AIG
New York Fed selects trustees for AIG stake - posted by Steven Wevodau
The trustees are Jill Considine, former chairman of the Depository Trust & Clearing Corporation, Chester Feldberg, former chairman of Barclays Americas and Douglas Foshee, chief executive officer of El Paso Corporation, the New York Fed said on its website.
The New York Fed, in its role as a lender, will continue to oversee AIG’s (NYSE:AIG - News) financial operations. But, it said, it had structured the trust to avoid potential conflicts of interest with the New York Fed’s supervisory and monetary policy functions.
“The New York Fed cannot exercise any discretion or control over the voting and consent rights associated with the equity interest in AIG,” it said.
The trustees will have the same rights, powers and privileges as other shareholders of AIG and will have absolute discretion and control over the government’s AIG stock. They will not sit on the board of directors at AIG.
(Reporting by Kristina Cooke; Editing by Diane Craft)
AIG Execs Won’t Get $3 Million Windfall - posted by Steven Wevodau
NEW YORK, Jan 7 (Reuters) - Seven senior executives of American International Group, the insurer that is getting $152 billion of U.S. taxpayers’ money, will not get $3 million in deferred compensation that they were expecting to be paid by April.
In a filing with the U.S. Securities and Exchange Commission, AIG said it would pay about $273.5 million to more than 4,000 current, non-senior employees who took part in the retirement plans that allowed funds to be set aside and drawn upon in later years.
AIG (AIG.N) in November said it planned to accelerate payment of these funds in a bid to limit departures after the company posted $42.5 billion in losses over the past four quarters, putting it on the verge of collapse.
The federal government stepped in for a second time and restructured its bailout of AIG raising the package to $152 billion with easier terms.
Some U.S. lawmakers railed against the bailout, in part because AIG spent $440,000 at a California spa and resort.
“Less than one week after taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation,” Congressman Henry Waxman, a California Democrat said during a hearing of the House Committee on Oversight and Government Reform.
The congressional hearings and a federal probe led AIG to cut executives’ pay. Chief Executive Edward Liddy, who took over AIG’s top job in September will take $1 in salary.
The seven senior executives who will not receive the disbursements that had been expecting by April include Jay Wintrob, head off AIG’s life operations. He had been due about $1.9 million, according to November figures. Wintrob received $7.5 million in salary, bonus, incentives and stock and options awards in 2007, according to filings.
David Herzog, the company’s recently appointed chief financial officer, was to have received about $371,000 by April.
Five others, including investment executive Win Neuger, were due $800,000 under the plan, AIG said.
In addition to senior executives, former employees and agents will also not receive accelerated payments, AIG said. The total that was to have been paid to these individuals was $90.3 million. (Reporting by Lilla Zuill, editing by Leslie Gevirtz)
© Thomson Reuters 2009 All rights reserved
Interesting Insurance Stocks For 2009 (BRK.A, TRV, CB) - Steven Wevodau
January 02, 2009 | by Eric Fox
American International Group (NYSE:AIG), the grand daddy of the insurance sector, was forced to seek a credit line from the government of more than $100 billion to meet its obligations. Even storied name Berkshire Hathaway (NYSE:BRK.A) saw its shares sell off to $78,000 a share, a five-year low, as investors questioned a large derivative position the company took on.
So what do investors have to look forward to in 2009?
Industry Outlook
There is sure to be more pain as insurers’ investment portfolios are marked to market every quarter. There has been talk from regulatory authorities about relaxing the accounting rules that require mark to market accounting, but so far nothing concrete has been announced.
On the good side, one of the side effects of the financial crisis was an aversion to risk taking, which led to capacity leaving the market. Evan Greenberg, the CEO of Ace (NYSE:ACE) declared during the third quarter conference that the end of the soft market in insurance had arrived. Also, the hurricane season was fairly benign in 2008, with only two named storms hitting the Gulf Coast during the period.
Look for some insurers to purchase banks, so they can qualify for funds under the Capital Purchase Plan of the TARP in 2009. So far at least three insurers have announced an intention to go this route to boost capital ratios, including Hartford Financial Services Group (NYSE:HIG), Genworth Financial (NYSE:GNW) and Lincoln National (NYSE:LNC).
Valuations for the industry are at rock bottom as measured by price-to-book, but this analysis requires that an investor put faith in the value of the assets, or the denominator of the equation. It may some time until investor faith is restored in this measure due to the large writeoffs that have occurred to date.
