RESEACH REPORT OF AIG
The AIG Insurance Company
The American International Group (AIG) is one of the most established insurance and financial company in the world. It has many subsidiaries distributed across the world with efficient service delivery. Its history is traceable back to 1919 when it was first introduced in Shanghai China (Schich, 2010). The company has tremendously burgeoned since then and has continued to demonstrate outstanding performance since then. 2008 was however the darkest year of the company after it registered serious financial deficits. The government however came through to salvage the situation hence making the firm great again. Summarily, the company has exploited its strengths and opportunities and has also experienced threats from competitors and significant weaknesses. Since then, there have been regulatory bodies that help the company run efficiently.
The American International Group (AIG) is among the most established multinational insurance corporations in the US with multiple insurance options (Baranoff, 2012). The company has at least 88 million customers cutting across 130 countries. As of late 2015, the company had employed approximately sixty five thousand people. The corporation is known to operate through three key businesses namely: AIG Life and Retirement, AIG Property Causality and United Guaranty Corporation. The Life and Retirement department focusses on the provision of life insurance as well as retirement services. The AIG Property casualty focusses on the provision of insurance products for institutional, individual and commercial customers. On the other hand, the United Guaranty Corporation provides the mortgage insurance and the mortgage guaranty insurance (Acharya et al, 2010).
According to Baranoff (2012), the Company’s story started in China in 1919; a time when Cornelius Vander Starr (an American) began an insurance agency in Shanghai. Resultantly, the enterprise burgeoned first across China and there after across the globe. This notwithstanding, the firm deepened its understanding of risk with every new culture and market and hence helped create innovative ways of delivering value to its clients. The company’s first US office was opened in the New York City under the name American International Underwriters (AIU). The headquarters of the company was later relocated from Shanghai to the New York City in 1939. The company has henceforth been experiencing significant growths across its departments and has since expanded across the world (Cummins and Weiss, 2014). In 2007, the company became the World Trade Center project’s lead insurer, providing coverage of protecting people around and on the property, site and environment. The company has also played a fundamental role in earthquake intervention especially in 2011 tsunami aftermath in the coastal Japanese communities. It used innovative technology in shortening the claim time as well as the provision of emergency supplies and financial support. AIG has also ventured in sponsorships programs. In 2012 for instance, it signed an agreement with the New Zealand Rugby Union to sponsor all blacks.
Rudolph and MAAA (2011), purport that the company also entered an agreement in 2013 with the Dublin GAA’s football, ladies, and hurling teams as shown in figure below:
Figure 1: The AIG has entered agreements with clubs as sponsors.
In 2015, the company got an approval of operating drones to conduct inspections for the assessment of risks and the development of unmanned aircraft insurance.
Figure 2: The AIG uses drones to conduct inspections.
The Management structure
The AIG is managed under a structure consisting of the board of directors, officers, employees and the shareholders. The structure of management has been a fundamental rubric in seeing to it that every section of the company is running efficiently. According to Rudolph and MAAA (2011) it is amazing that the company is well coordinated despite having branches in at least one hundred and thirty countries in the world. Recently, the company has shuffled a number of executive positions. Normally, such changes are geared towards a substantial improvement of the operating environment as well as the provision of greater results in the Deliver the Film initiative of AIG and a better framework of customer services for the casualty and property customers in the US. This was according to the CEO and president of the company (Schich, 2010).
The executive leadership of the corporation move it forward with a continued sense of urgency on the following four strategic priorities: the narrowing of focus on products, geographies and clients where the company can grow profitability. In the process, growing through innovation, driving for efficiency and optimizing the client relationships and data assets of the company; as well as the returning of the excess capital to stakeholders. AIG is led by the president and Executive Officer at the highest executive level who works hand in hand with executive vice presidents. The current President and CEO of the company is Peter D. Hancock. The executive vice presidents of the corporation therefore include the Chief Information Officer, the Chief Investment Officer, the Chief Executive Officer Consumer, the AIG Chief Operating Officer, the General Counsel, the chief financial officer, the Chief Risk Officer and the Chief Executive Officer of Commercial AIG (Sabina and Huettinger, 2016).
The management structure of the company also comprises of an able board of directors. The primary responsibility of this board is the protection of the investments of the shareholders (Schich, 2010). It also reports on the success of the business as well as the progress through quarterly and annual report. Inasmuch as the board is not directly involved in the business’ daily operations, they establish the structure and the mission of the company. The board further amends the by-laws of the company and also appoints necessary committees. The board also appoints the aforementioned executives. The figure below shows the board members of the IAG.
Figure 3: The IAG Board committee
The following figure demonstrates the management structure of the AIG:
Figure 4|: The IGA management
Product and service
The AIG Direct offers a lot of insurance products including Accident Death Insurance, Term Life Insurance as well as new Term Life Insurance with Living Benefits (Lewis et al, 2010). The company offers advice from agents that are licensed with expertise who can be instrumental in finding valuable coverage to help the individual needs of families. According to the company, the use of a cookie-cutter approach to the sale of life insurance is prohibited. Instead AIG listens carefully to its clients and help in the tailoring of an insurance coverage plan that helps in meeting the needs of life insurance. Being one of the largest insurance organization in the world, the company leads in life insurance, mortgage insurance and property casualty insurance. The company believes that with hard work and right values, anything can work out perfectly well.
