American International Group (AIG)
America International Group (AIG) is an American insurance corporation. Its corporate headquarters are located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in La Defense, Paris, and its Asian headquarters office is in Hong Kong. According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world.
It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008. AIG suffered from a liquidity crisis when its credit ratings were downgraded below “AA” levels in September 2008. The United States Federal Reserve Bank on September 16, 2008 created an $85 billion credit facility to enable the company to meet increased collateral obligations consequent to the credit rating downgrade, in exchange for the issuance of a stock warrant to the Federal Reserve Bank for 79.
9% of the equity of AIG. The Federal Reserve Bank and the United States Treasury by May 2009 had increased the potential financial support to AIG, with the support of an investment of as much as $70 billion, a $60 billion credit line and $52. 5 billion to buy mortgage-based assets owned or guaranteed by AIG, increasing the total amount available to as much as $182. 5 billion (Son, 2009). History: AIG history dates back to 1919, when Cornelius Vander Starr established an insurance agency in Shanghai, China.
Starr was the first Westerner in Shanghai to sell insurance to the Chinese, which he continued to do until AIG left China in early 1949 Starr then moved the company headquarters to its current home in New York City. The company went on to expand, often through subsidiaries, into other markets, including other parts of Asia, Latin America, Europe, and the Middle East (Reuters, 2009). In 1962, Starr gave management of the company’s lagging U. S. holdings to Maurice R. “Hank” Greenberg, who shifted its focus from personal insurance to high-margin corporate coverage.
Greenberg focused on selling insurance through independent brokers rather than agents to eliminate agent salaries. Using brokers, AIG 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 1968, Starr named Greenberg his successor. The company went public in 1969. These phenomenon growths experienced in its American operations and for a large part associated to Greenberg were to late be responsible for the fall of the world’s largest insurance company.
Culture: From its humble beginnings and during the tenure of the founder Vander Starr, AIG was the epitome of good corporate practice. It endeavored and worked within the confines of proper practice and for a long time was a trend setter in terms of insurance covers. As the insurance industry grew there was need for companies to diversify from the traditional covers and offer new avenues and covers in line with changing times.
AIG set the trend by being the company that insured and paid claims in such areas as natural calamites, hurricanes. As the insurance business grew much more competitive, AIG had to look at other areas in which to operate in and continue ringing the profits the shareholders demanded. A lot of what happened was as a direct result and with approval of Hank Greenberg. He was a micro manager and reigned over AIG like a colossus. He became synonymous with AIG and he shaped and molded AIG operational culture.
In fact his approach of running business sheds light on the AIG culture – both of doing business and relating with other parties be their business or otherwise. He oversaw negotiations with the islands of Bermuda which would allow AIG to operate in as close to an unregulated fashion as conceivable and negotiated on behalf of China’s admission to the world trade organization. Just before China was admitted to the organization Greenberg manipulated the process in order to create a delay in the process and to create some uncertainty over the outcome.
Then he essentially blackmailed the Chinese, insisting that AIG be given carte blanche in China or else China’s application process for the World Trade Organization would be reneged on through the power of Greenberg’s political influence (Shelp ; Ehrbar, 2009). It these unbridled egocentrism that was to permeate all through the AIG ranks and especially in the Financial Products unit, which ultimately led to the almost demise of AIG. This department specialized in creating and selling financial vehicles that offered insurance cover to all manner of risk.
The basis of the growth of this unit which despite having the resources and manpower ended up not realizing the folly of their ways was the assumption that home owners never defaulted on mortgage payment. Even in the face of evidence that there was an increase incidence of mortgage default, they continued to sell the derivatives and financial backed securities that finally brought the American and by extension the world economy to its knees. References: Federal Reserve System (2009). U. S Treasury and Federal Reserves Board Announces Participation in AIG Restructuring Plan, retrieved July 17, 2010, from http://www.
federalreserve. gov/newsevents/press/other/20090302a. htm Reuters (2009). American International Group, Inc: Profile, retrieved July 17, 2010, from http://www. reuters. com/finance/stocks/companyProfile? symbol=AIG. N Shelp, R ; Ehrbar, A (2009). Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG, John Wiley ; Sons, Inc, Hoboken, NJ. Son, H (2009). AIG’s Trustees Shun ‘Shadow Board,’ Seek Directors, retrieved July 17, 2010, from http://www. bloomberg. com/apps/news? pid=newsarchive;sid=aaog3i4yUopo;refer=us