What went wrong at AIG?
The standard line on what went wrong at AIG, the insurance giant whose collapse triggered a $170 billion federal bailout, was that the company fell into some sort of regulatory gap.
What did AIG do wrong?
What did AIG do wrong? The company's credit default swaps are generally cited as playing a major role in the collapse, losing AIG $30 billion. But they were not the only culprit.
What makes AIG Life Insurance so good?
AIG is a great life insurance company that excels in providing a variety of customizable term and permanent policies to fit nearly every financial situation. While AIG's life insurance rates aren't the absolute cheapest, the company's flexible product selection is what sets it apart.
Why did AIG collapse?
Why Did AIG Really Fail? The company’s credit default swaps are generally cited as playing a major role in the collapse, losing AIG $30 billion. But they were not the only culprit. Securities lending, a less-discussed facet of the business, lost AIG $21 billion and bears a large part of the blame, the authors concluded.
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What was the AIG scandal?
The AIG bonus payments controversy began in March 2009, when it was publicly disclosed that the American International Group (AIG) insurance corporation was going to pay approximately $218 million in bonus payments to employees of its financial services division.
Is AIG insurance still in business?
American International Group, Inc. (AIG) is a leading global insurance organization. AIG member companies provide a wide range of property casualty insurance, life insurance, retirement solutions, and other financial services to customers in approximately 70 countries and jurisdictions.
What caused AIG to fail?
AIG's swaps on subprime mortgages pushed the otherwise profitable company to the brink of bankruptcy. As the mortgages tied to the swaps defaulted, AIG was forced to raise millions in capital. As stockholders got wind of the situation, they sold their shares, making it even more difficult for AIG to cover the swaps.
What are the main reasons AIG failed?
The AIGFP division ended up incurring about $25 billion in losses. 2 Accounting issues within the division worsened the losses. This, in turn, lowered AIG's credit rating, forcing the firm to post collateral for its bondholders. That made the company's financial situation even worse.
What is AIG called now?
(AIG) is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions....American International Group.AIG Headquarters in New YorkTotal equityUS$65.96 billion (2021)Number of employees49,600 (2020)SubsidiariesTATA AIGWebsitewww.aig.com15 more rows
Who bought AIG insurance?
(NYSE: AIG) and Blackstone (NYSE: BX) today announced that the previously disclosed transaction for Blackstone to acquire a 9.9% equity stake in AIG's Life & Retirement business and for Blackstone to manage an initial $50 billion of Life & Retirement's existing investment portfolio has closed.
What is the new name of AIG?
AIG Life & Retirement is now Corebridge Financial.
Who is AIG insurance owned by?
Holdings of American International GroupThe Holdings of American International Group include the operating entities and subsidiaries of insurance conglomerate American International Group (AIG) that operates in over 130 countries.
Who is the CEO of AIG?
Insurance organization to establish a direct business relationship with the People’s Republic of China following a visit by President and CEO Maurice R. Greenberg.
Where does AIG trade?
AIG begins trading on the New York Stock Exchange.
What is AIG in Japan?
In the aftermath, AIG helps coastal Japanese communities by using innovative technology to shorten claim times, and provide financial support and emergency supplies. Acquires Fuji Fire and Marine, a leading non-life insurer in Japan.
Where is the first AIU office?
The first U.S. office, American International Underwriters (AIU), opens in New York City.
Who is the official insurance partner of the PGA of America?
AIG named official insurance partner of the PGA of America.
Who sponsors the Dublin GAA?
AIG launches sponsorship of the Dublin GAA’s hurling, football, ladies, and camogie teams in Ireland.
Who was the woman who helped build AIG?
1947. Lilo Wiegand , one of the women who helped build AIG, joins the company in West Berlin. During the Berlin Blockade of 1948-1949, she singlehandedly runs the West Berlin office and keeps it open serving clients. Ms.
What happened to AIG?
The most publicized and understood version of what happened at AIG is that the federal government bailed them out. The term bailout has come to be understood as a final resort transaction with no official means of repayment or penalty. However, this simply is not what happened.
What was the failure of AIG?
The failure of AIG is what really brought light towards the problems of government regulatory agencies. After the bailout people began to search for who was to blame for the companies collapse and the adverse affects it had on the economy.
Why did the government take action against AIG?
In the most simplistic sense, the government took action that it had to to keep the financial system from suffering massive losses to AIG and its counterparties in their Credit Default Swaps as well as the millions of other Americans that are affected by AIG and its subsidiaries on a daily basis.
Why did AIG fail?
