American International Group
American International Group, Inc. is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. As of 2023, AIG employed 25,200 people. The company operates through three core businesses: general insurance, life & retirement, and a standalone technology-enabled subsidiary. General Insurance includes Commercial, Personal Insurance, U.S. and International field operations. Life & Retirement includes Group Retirement, Individual Retirement, Life, and Institutional Markets.
AIG is the title sponsor of the AIG Women's Open golf tournament. In 2023, for the sixth consecutive year, DiversityInc named AIG among the Top 50 Companies for Diversity list.
AIG has offices around the world, with corporate headquarters in New York City. It serves 87% of the Fortune Global 500 and 83% of the Forbes 2000. AIG was ranked 60th on the 2018 Fortune 500 list. According to the 2016 Forbes Global 2000 list, AIG was the 87th-largest public company in the world. On December 31, 2017, AIG had US$65.2 billion in shareholder equity.
During the 2008 financial crisis, the Federal Reserve bailed out the company for $180 billion and assumed a controlling ownership stake. The Financial Crisis Inquiry Commission attributed AIG's failure to the mass sales of unhedged insurance. AIG repaid $205 billion to the United States government in 2012.
History
1919–1945: early years
AIG was founded December 19, 1919 when American Cornelius Vander Starr established a general insurance agency, American Asiatic Underwriters, in Shanghai, China. Business grew rapidly, and two years later, Starr formed a life insurance operation. By the late 1920s, AAU had branches throughout China and Southeast Asia, including the Philippines, Dutch East Indies, and Malaya. In 1926, Starr opened his first office in the United States, American International Underwriters Corporation. He also focused on opportunities in Latin America and, in the late 1930s, AIU entered Havana, Cuba. The steady growth of the Latin American agencies proved significant as it would offset the decline in business from Asia due to the impending World War II. In 1939, Starr moved his headquarters from Shanghai to New York City.1945–1959: international and domestic expansion
After World War II, American International Underwriters entered Japan and Germany, to provide insurance for American military personnel. Throughout the late 1940s and early 1950s, AIU continued to expand in Europe, with offices opening in France, Italy, and the United Kingdom. In 1952, Starr began to focus on the American market by acquiring Globe & Rutgers Fire Insurance Company and its subsidiary, American Home Fire Assurance Company. By the end of the decade, C.V. Starr's general and life insurance organization included an extensive network of agents and offices in over 75 countries.1959–1979: reorganization and specialization
In 1960, C.V. Starr hired Hank Greenberg to develop an international accident and health business. Two years later, Greenberg reorganized one of C.V. Starr's U.S. holdings into a successful multiple line carrier. Greenberg focused on selling insurance through independent brokers rather than agents to eliminate agent salaries. Using brokers, AIU could price insurance according to its potential return even if it suffered decreased sales of certain products for great lengths of time with very little extra expense. In 1967, American International Group, Inc. was incorporated as a unifying umbrella organization for most of C.V. Starr's general and life insurance businesses. In 1968, Starr named Greenberg his successor. The company went public in 1969.The 1970s presented many challenges for AIG as operations in the Middle East and Southeast Asia were curtailed or ceased altogether due to the changing political landscape. However, AIG continued to expand its markets by introducing specialized energy, transportation, and shipping products to serve the needs of niche industries.
1979–2000: new opportunities and directions
During the 1980s, AIG continued expanding its market distribution and worldwide network by offering a wide range of specialized products, including pollution liability and political risk. In 1984, AIG listed its shares on the New York Stock Exchange. Throughout the 1990s, AIG developed new sources of income through diverse investments, including the acquisition of International Lease Finance Corporation, a provider of leased aircraft to the airline industry. In 1992, AIG received the first foreign insurance license granted in over 40 years by the Chinese government. Within the U.S., AIG acquired SunAmerica Inc. a retirement savings company managed by Eli Broad, in 1999.2000–2012: further expansion and decline
Growth
The early 2000s saw a marked period of growth as AIG acquired American General Corporation, a leading domestic life insurance and annuities provider, and AIG entered new markets including India. In February 2000, AIG created a strategic advisory venture team with the Blackstone Group and Kissinger Associates "to provide financial advisory services to corporations seeking high level independent strategic advice". AIG was an investor in Blackstone from 1998 to March 2012, when it sold all of its shares in the company. Blackstone acted as an adviser for AIG during the 2008 financial crisis.In March 2003 American General merged with Old Line Life Insurance Company.