Travelers (NYSE:TRV), Allstate (NYSE:ALL) and Chubb (NYSE:CB) are some large cap names that warrant further investigation as investors search for names to play the eventual recovery in the sector.
To learn more about investing in this sector, check out our Insurance Industry Handbook.
By Eric Fox
Insurers weathered financial storm in 2008 - Steven Wevodau
CHARLOTTE, N.C. (AP) - Storms weren’t the only thing that battered insurance companies in 2008, and the new year could be just as tough.
Perhaps the biggest event to shake the industry in 2008 was the sudden collapse of American International Group Inc., once the largest insurance company in the U.S. before it gave in September under the weight of bad bets it made insuring mortgage-backed securities.
New York-based AIG has received to date a $150 billion rescue package from the federal government, and the company is seeking to shed some assets to raise more funds. A bankruptcy of AIG likely would have wreaked havoc in international markets.
“Obviously it was a pretty notable year with AIG being in the headlines,” said Keefe, Bruyette & Woods analyst Cliff Gallant. “With that said, you compare the insurance industry to the banking industry … there haven’t been insolvencies.”
Still, there have been signs of distress. The Dow Jones U.S. Insurance index was down about 50 percent. The broader market has also declined.
Among the biggest companies hit include AIG, which fell 97 percent, Bermuda-based insurer and reinsurer XL Capital Ltd., down 93 percent, and Richmond, Va.-based life and mortgage insurance provider Genworth Financial Inc., which dropped 89 percent.
“We are expecting 2009 to be a difficult year,” Gallant said. “We are hoping that by the second half we start to pull through things, but I think we still have a lot of challenges ahead of us.”
Insurers, like other financial firms, have taken losses on investments in debt such as collateralized debt obligations and mortgage-backed securities. CDOs are securities backed by pools of mortgages or other assets. They have plummeted in value since the credit crisis erupted more than a year ago as investors fled all but the safest forms of debt.
During 2008, insurers’ stocks, including Genworth, MetLife Inc. and Hartford Financial Services Group Inc., have been hit hard by concerns over the sector’s mortgage exposure and the need for companies to raise capital. MetLife was down 43 percent for 2008, while Hartford lost 81 percent.
Several, like bond insurer Ambac Financial Group Inc., whose stock fell 95 percent for the year, have taken steps to reduce their CDO exposure.
Others, like AIG, have also lost money on credit-default swaps, which are essentially insurance contracts or bets on the possible default of CDOs or mortgage-backed securities. Sellers of the swaps must repay customers if the underlying value of the assets decline.
Insurers also have been under pressure to maintain solid capital positions as the markets all but stopped lending money to avoid damaging downgrades by ratings agencies. Keeping high ratings is key for insurers because lower ratings can mean higher costs, and in some cases, even a loss of business.
“In a year like 2008, it’s hard to pick many winners,” said Robert Hartwig, an economist and president of the Insurance Information Institute, a New York-based industry group. Hartwig added that if anyone is a winner, it’s the policy holder. “Your claim is being paid. Your policy is being renewed,” said Hartwig, who expects pricing will remain relatively flat.
Property and casualty insurers had more than $25 billion of dollars in catastrophe losses tied to Hurricanes Gustav and Ike and other natural disasters in 2008.
Deutsche Bank analyst Darin Arita said in a client note that he expects life-insurance stocks to fluctuate with the credit and equity markets in the near term, which will add increased pressure to earnings.
In recent months, some companies have taken action to bolster capital. Hartford Financial of Connecticut raised $2.5 billion of capital in October and contributed all of it into its life-insurance operations. That same month, New York-based MetLife raised $2.3 billion in a stock offering.
Recently, Newark, N.J.-based Prudential Financial Inc. contributed a stake from its retail-brokerage joint venture with Charlotte, N.C.-based Wachovia Corp. into its primary insurance subsidiary, increasing its life-insurance capital by $2 billion.
“We would not rule out the life insurers raising additional capital, especially if their stock prices move higher,” Arita wrote.
© 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Bailout bungle - Steven Wevodau
AIG distributes bonuses; big banks aren’t talking
AIG stands for American International Group. It could just as easily stand for Aggressive In Greed or Abominably Inept Gang. So grossly mismanaged, it is the recipient of $152 billion in bailout funds from the U.S. government (i.e. the taxpayers), the company has decided to hand out $400 million in bonuses to 2,000 “senior managers.”
Oh, the company isn’t calling them bonuses. The term AIG is using is “retention payments.” The average is $200,000 per recipient, but the company has told some employees they’ll receive up to $4 million if they agree to stay with the company for one year.
