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Issue November 3, 2008 |
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American International Group Inc. continues to borrow money under federal financing programs to meet obligations, but its underlying insurance operations are running smoothly, said Edward Liddy, chairman and chief executive officer. Mr. Liddy spoke with Business Insurance Editor Regis Coccia recently to explain how AIG is getting its house in order.
Q. How are AIG's core businesses faring?
They're doing OK, and that's a good word to me. The market is tough for all insurance companies right now, from the standpoint of new business. We're writing new business, not as much as we used to, but more, probably, than people think. Our customers aren't running out the door on us, as some assumed they would. When we first announced the Fed facility, we had some attrition, but that seems to have stabilized. With the Fed facility in place, we're in, to a certain extent, a better position than many of our competitors are. Our businesses are doing well and they reflect the strength of the company.
Q. How is AIG keeping employees focused?
I've been in the insurance business for 15 years or so, and I've always said all you have when you're in this business is people and capital, and AIG has really high-quality people. We want them to stay with us and we want them focused.
What we've done is paint a picture of a business that can emerge from this crisis. It'll be a business that's built on our core strengths of underwriting and pricing in the property/casualty area. It's a business that folks in those areas know very, very well. We've put in place the standard array of retention arrangements to help people stick with us so they can enjoy that future.
We're doing a yeoman's job of communicating with them, explaining what's happening each week. I think our people are giving us the benefit of the doubt. The folks at AIG are real fighters. They want to be successful. They're used to competing aggressively in the marketplace, and I think they want to show the world that the world is wrong about AIG.
Q. What's your vision for the AIG that will emerge from this crisis?
We will have our property/casualty business in the United States; we'll have AIU, which is our foreign general business; and we'll have a majority piece of the AIA business, which is our foreign life insurance. We're stepping back and taking a page from our successes of yesteryear, where we were a very strong, global property/casualty-focused business. We're really good at that. We're good at underwriting. We're good at pricing. We're good at specialty lines that comprise that business. That's what we will be in the future as we emerge from 2009 and going into 2010.
The assets that we have for sale will be sold sooner rather than later. We want them to go into the hands of good buyers who can keep those businesses running well and smoothly. On the other hand, we want to get full value for the assets.
AIG had about $100 billion in revenue in 2007. The business that we'll retain (does) about $40 billion to $43 billion a year. To some, they'll look at that and say that's a lot smaller than $100 billion. But if you look at that size compared to most of the companies that we'll be competing with, it's a behemoth. It depends on whether you're forward looking or backward looking. We will be a very competitive and viable entity.
Our core insurance operations are very strong. They are well-capitalized. They are well-managed. We know those businesses extremely well. We've staked out what we're going to be in the future. We intend to be very competitive, very disciplined. We have good underwriting skills, good pricing skills, good claims capacity in those areas. They're businesses in which we've demonstrated success in the past, and we will be players in those businesses in the future.
Q. Why did you take the job of turning around AIG?
I was very happy in the life that I had crafted, which involved a couple of very nice boards of directors and private equity work with Clayton Dubilier & Rice, one of the premier firms in private equity.
Life is pretty simple: You can sit on the sidelines and be an observer or you can get in the game and see if you can help. I prefer the latter.
When I received a call from government officials, I thought long and hard about it: Was I ready to get back in the saddle? My conclusion was I think I can help the country out of its financial crisis by helping this company out of its (crisis), and that's why I decided to come on board and see what I could do.
Q. How many serious buyers have approached AIG so far?
We have a lot of serious buyers. What most people are doing is waiting for third-quarter results to be finalized so we can put them in our offering memoranda. We are not going to lack for serious buyers. There will be really good values attached to these various properties. For most CEOs, you don't get a crack at some of the assets that we have for sale during your lifetime as a CEO. I think we're going to be just fine in this regard.
Q. How is the cancellation of AIG-sponsored events affecting producers and clients?
Thus far, there's been no negative impact, although it's probably too soon to tell. What we tried to do with the attorney general was share with him a list of all the activities that had been curtailed, and he was pleased we were so aggressive on it. People just want AIG to be successful. If that means they don't go to a conference for a year, I don't think it jeopardizes a long-term relationship. We'll have to wait and see. I would suspect that many other companies that have been helped by the Federal Reserve--either banks or investment banks or insurance companies, to the extent they participate in TARP (the Troubled Asset Relief Program) in the future--may wind up doing the same thing, so it may not be a competitive disadvantage. Most people understand what we're doing and why we're doing it.
Q. Do the federal financing and bailout programs make it easier for AIG to sell assets?
It definitely helps us, to the extent you believe that what the Fed has set in motion acts as a lubricant to the capital markets and things begin to stabilize and/or debt financing becomes more available. The assets we're selling are really premier assets. I think they're going to sell and sell well, pretty much in any environment. Clearly, I'd rather be selling these assets a year ago or two years ago than in today's marketplace. But I think the actions that Fed has taken to stimulate the banking community, to open up facilities like the Fed commercial paper window, opening up TARP to be able to purchase troubled assets, all those things are steps in the right direction that will make it easier for to us to sell the extraordinary assets that we're going to sell in the next couple of quarters.
Q. Will assets go to the highest bidders or to companies that can keep them intact and grow them?
All of the above. When we announced what our vision for the future was--a property/casualty business that has foreign general business, commercial business in the U.S. and a majority interest in our Asian life business--we were announcing that all other assets were for sale. We're going to tilt toward selling these business to those companies that have big brand names, that are very highly rated and have strong balance sheets. There's a whole host of companies that fit that definition. That's where we will go.
Q. What enterprise risk management controls have been instituted?
It's a relatively simple question with a relatively simple answer. Our core insurance operations are really well-run, they're well-capitalized. They have good risk management and our people know their business. What got us into trouble was when we moved out of those core operations and into the financial products area, which was not our core competency. The single biggest thing we've done with respect to risk management is we're shutting that business down. It's not going to be part of who we are going forward. It's caused us to continue to bleed cash. The collateralized debt obligations and the credit default swaps that are out there, we're working very, very hard to ringfence that and stop that bleeding. It's where the bulk of the money that we borrowed from the Federal Reserve has gone. The single most-effective risk management technique we have is we're not going to be in businesses that we don't know and understand very well, starting with AIG FP. That business is being shut down.
For reprints of this story, please contact Lauren Melesio at 212-210-0707 or email lmelesio@crain.com
