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.
May 20th, 20084:40 pm at
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.
May 20th, 20086:44 pm at
One could make many of the same points about Citigroup.
June 16th, 20084:50 pm at
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?
September 15th, 20089:38 am at
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
September 15th, 200811:21 am at
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.
September 26th, 20089:34 pm at
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!
October 3rd, 20088:36 am at
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 ?
November 10th, 20083:01 pm at
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