Explained chief executive Edward Liddy, “To pay back every single penny that has either been loaned to us or invested in us, we have to sell 70 percent of our company.” But to make the business marketable, “you have to keep the people in place … if you don’t use retention bonuses — those people are some of the best in the insurance industry; they will go elsewhere and we won’t have anything to sell.”
Well.
Set aside for a moment the sheer illogic of paying any executive bonuses in a company which has failed so spectacularly. Consider the folly of trying to sell that “expertise” to a prospective buyer: “We’ve retained the team that helped drive us into the economic ditch — allow it to continue driving.”
Rewarding failure is the antithesis of the American Way. But it’s the Wall Street Way. Hundreds of thousands of lower-strata workers who did nothing wrong get cast into unemployment while dozens of executives who did little right get to stay on — and get bonuses to do so.
“It’s very unfortunate, but a culture of entitlement has emerged among Wall Street executives,” Peter Morici, a University of Maryland economist, told CBS News. “They’re paid too much money and they’re trying to find ways around the rules.”
And they have some entitlement allies in Congress, some of whom are howling about the salaries and benefits of auto workers. They want middle class blue-collar workers to give back gains but allow executives to stuff their pockets with cash supplied by middle-class taxpayers.
And while AIG offers “retention payments,” other recipients of large bailout bundles — the nation’s largest banks — simply refuse to say how they’re using their funds. The Associated Press contacted 21 banks that received at least $1 billion and asked four questions: How much has been spent? What was it spent on? How much is being held in savings? What’s the plan for the rest? None of the banks provided specific answers.
Thomas Kelly, a spokesman for JPMorgan Chase ($25 billion) said, “We’ve not given any accounting … We have not disclosed that to the public. We’re declining to.”
AIG — Ain’t It Galling?
AIG’s Deal Machine Is Still in First Gear - Steven Wevodau
By Nanette Byrnes
Ever since early October, when Chief Executive Edward Liddy announced American International Group (NYSE:AIG - News) would be auctioning off a slew of businesses to pay back its now $60 billion loan from the New York Federal Reserve, the pressure has been mounting on the insurer to start ringing up deals. So far the company has raised more than $1.8 billion, including a $742 million deal for specialty insurer Hartford Steam Boiler on Monday, Dec. 22.
Yet investors seem unimpressed. The Hartford deal moved AIG’s stock price up exactly a penny, to 1.61 a share. A year ago the shares were priced at 58. Many analysts didn’t even put out a comment, citing the deal as too small to account for much in AIG’s dismal math.
Three months into its supposed deal-a-thon, AIG is in many ways still just gearing up. Complexity of the AIG empire is partly to blame; many of its businesses are so intertwined that it is taking months to separate them. Some of them share information systems, staff, and assets; others insure one another. “I read the newspaper, too, and this issue that we haven’t sold anything, how could we possible sell anything, it’s a terrible time, blah, blah, blah,” says Paula Rosput Reynolds, AIG’s chief restructuring officer. “We won’t simply roll over and take bad prices because it’s a bad time.”
Coming Out Ahead on Hartford
Perhaps. But the price AIG got for Hartford is well off the $1.2 billion it paid for the Connecticut specialty insurer back in 2000. AIG has received dividend income from Hartford of $741 million with little additional investment beyond the purchase price, according to one person familiar with the deal. So it is coming out ahead on the investment. Still, the price cut shows how weak the markets have become, even for a strong business.
Hartford’s niche — insurance against equipment breakdown and other specialty insurance and reinsurance products — is one that Tony Kuczinski, CEO of Munich Re America, the Princeton (N.J.)-based subsidiary of the Munich-based acquirer, sees as an attractive addition to his portfolio of businesses. “No question we think it was a good time to be a buyer,” says Kuczinski.
Munich Re’s strong balance sheet meant it could put up the price in cash, helping seal the deal for an asset that initially, earlier this fall, had 50 interested parties in the hunt. With credit hard to come by, in the past six months 85% of all $1.4 trillion of worldwide mergers and acquisitions tracked by Thomson Reuters (NYSE:TRI - News) were cash deals, up from 73% in the first half of the year. But the biggest assets AIG has left to sell are its life-insurance arms, particularly its giant international life business. And the investment portfolios of life insurers in general have been hit hard by the market turmoil of 2008.
