Aig Company

American International Group, Inc. (AIG)

Background

American International Group, Inc. (AIG) is an American insurance corporation. Its corporate main office is located in the American International Building in New York City. AIG United Guaranty began its expansion into Asia with the launch of its Hong Kong operations in 1999, as part of a long-term reinsurance agreement with the HKMC, a government entity created to support the residential mortgage market.

Even to this day American International Group (AIG) is one of the world's largest insurance firms. While it held the spotlight for staggering losses and government bailouts, the company's subsidiaries are still providing general property/casualty insurance, life insurance and retirement services, and some financial services to commercial, institutional, and individual customers in the US and more than 130 countries around the world. Some of its non-insurance activities include financing commercial aircraft leasing and port operations in the US. After $182 billion in bailouts, the US government held more than 80% of the company, but an exit plan involving repayment and stock sales is shrinking that number.

According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world. It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008.

AIG suffered from a liquidity crisis when its credit ratings were downgraded below "AA" levels in September 2008. The United States Federal Reserve Bank on September 16, 2008 created an $85 billion credit facility to enable the company to meet increased collateral obligations consequent to the credit rating downgrade, in exchange for the issuance of a stock warrant to the Federal Reserve Bank for 79.9% of the equity of AIG. The Federal Reserve Bank and the United States Treasury by May 2009 had increased the potential financial support to AIG, with the support of an investment of as much as $70 billion, a $60 billion credit line and $52.5 billion to buy mortgage-based assets owned or guaranteed by AIG, increasing the total amount available to as much as $182.5 billion. AIG subsequently sold a number of its subsidiaries and other assets to pay down loans received, and continues to seek buyers of its assets.

AIG history dates back to 1919, when Cornelius Vander Starr established an insurance agency in Shanghai, China. Starr was the first Westerner in Shanghai to sell insurance to the Chinese, which he continued to do until AIG left China in early 1949--as Mao Zedong led the advance of the Communist People's Liberation Army on Shanghai. Starr then moved the company headquarters to its current home in New York City. The company went on to expand, often through subsidiaries, into other markets, including other parts of Asia, Latin America, Europe, and the Middle East.

The Problem, how it will affect the organization, and its solution

The AIG management

What began as an investigation into two reinsurance transactions has mushroomed into a growing scandal that has tarnished the reputation of one of America's premier corporations. On Mar. 30, AIG acknowledged that it had improperly accounted for the reinsurance transaction to bolster reserves, and detailed numerous other examples of problematic accounting. It also announced the delay of its annual 10-K filing, and said the moves may have inflated its net worth by up to $1.7 billion. While AIG says it does not yet know if the review will force a restatement of prior results, its stock dropped 2.1% on the news; all together, AIG shares have dropped 22%, to $57 apiece, since the company was served with subpoenas by state and federal regulators six weeks ago. The announcement also caused Standard & Poor's (MHP ) to downgrade AIG's debt rating from AAA to AA+.

Pre-September 2008: The AIG Crisis

Over the years, AIG built upon its premier global franchises in life and general insurance by expanding into a range of financial services businesses. One of these, created in 1987, was AIG Financial Products Corp. (AIGFP), a company that engaged as principal in a wide variety of financial transactions for a global client base. In 1998, AIGFP began to sell credit default swaps to other financial institutions to protect against the default of certain securities. At the time, many of these securities were rated AAA, the highest rating possible. However, in late 2007, as the U.S. residential mortgage market began to deteriorate, the valuation of these securities declined severely. As a result, AIG recorded significant unrealized market valuation losses, especially on AIGFP's credit default swap portfolio, which led to substantial cash requirements.

At the same time, AIG reported large unrealized losses in its securities lending program. Through this program, AIG made short-term loans of certain securities it owned to generate revenues by investing in high-grade residential mortgage backed securities. These and other AIG real estate-related investments suffered sharp decline in fair value as well.

It is important to reiterate that throughout the crisis, AIG's insurance businesses were--and continue to be--healthy and well capitalized. The losses that occurred as a result of AIGFP's ctions have no direct impact on AIG policyholders. AIG's insurance companies are closely regulated, and their reserves are protected with adequate assets to meet policyholder obligations.

The collapse of respected financial institutions such as Bear Stearns and Lehman Brothers sent shock waves throughout the world economy. The crises at the U.S.-sponsored mortgage companies Fannie Mae and Freddie Mac added to the financial disruption. Credit markets deteriorated rapidly, making it virtually impossible to access capital. In September, AIG's credit ratings were downgraded once again, triggering additional collateral calls and cash requirements in excess of $20 billion. Although solvent, AIG suddenly faced an acute liquidity crisis.

The proposed change methodology, an explanation of the choice and the implementation approach

Organization Development is the attempt to influence the members of an organization to expand their candidness with each other about their views of the organization and their experience in it, and to take greater responsibility for their own actions as organization members. The assumption behind OD is that when people pursue both of these objectives simultaneously, they are likely to discover new ways of working together