Aig Financial Crisis

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The core operating portfolio will have nine modules and account for about $56 billion in equity. They include U.S. commercial coverage, European commercial, U.S. retirement and the Japan division.

‘No Sacred Cows’

Hancock asked for investor patience when it comes to possible sales for the largest units.

“There are no sacred cows and we mean that,” he said in a presentation to investors and analysts. “But we also mention that there are important tax and diversification reasons that would preclude major divestitures in the short term.”

AIG said that it is targeting a consolidated return on equity of about 9 percent by next year, with at least 10.3 percent in the operating portfolio that Hancock sees as the core of the business. He also announced expense reductions of $1.6 billion within two years.

Hancock announced $3.6 billion in expenses to fill a reserve shortfall, highlighting weaknesses even at units that Icahn envisions as central to scaled-back Company. The fourth-quarter pre-tax cost to fill the gap includes $1.3 billion tied to policies from 2004 and earlier, with the remaining $2.3 billion covering the period of 2005 through 2014. The New York-based insurer has been stung repeatedly by higher-than-expected costs from risks that the company assumed in the past, whether from environmental liabilities or workers’ compensation policies.

Lessons

“In hindsight, maybe we could’ve done more to cut back on domestic casualty business, “I’m very confident that we’re learning the right lessons from the emerging pattern of claims that has led to this reserve adjustment.”- Hancock

AIG was built into the world’s largest insurer by Maurice “Hank” Greenberg, and each of the five men who held the CEO post since his 2005 departure has grappled with the firm’s complexity. The company shrank by half as AIG sold assets to repay a 2008 bailout, and Hancock narrowed the focus further after taking over in late 2014. He sold stakes in aircraft lessor AerCap Holdings NV and lender Springleaf Holdings Inc. while parting with businesses in Central America and Taiwan.

After a decade of trying to fix the firm, given the substantial structural disadvantages unique to AIG, the management believes breaking up AIG and selling it off piece by piece to its structurally advantaged peers is simply a more realistic path to creating shareholder value.

Risk Management in the Insurance Sector

- Global demographic changes and calamities such as the Asian Tsunami, the swine flu, Hurricanes Katrina and Rita, and the avian flu, have forced domestic and international insurance companies to focus not only on what products they offer but also how to improve their asset and liability management, along with their financial risk management processes and systems.

- Increasingly, insurance companies have become very active in utilizing a wide range of OTC and exchange traded derivatives to hedge their market and credit risks. The last few years have seen resurgence in the issuance of insurance- linked instruments, such as property catastrophe bonds, securities funding life insurance reserves, insurance risk swaps, and Industry Loss Warranties (ILWs).

- Insurance company risk managers and financial professionals focusing on the insurance sector would learn the process by which insurance companies are identifying, measuring, monitoring and controlling their financial risks. This course will be supplemented by domestic and international case studies and recent articles on topical themes in the insurance sector.

Insurance Specific Risk Management

- All Risks are not Insurable

- Essentials of Insurance

- Insurable Interest

- Utmost good faith

- Procedure for Insurance

- Identification of Risks

- Quantify the Insurable value

- Evaluate the choices

- Proposal

- Payment of premium

- Policy Documentation

- Claims

- Administration System.

Focus Areas for Insurance Management

- Identification of Internal & External Pure Risks

- Existing Risk Control Measures Review

- Risk inspection

- Risk Audit Scrutiny of Existing Insurance Covers

- Coverage

- Rates & Deductibles (Compulsory self-insurance)

- Defining Standard SOP for Claims Control

- Guidelines on documentation.

Key Areas of Consideration:

- Choice of Insurer

- Industry Rating

- Claims Settlement ability

- Sustainability of the company

- Service levels & infrastructure

- Choice of Intermediary

- Representation of the insurance market

- Knowledge of insurance amongst all industry segments

- Service levels & infrastructure

Emerging Challenges

- De regulation of Indian Insurance market

- Global markets impact on Local market

- Options for self-insurance

- Market driven pricing.

Strategies To Fight Activists

AIG has been in a public fight with billionaire investor activists Carl Icahn and John Paulson for a while. This was settled in exchange for them becoming board members in the company.

- They were critical of the structure of AIG and its performance

- They wanted to divide the