In the early 2000s, AIG made significant investments in Russia as the country recovered from the 1998 Russian financial crisis. In July 2003, Maurice Greenberg met with Putin to discuss AIG's investments and improving U.S.-Russia economic ties, in anticipation of Putin's meeting with U.S. President George W. Bush later that year."
In November 2004, AIG reached a $126 million settlement with the U.S. Securities and Exchange Commission and the Justice Department partly resolving a number of regulatory matters, and the company needed to continue to cooperate with investigators continuing to probe the sale of a non-traditional insurance product.
Accounting scandal
In 2005, AIG became embroiled in a series of fraud investigations conducted by the Securities and Exchange Commission, U.S. Justice Department, and New York State Attorney General's Office. Greenberg was ousted amid an accounting scandal in February 2005. The New York Attorney General's investigation led to a $1.6 billion fine for AIG and criminal charges for some of its executives.On May 1, 2005, investigations conducted by outside counsel at the request of AIG's Audit Committee and the consultation with AIG's independent auditors, PricewaterhouseCoopers LLP resulted in AIG's decision to restate its financial statements for the years ended December 31, 2003, 2002, 2001 and 2000, the quarters ended March 31, June 30 and September 30, 2004, and 2003 and the quarter ended December 31, 2003.
On November 9, 2005, the company was said to have delayed its third-quarter earnings report because it had to restate earlier financial results, to correct accounting errors.
Expansion to the credit default insurance market
became CEO of the company in 2005. He began his career at AIG as a clerk in its London office in 1970. AIG then took on tens of billions of dollars of risk associated with mortgages. It insured tens of billions of dollars of derivatives against default, but did not purchase reinsurance to hedge that risk. Secondly, it used collateral on deposit to buy mortgage-backed securities. When losses hit the mortgage market in 2007–2008, AIG had to pay out insurance claims and also replace the losses in its collateral accounts.AIG purchased the remaining 39% that it did not own of online auto insurance specialist 21st Century Insurance in 2007 for $749 million. With the failure of the parent company and the continuing recession in late 2008, AIG rebranded its insurance unit to 21st Century Insurance.
On June 11, 2008, three stockholders, collectively owning 4% of the outstanding stock of AIG, delivered a letter to the Board of Directors of AIG seeking to oust CEO Martin Sullivan and make certain other management and Board of Directors changes.
On June 15, 2008, after disclosure of financial losses and subsequent to a falling stock price, Sullivan resigned and was replaced by Robert B. Willumstad, Chairman of the AIG Board of Directors since 2006. Willumstad was forced by the US government to step down and was replaced by Ed Liddy on September 17, 2008. AIG's board of directors named Bob Benmosche CEO on August 3, 2009, to replace Liddy, who earlier in the year announced his retirement.
2008 liquidity crisis and government bailout
In late 2008, the federal government bailed out AIG for $180 billion, and technically assumed control, because many stated a belief that its failure would endanger the financial integrity of other major firms that were its trading partners--Goldman Sachs, Morgan Stanley, Bank of America and Merrill Lynch, as well as dozens of European banks. In January 2011, the Financial Crisis Inquiry Commission issued one of many critical governmental reports, deciding that AIG failed and was rescued by the government primarily because its enormous sales of credit default swaps were made without putting up the initial collateral, setting aside capital reserves, or hedging its exposure, which one analyst considered a profound failure in corporate governance, particularly its risk management practices. Other analysts believed AIG's failure was possible because of the sweeping deregulation of over-the-counter derivatives, including credit default swaps, which effectively eliminated federal and state regulation of these products, including capital and margin requirements that would have lessened the likelihood of AIG's failure.Illustrating the danger of an AIG bankruptcy, a September 17, 2008, CNN Money article stated, "But in AIG's case, the situation is even more serious. The company is much larger and complex than Lehman Brothers and its assets hitting the market all at once would likely cause worldwide chaos and send values plummeting. Experts question whether there are even enough qualified buyers out there to digest the company and its subsidiaries."
