aig - background history

8/13/2019 AIG - Background History

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American International Group

American International Group, Inc.also known as AIG is a multinational insurance corporation

with over 63,000 employees globally. AIG companies serve customers in more than 130 countries around

the world; the company is a provider of property casualty insurance, life insurance and retirementservices, and mortgage insurance. AIGs corporate headquarters are in New York City, its Britishheadquarters are in London, continental Europe operations are based in La Dfense, Paris, and its Asianheadquarters are in Hong Kong. According to the 2013 Forbes Global 2000 list, AIG was the 62nd-largest

public company in the world.[4]

As of April 21, 2013, it had a market capitalization of $57.53 billion.

Financial crisis

AIG faced the most difficult financial crisis in its history when a series of events unfolded in late 2008. The

insurer had sold credit protection through its London unit in the form of credit default swaps (CDSs) on

collateralized debt obligations (CDOs) but they had declined in value.[39]The AIG Financial Products

division, headed by Joseph Cassano, in London, had entered into credit default swaps to insure $441billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt

securities backed by subprime loans.[39][40]As a result, AIGs credit rating was downgraded and it was

required to post additional collateral with its trading counter-parties, leading to an AIG liquidity crisis that

began on September 16, 2008. The United States Federal Reserve Bank stepped in, announcing the

creation of a secured credit facility of up to US$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 .[41][42][43]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.[citation needed]

On January 21, 2009, it was announced that AIG would not be renewing its sponsorship of

theManchester UnitedSoccerclub at the end of the deal in May 2010.[44]

On March 17, 2009, AIG announced that they were paying $165 million in executive bonuses, according

to news reports. Total bonuses for the financial unit could reach $450 million and bonuses for the entire

company could reach $1.2 billion.[45]President Barack Obama, who voted for the AIG bailout as a

Senator[46]responded to the planned payments by saying "[I]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?" and "In the last six months, AIG has received

substantial sums from the U.S. Treasury. Ive asked Secretary [Timothy] Geithner to use that leverage

and pursue every legal avenue to block these bonuses and make the American taxpayers whole."[100]Politicians on both sides of the Congressional aisle reacted with outrage to the planned bonuses. Political

commentators and journalists expressed an equally bipartisan outrage.[citation needed]

Due to the Q3 2011 net loss widening, on November 3, 2011 the AIG shares plunged 49 percent year to

date. The insurer's board approved the share buyback of as much as $1 billion.[47]

The U.S. Department of The Treasury in December 2012 published an itemized list of the loans, stock

purchases, special purpose vehicles (SPVs) and other investments engaged in with AIG, the amount AIG
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paid back and the positive return on the loans and investments to the government. [48]Treasury said that it

and the Federal Reserve Bank of New York provided a total $182.3 billion to AIG, which paid back a total

$205 billion, for a total positive return, or profit, to the government of $22.7 billion. In addition, AIG sold off

a number of its own assets to raise money to pay back the government.

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. This letter was the latest volley in what theWall Street

Journaldeemed a "public spat" between the Company's Board and management, on the one hand, and

its key stockholders, and former CEO Maurice "Hank" Greenberg on the other hand.[49]

AIG since September 2008 marketed its assets to pay off its government loans. A global decline in the

valuation of insurance businesses, and the weakening financial condition of potential bidders, challenged

its efforts.[50]AIG closed on the sale of its Hartford Steam Boiler unit on March 31, 2009 to Munich Re for

$742 million, which was announced December 22, 2008.[51][52]On April 16, 2009, AIG announced plans

to sell 21st Century Insurance subsidiary to Farmers Insurance Group for $1.9 billion.[53]June 10, 2009.

AIG sold down its majority ownership of reinsurer Transatlantic Re.[54]

The Wall Street Journalreported on

September 7, 2009 thatPacific Century Grouphad agreed to pay $500 million for a part of American

International Group'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.[55]

AIG agreed in March 2010 to sell its American Life Insurance Co. (ALICO) to MetLife Inc. for $15.5 billion

in cash and MetLife stock.[56]Bloomberg L.P.reported on March 29 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-basedPacific Century Group.[57]

Fortress Investment Group

purchased 80% of the interest in financing companyAmerican General Financein August 2010.[58]AIG in

September 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.[59][59]On

November 1, AIG announced it has raised $36.71 billion from both the sale of ALICO and its IPO of AIA.Proceeds go specifically to pay off FRB of New York loan .[60]

In October 2010 the WSJ reported that a family sued AIG for alleged complicity in a 'stranger-originated

life insurance'scheme, whereby AIG managers allegedly welcomed people without aninsurable interestto

take out life insurance policies against others. The case involved JB Carlsonand Germaine Tomlinson,

and was one of many similar lawsuits in the US at the time.[61]

Reported in January 2011, AIG sold its Taiwanese life insurance company, Nan Shan Life, to a

consortium of buyers for $2.16 billion.[62]

September 6, 2012. AIG sold $2 billion of its investment in AIA to repay government loans. The board

also approved a $5 billion stock repurchase of government-owned shares in AIA.