AIG Company offers a wide range of services and products including travel, property, car, identity theft and health insurance products; deep insurance claims expertise as well as excellent financial strength. In Malaysia for instance, the company has been serving communities since 1953. It has been offering innovative solutions to the needs of corporate and individuals clients (Sabina and Huettinger, 2016).
SWOT The American International Group is an insurance company that is leading and popular and also provides financial services to the clients in at least 130 countries. The company has an approximate capital of around $ 186 billion with many subsidiaries. The bargaining power of the company is tremendous in the services financial market in the world.
The company has got very many staffs (over 63, 000 across) the globe who are dedicated in ensuing that the service delivery of AIG is at its best and that the customers are satisfied with the insurance products and services. Further, the group enjoys the powerful and strong brand name as well as its financial position which is globally stable. AIG group is known for providing a range of services to its clients that are specific to the unique needs of the clients with a tremendous and strong brand building which has enhanced the company’s visibility across the world. For this reason, AIG is the global leader of financial service provision in the globe hence having a competitive advantage over its key competitors. Its involvement in corporate advertisement is also exemplary. This makes it better placed to win more clients and to establish more in the industry and at the same time gaining sponsorships the groups brand building (Lewis et al, 2010).
The company has an extremely huge amount of debt that is suffocating its balance sheet hence forcing the firm to be controlled by the government. Inasmuch as the debt is temporary and the government doesn’t wish to keep on holding the company’s stake, the actions of the company are at risk of being more scrutinized when decisions are being made. Some of the company’s operations like airplane leasing revenues are also not in line with the business of insurance. This is again evident in its Financial Service segment that caused the 2008 enormous losses experienced by the company (Schich, 2010).
The aid of the government to the company was a golden opportunity because it prevented it from being considered bankrupt hence future growth opportunities still remain viable. The company’s acquisitions over several years have provided it with many assets that it can consider selling when the market turns bullish (Schich, 2010). This will therefore give the company a perfect platform of raising capital. Nevertheless, the corporation operates on a global scale making the diversification of the company to work in its favor when expansions begin again.
The global economy to begin with, has hurt the company on almost every front since the recession isn’t only limited to the US (Pathak et al, 2013). AIG is likely to be behind in the efforts to expand into the foreign markets as compared to its large competitors because the company has to concentrate on its domestic profits. On the same note, the company could most likely be selling some of its key foreign assets to some of its core competitors which would resultantly give them an upper hand in the long run.
It is imperative to regulate financial institutions and firms because they provide services and goods that the economy needs to function effectively. The environment in which financial firms like AIG operate is usually characterized by asymmetric information. The operations of AIG around the world are subjected to stringent regulations by several different regulatory authorities. The authorities are such as insurance, investment advisory, securities, thrift and banking regulators in the US and abroad. The operations of AIG are more consumer-oriented and diverse, which resultantly increase the regulatory supervision scope as well as the possibility of intervention. In light of the liquidity problems of AIG in the 4th and 3rd quarters of 2008, the company and its regulated subsidiaries are subject to intense supervision and review around the world. The regulators have therefore taken significant steps in the protection of the businesses that they regulate (McDonald and Paulson, 2015).
The near-failure and the collapse of the insurance giant AIG was a big problem the company faced in the recent financial crisis. The AIG was a global company with close to $1 trillion in assets prior to the crisis from which it lost $99.2 billion in 2008. On 16th September 2008 however, the FRB (Federal Reserve Bank) of New York came through for the company with a loan of $85 billion to keep it going Rudolph and MAAA (2011).
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Baranoff, E., 2012. An analysis of the AIG case: Understanding systemic risk and its relation to insurance. Journal of Insurance Regulation, 31(1), p.243.
Cummins, J.D. and Weiss, M.A., 2014. Systemic risk and the US insurance sector. Journal of Risk and Insurance, 81(3), pp.489-528.
Lewis, V., Kay, K.D., Kelso, C. and Larson, J., 2010. Was the 2008 financial crisis caused by a lack of corporate ethics?.
Rudolph, M.J. and MAAA, F.C.C., 2011. US Insurance Company Investment Strategies in an Economic Downturn. White Paper sponsored by Committee on Financial Research, Society of Actuaries (Schaumburg, IL).
McDonald, R. and Paulson, A., 2015. AIG in Hindsight. The Journal of Economic Perspectives, 29(2), pp.81-105.
Pathak, J., Karim, K.E., Carter, C. and Xie, Y., 2013. Why do enterprise risk management systems fail? Evidence from a case study of AIG. International Journal of Applied Decision Sciences, 6(4), pp.345-371.
Sabina, T. and Huettinger, M., 2016. Adaptation of AIG’s internal corporate social responsibility strategy in the Lithuanian market (Bachelor’s thesis, ISM Univer
Schich, S., 2010. Insurance companies and the financial crisis. OECD Journal: Financial market trends, 2009(2), pp.123-151.