The Rise and Fall of AIG Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

THE RISE AND FALL OF AIG

INTRODUCTION

Before the worldwide monetary crises in 2007–09, AIG was a holding organization with the structure of subsidiaries occupied with insurance and protection related activities including property, setback and life coverage; budgetary services; retirement funds items; assets management; and even aircraft charters. In spite of the fact that AIG was formally located in New York City, it had operations in more than 130 nations. As indicated by the 2008 Forbes Global 2000 schedule, at the time AIG was the eighteenth biggest public limited company in the world. As a consequence of the economic crises, AIG was compelled to offer a significant number of its organizations to pay back its lenders and rebrand a considerable lot of its remaining operations.

Throughout 1990s, AIG proceeded with its growth by focusing on growing markets in Asian countries and Russia. In the early 2000s, it was solidifying its place under the leading and most quickly growing insurance agencies and funds executives on the Earth. As its operations under the American International Assurance (AIA) standards were growing quickly, hence, it got licenses and made advances into the rising Asian market, particularly China and India. Much of the time, AIA was the first overseas organization to get rights to work in these developing markets. For the Asian markets, for example, Japan, in which AIA had been working for quite a while, it was at that point the biggest overseas controlled operation, and in a few cases, for example, Hong Kong, it was the biggest in general. These global operations helped an undeniably vital part of AIG's largely operating revenues.

Affirming its position in corporate America, AIG was incorporated in the Dow Jones Industrial Average on April 8, 2004. Despite this, 2004 was not a decent year for the organization. Emulating charges by the U.S. Securities and Exchange Commission (SEC) in 2001, it had helped a customer organization in supporting its financial record through a false coverage transaction and settling in 2003, AIG was under investigation. In late 2004, a government grand jury started examination of a few insurance agencies, including AIG, in the utilization of uncommon coverage contracts to smooth income. On October 14, 2004 the Attorney General of New York State, Eliot Spitzer, broadcasted that he was going to start the civil action against Marsh & McLennan Companies for directing customers to preferred coverage with whom the organization kept up lucrative pay-off contracts and for requesting fixed bids for coverage contracts from the guarantors since 2000. Three organizations were included, and two AIG executives confessed to criminal allegations regarding this unlawful course of activities.

As a consequence of the examination concerning income smoothing, in right on time 2005 AIG got entangled in an arrangement of bookkeeping twisting examinations led by the SEC, the U.S. Equity Department and the New York State Attorney General's Office. Greenberg was removed as a consequence of the bookkeeping embarrassment, which revealed in excess of 60 flawed transactions that occurred somewhere around 2000 and 2004. This utilized the erroneous classification of credits as reinsurance contracts to support treasury reserves and income under this period. In the beginning of May 2005, AIG restated its budgetary position by bringing about a diminishment in the book value of its assets; which were around $2.7 billion. In addition, AIG had to pay a fine of $1.6 billion due to the criminal allegations on some of its executive.

EVALUATION

The evaluation was made under the following stages.

a. The Issues
1. I. Liquidity Crises:

At the point when the housing business sector smashed and subprime mortgage borrowers defaulted, the estimation of Mortgage Based Securities (MBS) fell radically. By then, AIG guaranteed more than $440 billion of altered income speculations held by the world's leading money related organizations by incorporating $57.8 billion in paper identified with subprime home loans (White & Moreira, 2008). Financial specialists of MBS who had purchased CDS insurance additionally looked for insurance payout from AIG at the same time. These occasions coupled with expanded collateral necessities because of the down-size of its credit assessments by most important rating agencies ultimately brought about AIG to endure a liquidity crisis. It didn't have enough money and additional liquid assets to reach its present commitments.

II. Strictly spoiled status:

Prior to its fall out of favor, American Insurance Group was the greatest and most distinguished trademark in the business to the extent that it was a symbol of the insurance market all through the world. The $180 billion amount of bailout of AIG, notwithstanding, was one of the slightest prevalent ever and brought about US public disregard towards AIG. Most of the general population had reservations about the propriety ..................................

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The global financial crisis (2007-2009) has provided fertile ground for a thorough review of how the financial services industry works. For many years it has been argued that markets can self-police so careful regulation and supervision is not required. The events of the crisis forced many of the strongest proponents of this view, such as Alan Greenspan (former chairman of the Federal Reserve) to publicly acknowledge the problems with this faith. This case examines the events before and after the rescue of AIG, to allow for a discussion of how the various internal and external factors contributed to the crisis at AIG, and the importance of studying each of them more carefully, to avoid such problems in the future. "Hide
by Steven Sapp Source: Richard Ivey School of Business Foundation 13 pages. Publication Date: January 27, 2012. Prod. #: W12660-PDF-ENG