Over the past few years regulation of Financial Institutions has been highlighted by the media and congressional action. This highly debated issue has been a major concern for decades as the financial industry continues to change and new financial products become created. The most recent market failure is mostly due to the expanding derivatives market and its role in the failure of numerous financial institutions including AIG. Past regulation legislation has clearly failed in properly regulating the new derivatives market and preventing firms from harming the overall U.S. market. New regulation is now in the process of being created to update the current Regulatory institutions so that they are able to accommodate the new financial products and protect the U.S. market / economy.
How much did AIG lose if it went under?
Not only did AIG effect the lives of more common Americans than companies such as Goldman Sachs, but the counterparties involved in their Credit Default Swap contracts stood to lose upwards of $180 billion dollars if the company was to go under.
What is AIG insurance?
AIG is primarily an insurance company that sells Property casualty, life, and travel insurance to customers the world over. However, there was another arm to the company known as AIG FP or American International Group Financial Products division.
What is the truth about AIG?
The truth of the matter is that AIG deviated from its core business of insurance and the profit margins that come with the premium to risk spread. A great majority of the equity that had existed in AIG came from the sale of credit default swap contracts through the financial products division.
What was the AIG crisis?
For decades, AIG was a global powerhouse in the business of selling insurance. But in September 2008, the company was on the brink of collapse. The epicenter of the crisis was at an office in London, where a division of the company called AIG Financial Products (AIGFP) nearly caused the downfall of a pillar of American capitalism.
How much did AIGFP lose?
The AIGFP division ended up incurring about $25 billion in losses. Accounting issues within the division worsened the losses. This, in turn, lowered AIG's credit rating, forcing the firm to post collateral for its bondholders. That made the company's financial situation even worse.
How much was AIG bailout worth?
Almost a decade after it was handed a government bailout worth about $150 billion, the U.S. Financial Stability Oversight Council (FSOC) voted to remove AIG from its list of institutions that are systemic risks, or in headline terms, "too big to fail.".
What is AIGFP insurance?
The AIGFP division sold insurance against investment losses. A typical policy might insure an investor against interest rate changes or some other event that would have an adverse impact on the investment. But in the late 1990s, the AIGFP discovered a new way to make money.
How much did the government make on the AIG bailout?
In fact, the government made a reported $22.7 billion in interest on the deal.
When did the AIGFP discover a new way to make money?
But in the late 1990s , the AIGFP discovered a new way to make money.
Does AIGFP insure CDOs?
The AIGFP decided to cash in on the trend. It would insure CDOs against default through a financial product known as a credit default swap. The chances of having to pay out on this insurance seemed highly unlikely.
What was the problem with AIG in 2006?
While that last bit of legal spin is certainly debatable, what soon became crystal clear — and a major problem for AIG — was that as the value of the toxic securities it had insured before 2006 fell, AIG’s counterparties ratcheted up their demands for collateral. At the forefront of these increasingly strident collateral demands was none other than Goldman Sachs Group. Unlike every other Wall Street firm, in 2006, Goldman became nervous about the growing risks its traders perceived in the free-for-all that the market for mortgage-related securities had become. The traders’ concerns eventually bubbled up to the 30th floor of 85 Broad Street, where Goldman’s top executives had their offices, and in December 2006 the firm decided to “get closer to home,” in the words of CFO David Viniar. The firm started to make huge bets that the mortgage market would fall by shorting individual mortgage-backed securities and the newly created ABX index, which was a basket of mortgage-related securities, and by creating synthetic CDOs and selling the risk related to them to the likes of AIG.
How much collateral did AIG put up?
Despite the early August debate between Sundaram and Forster, Goldman asked AIG to post $1.5 billion in collateral on its $23 billion of credit default swap exposure to the insurer. Some time later AIG put up $450 million. In October, Goldman asked for an additional $3 billion in collateral; AIG put up $1.5 billion.
What happened to Cassano's house of cards?
In short order, Cassano’s house of cards collapsed. On November 7, AIG reported third-quarter net income of a little more than $3 billion but revealed deep in the announcement that AIGFP had suffered a “$352 million unrealized market valuation loss” on its supersenior swap portfolio and that October’s loss alone on that portfolio could be an additional “$550 million” pretax. The next day Cassano told investors that there was “opacity in the market” and that valuations for the securities underlying the swaps were all over the map. But “rest assured,” Cassano said, “we have plenty of resources and more than enough resources to meet any of the collateral calls that might come in.”
How much was AIGFP swaps in 2007?
In other words, a real dog’s breakfast of risk. As of December 31, 2007, AIGFP had a portfolio of credit default swaps totaling $527 billion, of which $78 billion was written on multisector CDOs, most of which had some exposure to subprime mortgages.
How much did AIGFP contribute to AIG?
Greenberg says under his watchful eye the formula worked famously: From 1987 to 2004, AIGFP contributed more than $5 billion to AIG’s pretax income and helped the company’s market capitalization increase to $181 billion from $11 billion.
Why was AIG considered ground zero?