AIG had sold credit protection through its London unit in the form of credit default swaps on collateralized debt obligations but by 2008, they had declined in value. AIG's Financial Products division, headed by Joseph Cassano in London, had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt securities backed by subprime loans. As a result, AIG's credit rating was downgraded and it was required to post additional collateral with its trading counter-parties, leading to a liquidity crisis that began on September 16, 2008, and essentially bankrupted all of AIG. The New York United States Federal Reserve Bank stepped in, announcing creation of a secured credit facility, initially of up to $85 billion to prevent the company's collapse, enabling AIG to deliver additional collateral to its credit default swap trading partners. The credit facility was secured by the stock in AIG-owned subsidiaries in the form of warrants for a 79.9% equity stake in the company and the right to suspend dividends to previously issued common and preferred stock. The AIG board accepted the terms of the Federal Reserve rescue package that same day, making it the largest government bailout of a private company in U.S. history.
In March 2009, AIG compounded public cynicism concerning the "too big to fail" firm's bailout by announcing that it would pay its executives over $165 million in executive bonuses. Total bonuses for the financial unit could reach $450 million, and bonuses for the entire company could reach $1.2 billion. Newly inaugurated President Barack Obama, who had voted for TARP as a Senator responded to the planned payments by saying "t's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" Both Democratic and Republican politicians reacted with similar outrage to the planned bonuses, as did political commentators and journalists in the AIG bonus payments controversy.
AIG began selling some assets to pay off its government loans in September 2008 despite a global decline in the valuation of insurance businesses, and the weakening financial condition of potential bidders. In December 2009, AIG formed international life insurance subsidiaries, American International Assurance Company, Limited and American Life Insurance Company, which were transferred to the Federal Reserve Bank of New York, to reduce its debt by $25 billion. AIG sold its Hartford Steam Boiler unit on March 31, 2009, to Munich Re for $742 million. On April 16, 2009, AIG announced plans to sell its 21st Century Insurance subsidiary to Farmers Insurance Group for $1.9 billion. In June 2009 AIG sold its majority ownership of reinsurer Transatlantic Re. The Wall Street Journal reported on September 7, 2009, that Pacific Century Group had agreed to pay $500 million for a part of AIG's asset management business, and that they also expected to pay an additional $200 million to AIG in carried interest and other payments linked to future performance of the business.
AIG then sold its American Life Insurance Co. to MetLife Inc. for $15.5 billion in cash and MetLife stock in March 2010. Bloomberg L.P. reported on March 29, 2010, that after almost three months of delays, AIG had completed the $500 million sale of a portion of its asset management business, branded PineBridge Investments, to the Asia-based Pacific Century Group. Fortress Investment Group purchased 80% of the interest in financing company American General Finance in August 2010. In September 2010 AIG sold AIG Starr and AIG Edison, two of its Japan-based companies, to Prudential Financial for $4.2 billion in cash and $600 million in assumption of third party AIG debt by Prudential. On November 1, 2010, AIG raised $36.71 billion from both the sale of ALICO and its IPO of AIA. Proceeds went to repay some of the aid it received from the government during the 2008 financial crisis.
AIG sold its Taiwanese life insurance company Nan Shan Life to a consortium of buyers for $2.16 billion in January 2011. Due to the Q3 2011 net loss widening, on November 3, 2011, AIG shares plunged 49 percent year to date. The insurer's board approved a share buyback of as much as $1 billion.
Nine years after the initial bailout, in 2017, the U.S. Financial Stability Oversight Council removed AIG from its list of too-big-to-fail institutions.