Owner of Asia’s Largest Insurer
Thus, it’s hard to imagine any of the big life insurance firms being able to finance such an acquisition with cash on hand, as Munich Re has. “It’s very difficult now to raise capital to make these huge deals,” notes Andrew Colannino, an analyst covering AIG for AM Best. “The larger the asset, the smaller the number of potential buyers there are out there.”
In fact, it’s taken Reynolds and her team months to get some of AIG’s biggest businesses ready to go on the block. On some of them, the AIG team has only begun to talk to the very largest potential buyers about their interest, what Reynolds calls “the preparatory stages.”
She expresses confidence that the deals will soon fall into place. The company’s Hong Kong-headquartered AIA business is the largest insurer in Asia. “Even this world, as topsy-turvy as it is, can’t be a world where people don’t covet this,” says Reynolds.
Top Employees Are Leaving
Reynolds also feels the company has time to sell. Though Liddy has said he wants to pay back the loan next year, technically AIG has five years to pay it off, starting from September. The biggest pressure to sell quickly is the company’s own people. Even though AIG has promised roughly $450 million in retention bonuses it has started to lose top talent, including last week’s exit of the longtime head of reinsurance giant Lexington Insurance.
Balancing speed and price is tricky. Reynolds calls the price for Hartford Steam Boiler fair, noting that it’s actually more than the book value of the company and at about the midpoint of a group of comparable companies’ current values. But that doesn’t mean AIG will enjoy similar pricing of units yet to hit the market. “This is such a small part of AIG, and a very strong organization that operated pretty independently,” says AM Best’s Colannino. “It’s hard to transfer the valuation of this to another deal they may do.”
And while it’s a positive sign that AIG is beginning to dispatch businesses, it may still be a while before any of the largest operations on the block are following Hartford’s lead.
AIG’s Liddy says would like to pay back government in 2009: CNBC
POSTED BY STEVEN WEVODAU
* AIG’s Liddy says, if we owe the federal government money, “we want to pay it back” — CNBC
* Liddy says “we’ve laid out everything for lawmakers” — CNBC
* CEO says “we’re very encouraged by the level of interest” for assets-CNBC
* CEO says wants to get substantially more than 0.5 or 0.6 of book value for life insurers-CNBC
* CEO says would like to pay back government in 2009-cnbc
* Liddy says, “it’s not our intent to hide anything or to frustrate members of congress” — CNBC
* CEO says if capital markets, credit markets were to continue to deteriorate, ‘it’s anyone’s guess’ what could happen-CNBC
Greenberg Flummoxed By AIG Plan - Steven Wevodau
12.16.08, 9:05 PM ET
When American International Group announced a plan to unwind costly bond insurance contracts at seemingly hefty payments, mostly courtesy of the U.S. taxpayer, Forbes.com didn’t understand the logic.
Turns out we weren’t alone.
Maurice “Hank” Greenberg, the former AIG chief executive, wants to know why the U.S. government-controlled insurer is paying face value for $50.0 billion in assets that are probably worth south of 50 cents on the dollar.
“It certainly seems it was very good for the counterparties,” wrote Greenberg in a letter to American International Group Chief Executive Edward Liddy on Tuesday. “I am sure I am missing something,” he wrote.
Greenberg has a significant stake in the firm and has been a critic of AIG’s ever-growing government bailout package, which ballooned to $152.0 billion in mid-November from $85.0 billion in September.
Joe Norton, a spokesman for AIG, said the insurer would not comment on Greenberg’s letter for now.
Greenberg’s critique refers to a plan hatched in early November to buy up roughly $70.0 billion in collateralized debt obligations in order to cancel related credit default swap contracts, a kind of insurance written by AIG that has been generating 95.0% of the firm’s quarterly losses. The insured CDOs are mostly filled with subprime-mortgage-backed securities that have plunged in value since sketchy U.S. borrowers began defaulting on their home loans over the past year.
At the time, AIG spokesman Nick Ashooh said holders of the CDOs were offered “fair market value” and allowed to keep collateral they’d collected after his company suffered ratings downgrades that required it to compensate purchasers of the swap. “So the CDO holder should get par value or thereabouts,” Ashooh said.
Unfortunately, the plan to plug up the $70.0 billion black hole has only eliminated about three quarters of AIG’s credit-default-swap problem, which isn’t entirely surprising considering that a party that owns the troublesome swap doesn’t always also own the insured security. On Dec. 2, AIG reported that had entered agreements to buy $53.5 billion in CDOs, leaving $16.0 billion in toxic swaps outstanding.
