80% stake in
subsidiary American General Finance, Inc.”
AIG after the Bailout
After the company’s failure and subsequent bailout by the government, AIG executives
received over $120 million in bonuses. Public outcry became ferocious as taxpayers reacted to
the idea that their dollars were rewarding individuals helped cause the economic crisis. President
Obama reflected this outrage in comments he delivered from the White House:
"All across the country, there are people who work hard and meet their responsibilities
every day, without the benefit of government bailouts or multi-million dollar bonuses...
Under these circumstances, it’s hard to understand how derivative traders at AIG
warranted any bonuses, much less $165 million in extra pay. Now, how do they justify
this outrage to the taxpayers who are keeping the company afloat?"i
Despite the negative publicity and reputational damage, AIG continues to operate as a
viable business. As part of its ongoing plans to rebuild after the collapse, AIG has also changed
its management structure. The following are the top executives at AIG Today:
Chairman of the Board.: Robert S. Miller
CEO: Robert H. Benmosche
Pres.: Robert H. Benmosche
CFO/Exec. VP: David L. Herzog
General Counsel/Exec. VP-Legal: Thomas A. Russo
A significant policy change for the company is that the CEO is no longer also the
Chairman of the Board. AIG makes a clear distinction between the roles of management and the
roles of the board. Previously, the roles were not separate and distinct.
According to Treasury Secretary Tim Geithner AIG's efforts to restructure its business
and its corporate governance are paying off. According to Geithner, the restructuring plan:
“dramatically accelerates the timeline for AIG's repayment and puts taxpayers in a
considerably stronger position to recoup our investment in the company... While there is
a lot of work ahead to execute the terms of this agreement, today we are much closer to
seeing a clear path out. AIG's board of directors and new management team deserve
credit for the substantial progress they've made to lower the company's risk profile,
refocus it around core insurance businesses and put it in a better position to pay back
taxpayers.”
The current structure of AIG is still questionable in some areas. It appears that a number
of the board members are either key stakeholders or CEOs of the company’s subsidiary
organizations. While not a violation of law or policy, this situation may lead some to question
whether the board members have enough independence to make decisions that are ethical and in
the best interest of the shareholders at large. Others continue to question the roll of the US
federal government as the majority shareholder and whether conflicts of interest may arise in
corporate governance decisions. Although AIG has posted its code of ethics on AIG.com it
remains to be seen how the company will operate going forward and whether the right decisions
will be made to properly balance strong financial performance with proper risk management and
oversight.
AIG’s Financial Statements
Stock Quote | Income Statement | Balance Sheet | Cash Flow
Key American International Group, Inc. Financials
Company Type
Public -(NYSE: AIG)
Headquarters
Fiscal Year-End
December
2009 Sales (mil.)
$96,004.0
2009 Employees
96,000
---------------------------------------------------
American International Group, Inc. Stock Quote (NYSE: AIG)
Latest
11/12/10 16:00:45
EST
$41.81
Change ($)
-0.700
Change (%)
-1.647
High
Low
$42.40
$41.32
Quotes delayed 15 minutes for NASDAQ, 20 minus for NYSE and AMEX. Market Data provided by
Interactive Data. Powered and Implemented by Interactive Data Managed Solutions.
Prev. Close
$42.51
Open
Bid
$0.00
Bid Size
0
Ask
$0.00
Ask Size
0
High
$42.40
52 Week high
$45.95
Low
$41.32
52 Week Low
$21.54
Volume
EPS
2,654,840
($42.97)
$42.19
Market Cap ($ mil.) 5,650
P/E Ratio
(0.97)
American International Group, Inc. Income Statement
Dec 09
Dec 08
Dec 07
Revenue
96,004.0 11,104.0
110,064.0
Cost of Goods Sold
--
--
Gross Profit
96,004.0 11,104.0
110,064.0
Gross Profit Margin
--
--
--
SG&A Expense
--
--
--
Depreciation & Amortization
--
--
--
Operating Income
(13,648.0) (108,761.0) 8,943.0
Operating Margin
-14.2%
Nonoperating Income
11,499.0 (537.0)
17,207.0
Nonoperating Expenses
--
--
Income Before Taxes
(13,648.0) (108,761.0) 8,943.0
Income Taxes
(1,878.0) (8,374.0)
Net Income After Taxes
(11,770.0) (100,387.0) 7,488.0
Continuing Operations
(11,770.0) (99,289.0) 6,200.0
Discontinued Operations
(543.0)
Total Operations
(12,313.0) (99,289.0) 6,200.0
Total Net Income
(12,313.0) (99,289.0) 6,200.0
Net Profit Margin
-12.8%
-894.2%
5.6%
Diluted EPS from Total Net Income (90.48)
(756.80)
47.80
Dividends per Share
12.40
14.60
0.0
--
-979.5%
--
--
8.1%
1,455.0
--
(All amounts in millions of US Dollars except per share amounts.)
American International Group, Inc. Balance Sheet
Assets
Dec 09
Dec 08
Dec 07
Cash
4,400.0
8,642.0
2,284.0
Net Receivables
16,549.0 19,231.0 18,395.0
Inventories
--
--
--
Other Current Assets
--
--
--
Total Current Assets
--
--
--
Net Fixed Assets
4,142.0
5,566.0
5,518.0
Other Noncurrent Assets
843,443.0 854,852.0 1,054,987.0
Total Assets
847,585.0 860,418.0 1,060,505.0
Liabilities
Dec 09
Dec 08
Dec 07
Accounts Payable
--
977.0
10,568.0
Short-Term Debt
0.0
613.0
13,114.0
Other Current Liabilities
--
--
--
Total Current Liabilities
--
--
--
Long-Term Debt
141,472.0 192,590.0 162,935.0
Other Noncurrent Liabilities 636,289.0 615,118.0 801,769.0
Total Liabilities
777,761.0 807,708.0 964,704.0
Shareholder's Equity
Preferred Stock Equity
69,784.0 20.0
--
Common Stock Equity
40.0
Total Equity
69,824.0 52,710.0 95,801.0
52,690.0 95,801.0
Shares Outstanding (thou.) 135,143.2 135,143.2 135,143.2
(All amounts in millions of US Dollars except per share amounts.)
American International Group, Inc. Cash Flow Statement
Dec 09
Dec 08
Dec 07
Net Operating Cash Flow
18,584
755
35,171
Net Investing Cash Flow
5,778.0
47,484.0 (68,007.0)
Net Financing Cash Flow
(28,997.0) (41,919.0) 33,480.0
Net Change in Cash
(4,242.0) 6,358.0
694.0
Depreciation & Amortization
Capital Expenditures
(504.0)
(4,817.0) (5,642.0)
Cash Dividends Paid
0.0
(1,628.0) (1,881.0)
(All amounts in millions of US Dollars except per share amounts)
RESOURCES
U.S. Winds Down AIG Rescue Designed to Avoid Collapse: Timeline, Natalie Doss Sep 30, 2010 8:28 AM ET
AIG’s Spiral Downward: A Timeline, by Paul Kiel, ProPublica, Nov. 14, 2008, 12:50 p.m.
www.mckeon.house.gov/pdf/aig/aigtimeline.pdf
www.plunkettresearch.com
WWW.AIG.COM
www.CNNMONEY.COM
http://www.hoovers.com/company/American_International_Group_Inc/rffshi-11njg78.html
i
ABC News.com/political punch, March 16, 2009