Break up AIG!

I worked for AIG for three years of my life 1989-1992.  In general, though I learned a ton while working there, I did not like the experience.  As my boss at Provident Mutual said to me, “My greatest doubt about you was that you survived there for three years; it made me wonder about your character.”

That’s probably a bit severe, but turnover was high among employees in the first five years; after that, there were many who would “lifers.”  Turnover would be low after five years.

Now, my stylized history of AIG takes it through the glory days of the 1980s, where return on assets [ROAs] was high, and financial leverage low.  ROA is a much better way to measure insurance company performance than return on equity [ROE].  Earning a spread between assets and liabilities is tough.  Earning an underwriting profit is tough.  Borrowing money to buy back stock is easy.  From the early 90s to the present, AIG became increasingly more levered.  ROE stayed near 15%, but it was less and less ROA, and more and more leverage.

I was never a great fan of my former employer, but I convinced the hedge fund that I worked for to buy some AIG when it was cheap.  We sold around $76, on the day it went into the DJIA.  It hasn’t seen that level since.

When AIG had their big problems, and ejected Greenberg, I wrote a lot at RealMoney about the situation.  The possibilities of accounting manipulation did not surprise me; my own experience there was that we played it to the edge.  AIG has been downgraded by the ratings agencies since then, but because they were big, they delayed the downgrading.  It should have happened years earlier, but Hank intimidated the ratings agencies.

So, I’m not surprised that Hank Greenberg might have directed his employees to achieve a certain GAAP earnings result through a reinsurance treaty.  To me, that would be normal.

It also does not surprise me that Hank is going after present AIG management regarding their recent disappointing earnings.  What does surprise me is the thought that International Lease Finance wants to go its own way.  When the deal originally was done, there was some skepticism inside AIG, but the word was that the tax benefits made the deal work on its own.    My skepticism today is that AIG will not want to let go of a successful division.  It doesn’t make sense.

Now, Hank can fight AIG management as much as he wants.  (One, two, three.)  My opinion is that poor Martin Sullivan is not capable of managing such a large enterprise, and that it would be better if AIG were broken up.  (Okay, ILFC, see if you can survive on your own.)  Create a US life company, an international life company, a US P/C insurer, one for the foreign P/C business, and one more company to hold everything else.

Hank can complain, but the problems are bigger than the current management team, or Hank, can deal with.  AIG needs to shrink– reduce leverage, focus on underwriting profitability, exit unprofitable lines, as AIG did back in the 80s.  Give up market share, shed employees, become more profitable.  Essentially, they need to undo a lot of what Hank did.  The synergies of the combined enterprise are small, so break up AIG and let new managers focus more intensely on their less diverse enterprises.

18 Comments

  • James M Drake, Jr says:

    I am a casualty of Greenberg and his 15% mantra. I started in the financial service business in 1983 with the Franklin Companies ( subsidiary of American Brands) eventually bought by American General then ultimately bought by the infamous AIG. I was part of the inner circle. My last position was a charter board member of the field advisory board. This board was chosen by a gentleman named Gary Reddick. At the current age of 56 and after building MY book of business for 25 years AIG in it’s infinite wisdom has stolen all my income from that book. If you’d like to know more let me know.

  • BamBam says:

    One could make many of the same points about Citigroup.

  • Frustrated says:

    Ah, now that I read this I am not too, too surprised at my horrific experience in trying to convert a very simple homeowner’s insurance policy to a landlord policy. I have literally spent hours trying to find somebody to talk to, instead I was tranferred from one to another by reps who sounded more frustrated than I was becoming. Finally,I reached someone wo promised to call me by the end of the week – 5/30. no call & now no more insurance with AIG. How does AIG treat claims, I wonder, if this great big firm cannot convert a simple homeowner’s insurance with a clean record. If this is a working examplke of how AIG handles its customers, how can it handle its finances? etc?

  • Joe says:

    As a insurance broker who transacted quite a bit with AIG going back to 1978. We finally cut the cord with them as we grew weary of their methods such as denying claims until insureds sued them. If I had to sum it up it would be AIG did everything to the extreme so I am not going to shed any tears for them. What goes around comes around

  • AIG was the model in the insurance industry for Ferengi Rule of Acquisition #1 — “Once you have their money … never give it back.” Once at a “roast” of MR Greenberg, one of his competitors came in with a news flash, alleging the Greenberg had gotten soft — he paid a claim.

    Or, the agent I ran into who tried to get his wealthy client to buy Chubb over AIG and pay more, saying, “That’s not insurance. That’s just the right to sue AIG when you have a loss.”

    These tales are legion, including AIG regularly taking their reinsurers to the cleaners.

  • bartman says:

    went to Tx workers comp on my oji case: this what they ask, who is youe carrier ? aig I said, this was quote : you could not have a moredisliked carrier, chaces are you will never see a dime, they owed me $9 only wanted to pay $1000, did not get a lawyer: I was out to get the rep with the $1000 suit and the 15 cent frown that told me I was not going to get a dime!!! in the this what they got: $126,000 in Dr bills and I got $11000, now do you wonder why they went broke, note: no lawyer was ever involved just me with a 10th grade education! aig smoke you some of that!

  • John Harris says:

    I noticed that IGI Insurance company in the UK who is owned by AMTRUST US is providing cover for any airline going bust, it looks like they will be the next to follow AIG taking AMTRUST US down with them ?