In his letter, Greenberg said that AIG should not be pared down to pay back its borrowings from U.S. taxpayers (see “AIG’s Slow Holiday Sales”) and should instead be rebuilt. But the Federal Reserve essentially owns 79.9% of the insurer, and it’s hard to see why it should renegotiate the bailout terms, what with all the money it’s invested.
Michigan man files suit to stop US stake in AIG - Steven Wevodau
By Ed White, Associated Press Writer
Mich. man sues, says AIG bailout is illegal because of insurer’s ties to Islamic finances
DETROIT (AP) — A Michigan man is challenging the bailout of American International Group Inc., claiming it is illegal because the insurer has financial products that promote Islam and are anti-Christian.
The lawsuit was filed Monday in federal court in Detroit by the Thomas More Law Center, which pursues cases on behalf of Christian causes.
The lawsuit says AIG offers financial services that comply with Sharia principles. It says the government is violating the Establishment Clause of the First Amendment with billions of dollars of aid for AIG.
The clause prevents the U.S. government from endorsing a religion.
The lawsuit was filed on behalf of Kevin Murray of Washtenaw County, an Iraq War veteran. A messaging seeking comment was left with the Treasury Department.
AIG CEO Liddy Says Asset Sales May Be Delayed
POSTED BY STEVEN WEVODAU
The CEO of U.S. insurer American International Group (AIG), which is looking to shed assets around the globe as part of a $152 billion U.S. government rescue package, said that difficult markets may delay the sale plans, though certain units have attracted heavy interest.
“These are challenging times to undertake divestitures,” Chief Executive Edward Liddy said during a presentation to the American Chamber of Commerce in Hong Kong on Thursday.
He said in a speech that the pace and the order of the asset sales may change, and that announcements on certain transactions may take a couple of months or longer. Liddy said after the speech that at least in Asia, he didn’t expect to meet with potential buyers until January.
The need to post increasing amounts of collateral to counterparties for guarantees on toxic mortgage securities left AIG with deep losses over the last four quarters, dropping $42.5 billion in that period.
The U.S. government saved AIG from bankruptcy in September with a rescue plan that has since ballooned to about $152 billion. That is forcing AIG to shed or sell stakes in units globally. It has 74 million customers and 116,000 employees in 130 countries.
The division Liddy singled out was International Lease Finance Corp., which leases aircraft, and is regarded as one of the most attractive of the company’s assets on the block. Liddy said on Thursday that there is “great” interest in the unit.
Liddy, who came out of retirement to take the reins at AIG three months ago, was on his first overseas trip with the company, aptly choosing Asia as his first stop. AIG started in Shanghai 89 years ago.
The company’s Asian insurance units have attracted a long list of potential buyers. Liddy said he was in Hong Kong to speak with AIG employees and investment bankers running the sales of those units.
At the end of his speech, Liddy answered a question regarding the speed at which AIG would repay the $152 billion.
He said the company has not been loaned that entire amount, rather the federal government has loaned it $40 billion, which could grow to $60 billion. Liddy explained that there are also two financing vehicles.
“They transfer risk and opportunity from those RMBs (residential mortgage backed securities) to the Federal Reserve. I would suspect that the Fed will do very well on those.”
The former chairman and CEO of The Allstate Corp. said that a Wall Street Journal article saying that AIG is facing $10 billion in losses on speculative trades that went sour is old news.
“There is nothing new there,” he said, adding that the exposure to the financial instruments was previously disclosed.
ASSET SALES
Reuters reported on Wednesday that insurance companies Axa SA , MetLife Inc., Prudential Plc, and China’s sovereign wealth fund CIC were all in talks to buy a Japanese unit of AIG in a deal that could fetch $10.8 billion.
Each of the four firms is in separate talks with AIG about buying its unit, American Life Insurance Co., or Alico, Reuters reported.
Liddy did not mention Alico or another major Asian unit, Singapore-based AIA. Reuters previously reported there was interest in AIA. Citigroup and Goldman Sachs are running the sales processes in Asia.
In response to a question about the leadership of former AIG CEO Maurice “Hank” Greenberg, Liddy said said Greenberg built an “awesome company,” but stayed too long.
“Anyone who runs a company for 35 years may have stayed too long. (Greenberg) didn’t keep us contemporary in terms of risk measures.”
AIG’s responsibility to post collateral on $53.5 billion in toxic mortgage securities was recently suspended by the U.S. government.
(Editing by Keiron Henderson & Kim Coghill)
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