[63]

The Treasury Department realized a gain of more than $22 billion from the sale of AIG common stock and

$0.9 billion from the sale of AIG preferred stock.[64]

May 7, 2012. Treasury announced an offering of 188.5 million shares of AIG for a total of $5.8 billion. The

sale reduced Treasurys stake in AIG to 61 percent, from 70 percent before the transaction.[65]

September 14, 2012. The Treasury completed its fifth sale of AIG common stock, with proceeds of

approximately $20.7 billion, reducing the Treasurys ownership stake in AIG to approximately 15.9
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percent from 53 percent. Government commitments were fully recovered, and Treasury and the FRBNY

to date had received a combined positive return of approximately $15.1 billion.[66]

December 14, 2012. Treasury sold the last of its AIG stock in its sixth stock stale for a total of

approximately $7.6 billion. As a result of these sales, the U.S. Government and America fully recouped

their investment in AIG, plus a total combined positive return of more than $22 billion.[67]

AIG began an advertising campaign on January 1, 2013, called Thank You America, in which several

company employees, including AIG President and CEO Robert Benmosche, talked directly to the camera

and offered their thanks for the government assistance.[68]In January 2013 AIG's board discussed joining

a lawsuit against the United States government because the bailout they received was unfair to their

investors.[69]The idea was rejected.[70]AIG was criticized, however, when news stories soon appeared

that it was considering joining a lawsuit brought by AIG shareholders and former CEO Maurice Hank

Greenberg against the New York Federal Reserve Bank for what the plaintiffs considered unfair terms

imposed on AIG by the New York Fed. The AIG board announced on January 9, 2013, that the company

would not join the lawsuit, and on January 9, 2013, Bob Benmosche told CNBCs Maria Bartiromo that it

would not be socially acceptable for AIG to sue the government, continuing that while people may be

angry, a deals a deal.[71][72]

The specific issue was whether the New York Fed transferred $18 billion in litigation claims on troubled

mortgage debt to an entity created by the Fed in 2008 called Maiden Lane II and thus prevented AIG from

recouping the money. On May 7, 2013,Mariana Pfaelzer,a judge in Los Angeles ruled that $7.3 billion of

those assets had in fact not be assigned. AIG withdrew the case "with prejudice"on May 28, 2013.

Praelzer was overseeing a suit between AIG and Bank of America over whether Merrill Lynch and

Countrywide had misrepresented the quality of its mortgage portfolio. In signing the order dropping the

case U.S. District JudgeLewis Kaplanwho was overseeing the Maiden Lane case in American

International Group Inc et al. v. Maiden Lane II LLC, U.S. District Court, Southern District of New York,

No. 13-00951 admoninished the Fed saying, "on the face of it" some of its actions "perhaps are

unattractive and, indeed, wrongful[73]

About AIG

American International Group, Inc. (AIG) is a leading international insurance organization servingcustomers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional,and individual customers through one of the most extensive worldwide property-casualty networks of anyinsurer. In addition, AIG companies are leading providers of life insurance and retirement services in theUnited States. AIG common stock is listed on the New York Stock Exchange and the Tokyo StockExchange.

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operationsof American International Group, Inc.
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CHRISTOPHER S. LYNCH Director since 2009

Former National Partner in charge of Financial Services, KPMG LLP Age 54

Mr. Lynch has been an independent consultant since 2007, providing a variety of services to public andprivately held financial intermediaries, including risk management, strategy, governance, financial

accounting and regulatory reporting and troubled-asset management. Mr. Lynch is the former NationalPartner in Charge of KPMG LLPs Financial Services Line of Business and Banking and FinancePractice. He held a variety of positions with KPMG from 1979 to 2007, including chairing KPMGsAmericas Financial Services Leadership team and being a member of the Global Financial ServicesLeadership and the U.S. Industries Leadership teams. Mr. Lynch has experience as an audit signingpartner under Sarbanes Oxley for some of KPMGs largest financial services clients.He also served as aPartner in KPMGs Department of Professional Practice and as a Practice Fellow at the FinancialAccounting Standards Board. Mr. Lynch is a member of the National Audit Committee Chair AdvisoryCouncil of the National Association of Corporate Directors. Mr. Lynch is currently Non-ExecutiveChairman of the Federal Home Loan Mortgage Corporation, where he is also a member of the Audit andCompensation Committees. In light of Mr. Lynchs experience in finance, accounting and riskmanagement and restructuring, as well as his professional experience across the financial servicesindustry, AIGs Board has concluded that Mr. Lynch should be re -elected to the Board.

To provide independent advice, the Compensation and Management Resources Committee engagedFrederic W. Cook & Co. (the Cook firm) as a consultant and has used the services of the Cook firm since2005. The Compensation and Management Resources Committee directly engaged the Cook firm toprovide independent, analytical and evaluative advice about AIGs compensation programs for seniorexecutives, including comparisons to industry peers and comparisons to best practices in general. Asenior consultant of the Cook firm regularly attends Committee meetings and provides information oncompensation trends along with specific views on AIGs compensation programs. For services related toboard and executive officer compensation, the Cook firm was paid $103,316 in 2011.

The Cook firm has provided advice to the Nominating and Corporate Governance Committee on AIG

director compensation and market practices with respect to director compensation. The Cook firm reportsdirectly to the Chairman of the Compensation and Management Resources Committee. Other thanservices provided to the

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Compensation and Management Resources Committee and the Nominating and Corporate GovernanceCommittee, neither the Cook firm nor any of its affiliates provides any other services to AIG.

The Board has determined, on the recommendation of the Nominating and Corporate GovernanceCommittee, that all members of the Compensation and Management Resources Committee areindependent under NYSE listing standards.

In 2011, the Committee also considered materials prepared by Mercer and Johnson Associates related tovarious aspects of AIGs efforts to comply with the TARP Standards and the requirements of the SpecialMaster. Mercer and Johnson Associates were engaged by AIG to assist management with this work. Inparticular, Johnson Associates prepared reports presenting market comparisons of total compensationlevels for employees in the Top 25 and select positions within the Top 26-100. These reports wereprovided to the Special Master and considered by the Committee in its compensation decisions. NeitherMercer nor Johnson Associates representatives attended the Committees meetings.


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aig - background history

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