AIG turned out to be ground zero of the crisis, the most interconnected of all the financial services companies, in large part because it had foolishly decided to insure many of the risks in the system. Its collapse on September 16, 2008, caught nearly everyone by surprise.
What did Cassano say about AIGFP?
On an August 9 conference call, Cassano told AIG’s investors about AIGFP’s credit default swaps, “ It is hard for us, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions.”
What happened to AIG in 2008?
AIG had sold credit protection through its London unit in the form of credit default swaps (CDSs) on collateralized debt obligations (CDOs) but by 2008, they had declined in value . AIG's Financial Products division, headed by Joseph Cassano in London, had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt securities backed by subprime loans. As a result, AIG's credit rating was downgraded and it was required to post additional collateral with its trading counter-parties, leading to a liquidity crisis that began on September 16, 2008, and essentially bankrupted all of AIG. The New York United States Federal Reserve Bank (led by Timothy Geithner who would later become Treasury secretary) stepped in, announcing creation of a secured credit facility, initially of up to $85 billion to prevent the company's collapse, enabling AIG to deliver additional collateral to its credit default swap trading partners. The credit facility was secured by the stock in AIG-owned subsidiaries in the form of warrants for a 79.9% equity stake in the company and the right to suspend dividends to previously issued common and preferred stock. The AIG board accepted the terms of the Federal Reserve rescue package that same day, making it the largest government bailout of a private company in U.S. history.
Why did AIG stop operating in the 1970s?
The 1970s presented many challenges for AIG as operations in the Middle East and Southeast Asia were curtailed or ceased altogether due to the changing political landscape. However, AIG continued to expand its markets by introducing specialized energy, transportation, and shipping products to serve the needs of niche industries.
What company did AIG sell to?
AIG then sold its American Life Insurance Co. (ALICO) to MetLife Inc. for $15.5 billion in cash and MetLife stock in March 2010. Bloomberg L.P. reported on March 29, 2010, that after almost three months of delays, AIG had completed the $500 million sale of a portion of its asset management business, branded PineBridge Investments, to the Asia-based Pacific Century Group. Fortress Investment Group purchased 80% of the interest in financing company American General Finance in August 2010. In September 2010 AIG sold AIG Starr and AIG Edison, two of its Japan-based companies, to Prudential Financial for $4.2 billion in cash and $600 million in assumption of third party AIG debt by Prudential. On November 1, 2010, AIG raised $36.71 billion from both the sale of ALICO and its IPO of AIA. Proceeds went to repay some of the aid it received from the government during the financial crisis.
What did AIG do in the 1980s?
During the 1980s, AIG continued expanding its market distribution and worldwide network by offering a wide range of specialized products, including pollution liability and political risk. In 1984, AIG listed its shares on the New York Stock Exchange (NYSE). Throughout the 1990s, AIG developed new sources of income through diverse investments, including the acquisition of International Lease Finance Corporation (ILFC), a provider of leased aircraft to the airline industry. In 1992, AIG received the first foreign insurance license granted in over 40 years by the Chinese government. Within the U.S., AIG acquired SunAmerica Inc. a retirement savings company managed by Eli Broad, in 1999.
What companies did AIG acquire?
AIG made a number of acquisitions in 2018. That July, AIG acquired Validus Holdings Ltd., a provider of reinsurance based in Bermuda. The company was also a Lloyd's of London syndicate, involved in insurance-linked securities, a specialist in US small commercial excess and surplus underwriting, and a provider of crop insurance. The deal "brought in fresh underwriting talent," particularly in property risk and catastrophe risk. Also in 2018 AIG acquired Ellipse, a UK life insurance business, from Munich Re. In 2018, AIG established Fortitude Re to hold most of its run-off portfolios and late in 2018 sold a minority stake to The Carlyle Group. In November 2019, a Carlyle-managed fund and T&D Holdings acquired a majority interest in Fortitude Re, leaving AIG with a 3.5% stake "subject to required regulatory approvals and other customary closing conditions."
How much did Pacific Century pay AIG?
The Wall Street Journal reported on September 7, 2009, that Pacific Century Group had agreed to pay $500 million for a part of AIG's asset management business, and that they also expected to pay an additional $200 million to AIG in carried interest and other payments linked to future performance of the business.
What is AIG insurance?
American International Group, Inc., also known as AIG, is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. As of January 1, 2019. [update]
Why did AIG become a spigot?
The AIG operation became a gigantic spigot for circuitously distributing public money to private banking interests. As the New York Fed pumped more money into AIG, the insurance giant pumped it right out the door to satisfy the demands from counterparties like Goldman Sachs.
What did the AIG rescue show?
“The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America’s largest financial institutions ,” the COP report said.
What banks did AIG bail out?