    It’s amazing that in these times of such uncertainties and when the aviation industry is in its worst financial disaster in history that an insurer like AMTRUST is taking such risks only to ultimately leave the tax payer bailing them out also, when will it end ?

  • Joe 4444 Six Pack says:

    let them go down in flames NO MORE MONEY. they are crooks just like the bush admin all this $$$ is going to come back and haunt us all. saw thw big boss man on cnbc this am lying through his teeth please help us NO NO NO let them go dowm as quickly as possible on their own! hope the new guy does not bail them out

  • cj says:

    I am currently in a legal matter with AIG. I had a fall at work and hurt my back. I was later terminated from that job but my doctor tells me I must change my job because I have chronic back problems now. Because I was terminated AIG says that I am not entitled to any type of works compensation. I have a family to take care of and I cannot work and must find some other type career to get into. The entire process AIG has came up with excusses not to provide some type of disability support. My lawyers are working on my situation. The government should have let them go under.

  • John M says:

    Press Release for release by AIG on Monday morning:

    Thank you, America, for your generous donation to our non-profit organization. We do not know what we would do without you.

    As you fill out your income tax forms, please think of us, and all the good your taxes do for us.

    See you next month when we’re back for another generous donation.

    Love and appreciation,
    Your friends at AIG

  • E. Perez says:

    I cannot begin to believe that a company begging on bended knee for government funds to survive has the audacity to issue bonuses to employees.

    You reward success, not failure, and I assume that the people being rewarded with the bonuses are the same ones that helped put AIG in the financial crisis that they are in. I know that the company says that it has an obligation, but these people are lucky to just have jobs, much less be rewarded for failure. There are a lot of unemployed people out there that are also “quality” employees. If the one you have were so good, then you wouldn’t be asking for a bailout!

    Do you really think that they will leave the company and try to find jobs elsewhere in this environment because they don’t get a bonus? Get real.

    As a taxpayer I want my money back from them to use with a struggling company that will appreciate what the government is doing for them. Or, put in management that understands financial crisis, what caused it and has a plan to remedy it. Not provicde largess and taxpayer expenses.

    As cruel as it may sound, if they don’t change management and bring in people that can succeed, then let them fail and close their doors.

  • Ron Richard says:

    The solution is simple. Publish a list of all AIG execs receiving bonuses so America can know the names of those people who are slapping them in the face. How about not doing business with any company who employs any of them?

  • Michael Smith says:

    The arrogance of these managers.
    They worship a God there fathers knew not.

  • Milton says:

    WE THE PEOPLE AS A NATION BOYCOTT AIG
    It is absolutely insane for one company to have such a position in our National Economy, there needs to be a dismantling of this company and others similar to it. As quoted from an AIG expert “We are the ones who stand to lose the most now” (speaking of the fact that the government owns 80% of the company) …… the more we put in, the more we stand to lose (lets cut our losses at 170B). We need to stop now, furthermore we should have never put in the 170B. I think the taxpayer (We the people) should have had more of a voice in the first place of putting in of the 170B, not to mention the fact that 170B is not going to reestablish the company but it is being used to pay bonuses. AIG CAN NOT BE TRUSTED!!!!!!

    Furthermore, I think that this whole financial thing is nothing more than a time bomb scheduled by our former anti-American President George W. Bush to keep the focus and media off all of his illegal activities. I use the phrase “Anti-American President” simply because we have never had such a President to cause our Nation so much turmoil than G. W. Bush, he disfigured us as a Nation in the eyes of the world.

    WE THE PEOPLE AS A NATION BOYCOTT AIG

  • TEED OFFF says:

    BOYCOTT
    AIG owns more than two dozen companies licensed to offer insurance in California, according to the California Insurance Commissioner. They include 21st Century Casualty Co.; 21st Century Insurance Co.; AIG Casualty Co.; AIG Centennial Insurance Co.; AIG Premier Insurance Co.; AIU Insurance Co.; American General Indemnity Co.; American Home Assurance Co.; American International Insurance Co. of California Inc.; Birmingham Fire Insurance Co. of Pennsylvania; Commerce And Industry Insurance Co.; GE Auto & Home Assurance Co.; GE Indemnity Insurance Co.; Granite State Insurance Co.; Hartford Steam Boiler Inspection and Insurance Co.; Insurance Co. of the State of Pennsylvania; Landmark Insurance Co.; National Union Fire Insurance Co. of Pittsburgh, Pa; New Hampshire Insurance Co.; Pacific Assurance; Putnam Reinsurance Co.; Transatlantic Reinsurance Co.; United Guaranty Commercial Insurance Co. of North Carolina; United Guaranty Credit Insurance Co.; United Guaranty Residential Insurance Co.; and Yosemite Insurance Co

  • Ivan says:

    Bottom line….Return OUR money or I hope the selfish ones who kept it and their families lose every thing they have and choke on it. Do I sound bitter? I hope so.

  • Ivan says:

    I have been urging everyone to cash out of AIG. My co-worker canceled his insurance for this fraud of a company to only make a withdraw from his account for the next month.

    It took him 2 months to recoup the money that they stole from him.

    Let me know at what point we are supposed to feel bad for them?

  • Ralph says:

    To cj, from message #9.

    Regarding Workers Compensation Law, AIG is wrong. You have a legal claim.

    Call attorney Kevin Kutyla, in Newton, New Jersey. It is Federal Law, if you were injured on the job, they have to provide financial restitution. – Ralph

    ps. I am a former client. He is great person.