American International Group Inc. is a multi-line insurance firm. The company provides a variety of life insurance, property and liability insurance, retirement programmes and other financial services to individuals and businesses. It provides products for general liability, directors and officers' liability, property, workers' compensation, maritime, aerospace, environmental, commercial, automotive liability, term life, universal life, fidelity, fiduciary liability, cyber risk, and errors and omissions insurance.
Personal auto insurance, vacation insurance, political risk insurance, accident and health insurance, and individual and group retirement solutions are also available. The group offers and distributes its products through brokers, captive and independent agents, affinity partners, retailers, airlines, and travel agencies, among others. AIG US does business across the Americas, Europe, Africa, the Middle East and Asia-Pacific.
Information on the 2008 AIG Bailout: AIG Reports
On September 16, 2008, the Federal Reserve provided AIG with an $85 billion two-year loan to save the company from going bankrupt and putting an additional burden on the global economy. In exchange, the Fed purchased 79.9% of AIG's equity. As a result, it had the authority to alter the management, which it did. It also had the power to veto any key decisions, such as the sale of assets or the distribution of dividends.
The Wall Street bailout occurred exactly one day after US Treasury Secretary Henry Paulson promised no future bailouts would be made. That action put Lehman Brothers, an investment bank, into bankruptcy.
What Caused AIG to Fail?
The corporation's use of credit default swaps, which cost AIG $30 billion, is generally seen as having a substantial role in the collapse. They were not, however, the only perpetrators. The authors concluded that securities lending, a less-discussed element of the company, cost AIG $21 billion and is mostly to blame.
McDonald and Paulson also investigated AIG's assurance that the underlying mortgage-backed securities in its transactions would not default. According to McDonald, "after the crisis, there was a claim that these assets had been money-good, or safe investments that may have had a short-term drop but were secure overall. I was quite interested to find out if that was true."
How did AIG announce the greatest corporate loss in history?
On March 2, 2009, AIG announced its greatest loss in corporate history. It lost over $62 billion in the final three months of 2008. As a result of AIG's loss, the Dow fell nearly 300 points to close at 6,763.29. That was the lowest close since April 25, 1997, when it finished at 6,738.87. It was also lower than the previous recession's low of 7,197 in October 2002. Since October 9, 2007, when it reached an all-time high of 14,164 points, the Dow has lost more than half its value.
Furthermore, the lack of scale in President Obama's economic stimulus package scared investors. Citigroup requested the third round of government negotiations.
The AIG bailout was not without controversy. Some questioned the government's use of public cash to purchase a failing insurance firm. The use of government monies to reward AIG executives sparked particular outrage. Others, on the other hand, argued that because of the interest paid on the loans, taxpayers benefited from the bailout in the long term. The sale yielded $22.7 billion in stated interest income for the government.