Bailing out AIG effectively meant rescuing Goldman Sachs, Morgan Stanley, Bank of America and Merrill Lynch (as well as a dozens of European banks) from huge losses. Those financial institutions played the derivatives game with AIG, the esoteric practice of placing financial bets on future events.
What are the three bodies that investigated the AIG wreckage?
Three governmental investigative bodies have now pored through the AIG wreckage and turned up disturbing facts—the House Committee on Oversight and Reform; the Financial Crisis Inquiry Commission, which will make its report at year’s end; and the Congressional Oversight Panel (COP), which issued its report on AIG in June.
What did the Federal Reserve Board's intimate relations with Wall Street influence?
The report concludes that the Federal Reserve Board’s intimate relations with the leading powers of Wall Street—the same banks that benefited most from the government’s massive bailout —influenced its strategic decisions on AIG. The panel accuses the Fed and the Treasury Department of brushing aside alternative approaches that would have saved tens of billions in public funds by making these same banks “share the pain.”
What happened in 2008?
In the early autumn of 2008, mayhem swept through global financial markets. It engulfed AIG on Monday morning, September 15. Lehman Brothers had just failed. Panicky credit markets were seizing up. American International Group, largest insurance company in the world, was hemorrhaging capital, rapidly sinking toward bankruptcy. At the New York Fed, Geithner had the problem covered, or so he thought.
Who were the banks that helped AIG rescue?
The government, the Warren report said, “put the efforts to organize a private AIG rescue in the hands of only two banks, JPMorgan Chase and Goldman Sachs, institutions that had severe conflicts of interest as they would have been among the largest beneficiaries of taxpayer rescue.”.
What happened to AIG in 2004?
They had taken the long position, gambling on destitute American homeowners to pay their mortgages on time. Their ignorance of their business would lead to AIG’s 2008 crisis and, eventually, the AIG bailout. Clearly, Goldman Sachs was fleecing AIG.
What was AIG's business in 2004?
By 2004, AIG was on the hook for $50 billion in triple-B-rated mortgage bonds. They had taken the long position, gambling on destitute American homeowners to pay their mortgages on time. Their ignorance of their business would lead to AIG’s 2008 crisis and, eventually, the AIG bailout.
How much money did AIG lose to Goldman Sachs?
The $13 billion that AIG had lost to Goldman Sachs betting on subprime mortgage bonds was fully covered by the government. The U.S. government decided that it could not allow all of Wall Street to go under: the toxic subprime assets were spread too far, too wide, and too ambiguously.
What insurance company helped banks in the 2008 financial crisis?
We’ll cover how AIG insurance company (American International Group) aided banks in the events that would lead to the 2008 financial crisis and the results of the 2008 AIG bailout.
Is AIG a non-bank?
As a non-bank, AIG could dive into the world of swaps, long-term options, and other risky financial ventures without being subject to bank regulation. It could engage in speculation free from requirements to keep capital reserves against risky assets.
Who was the insurance company that was involved in credit default swaps?
The answer was American International Group, Inc. (AIG). The insurance giant was ideally placed to enter the credit default swap market. It was a sterling, blue-chip corporation that—crucially— wasn’t a bank at all. It was an insurance company. And weren’t credit default swaps just another form of insurance? Their involvement with credit default swaps was what would lead to AIG’s 2008 crisis the AIG bailout.
Did AIG insure Goldman Sachs?
AIG began insuring Goldman Sachs’ and Deutsche Bank’s subprime mortgage bonds as quickly as they could get their hands on them. From their point of view, the loan pools were sufficiently diversified that there was little probability of them all failing at the same time.
Schedule A
Was It Preventable and How?
- The AIG liquidity crisis and the numerous U.S. market failures can be attributed to the lack of affective government Regulation. Over the past few years regulation of Financial Institutions has been highlighted by the media and congressional action. This highly debated issue has been a major concern for decades as the financial industry continues to change and new financial prod…
Risk Management Errors
- We don’t live in a world where conventional risk management textbooks prepare us. Not one firm forecast the true impact of the economic crisis and its consequences. These consequences continue to take business academics and tenured economist by surprise. The banks have multiplied the crisis because of the so-called risk management models, which increased their ex…
Who Was Responsible?
- American International Group’s monumental collapse like any other disaster derived at first from ambition. Then, in turn, this same ambition begot greed. In retrospect, looking back on the AIG’s collapse, we can say there were many individuals that were responsible for the devastating disaster in the wake of the economic crisis of 2008. First, we must start from the top of the orga…
Ripple Effect on The Market/Economy?
- In the wake of the financial crisis in 2008, the collapse of such a company with the size and stature of AIG would have been catastrophic to the entire financial world as we know it. Most systematically its downfall would have led to the eventual collapse of other banks with it because subprime issues in the underlying credit default swaps AIG was ...