AIG Insurance Company the History Term Paper
- Length: 10 pages
- Sources: 6
- Subject: Business
- Type: Term Paper
- Paper: #53926208
Excerpt from Term Paper :
, 2008). There are two formats of insurance coverage that AIG specializes in:
1. Auto Insurance
2. Travel Insurance
The primary profits and insurance coverage offered by AIG for auto insurance services were through its subsidiary by the name of AIG Direct (can be accessed on aigdirect.com). The service package that they offered their clients included insurance for privately owned vehicles, motor bikes, commercially-owned vehicles and as well as the recreational transport (Schneiderman et al., 2008).
Some of the major subsidiaries of included the complete subsidization of the online auto insurance specialist called the 21st Century Insurance. This takeover took place in the year 2007 and cost AIG $749 million at purchase. This subsidiary proved to be the most beneficial move for AIG in the year 2008 where they experience the highest record of losses with the recession. They directed all of their business dealings towards the 21st Century Insurance. The following year, AIG sold the 21st Century Insurance subsidiary to the Farmers Insurance Group for a total of $1.9 billion, making a huge profit from the amount it had initially invested in the company (Schneiderman et al., 2008).
The main subsidiary that AIG utilizes to sell its travel insurance services and packages is the Travel Guard. The headquarters of the Travel Guard are in Stevens Point, Wisconsin, while it has outlets in different regions of the country (Schneiderman et al., 2008).
The company's growth
Its strongest point
The figure below illustrates the strongest show that the AIG stocks had in the most loss-prone year for them, i.e. 2008. This was definitely the turning point for the company to turn things around in the second half of the year after suffering tremendous loss for a majority of the first half of the year. The important aspect to note here is that, even though AIG stocks closed lower than their opening rate, the level of fluctuation was not as drastic as it should have been considering the humungous losses that the company was experiencing (Sjostrom, 2009).
Crisis (or weaknesses)
The year 2008 was definitely the biggest crises that AIG had to face. AIG had to sell out most of its subsidiaries and give up on its sponsors to cut down their losses. AIG did manage to come back in the second half of their most disastrous year but despite that when we compare the yearly output for the second half of 2008 to the second half of 2007, the difference can be very clearly seen (illustrated in the figure below) (Sjostrom, 2009):
The highest and the lowest peak in terms of growth
The figure below is an illustration of the overview of the highest and lowest points of the AIG stocks over the years. The figure is an average depiction of the performance of AIG in the industry and how it had grown into such a massive structure within the United States. Perhaps the highest point of growth came after the huge bailout explained earlier by the Federal Bank which allowed AIG to really expand its horizons with a guarantee of yearly loans and collaterals available against the many subsidiaries it owned (Sjostrom, 2009).
The rise of AIG
Its participation in government and President Obama
It is no secret that the Bush administration did give AIG a lot of leeway in terms of the loans that they could take through the introduction of the secured credit facility. However, the same hospitality was not give during the Obama administration that followed. The ironic aspect here is that President Obama voted in favor of the bailout as a senator. In response to the overall reimbursement proposed from AIG, the President said "It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" he further added to that by saying "In the last six months, AIG has received substantial sums from the U.S. Treasury. I've asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole" (New York Times, 2009). It becomes obvious form these statements that AIG will not have the unparalleled and unquestioned support from the Obama administration as it did during Bush's reign.
The historical bailouts
1. The $70 billion bailout enacted in 2008 to assist the big banks regain control over finances benefitted AIG as the focus of this bailout was also on auto insurance which is one of AIG's primary services.
2. The Secured Credit Facility bailout of $85 billion that allowed AIG to regain financial balance by warranting the assets and stocks of its subsidiaries
3. The housing finance program from AIG anticpates another bailout amounting to $20 billion from the Treasury Department (New York Times, 2008b)
AIG's present status quo as of 2010
It is quite an obvious assessment to say that the bankruptcy and government pressures that AIG currently faces will not be something that it could recover from. In fact, this might actually be the end of the company's profile in the insurance industry. What I assess is that the AIG sticks will end up being part of the Hedge Funds machinery. The Hedge Funds will be the last straw for AIG as the money that AIG now has to pay back due to the losses it is facing is not being stored in escrow and will be stored in the Destsche Bank which is owned by Hedge
Funds. The following figure explains how and why this is the assessment I make.
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Mark P. (2008). "Goldman, Merrill Collect Billions After Fed's AIG Bailout Loans." Bloomberg News
Marsh, B. (2008). "A Tally of Federal Rescues." New York Times. Accessed on October 28th, 2010 from http://www.nytimes.com/imagepages/2008/09/28/weekinreview/20080928_MARSH_GRFK.html
New York Times. (2008a). "An Insurance Giant, Brought Down." Accessed on October 28th, 2010 from http://www.nytimes.com/imagepages/2008/09/27/business/20080928_MELT_GRAPHIC.html. Retrieved 2008-09-27
New York Times. (2008b). "Losses in Perspective" Accessed on October 28th, 2010. (Graphic of AIG quarterly net profit & losses over five years, comparing Finance vs. Insurance activities.)
New York Times. (2009). "Obama's Statement on A.I.G." Accessed on October 28th, 2010 from http://thecaucus.blogs.nytimes.com/2009/03/16/obamas-statement-on-aig/
Schneiderman, R.M; Philip C., Celena F., Elisabeth G. And Vikas B (2008). "How a Market Crisis Unfolded: Some of the key events in the upheaval.." New York Times. Accessed on October 28th, 2010 from http://www.nytimes.com/interactive/2008/09/15/business/20080915_TURMOIL_TIMELINE.html
Shelp, R.K. (2006). Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG. Hoboken, New Jersey: Wiley.
Sjostrom, Jr., W.K. (2009). The AIG Bailout. Accessed…