American International Group (AIG)

Type: Public (NYSE: AIG; TYO: 8685 )
Founded: 1919
Headquarters: 70 Pine Street, New York, New York
Key people: Martin J. Sullivan, CEO
Industry: Insurance Financial Services
Products: Insurance Annuities Mutual Funds, Financial Products
Website: www.aig.com

General Information

American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. It has its European HQ in Croydon in London, England, UK and its Asian HQ in Hong Kong, China. AIG is the sixth-largest company in the world according to the 2007 Forbes Global 2000 list. The company became a component of the Dow Jones Industrial Average on April 8, 2004. It is also the sponsor of Manchester United F.C. On December 11, 2006 it was announced that a division of AIG would purchase from Dubai Ports World disputed North American ports.

History

AIG's history dates back to 1919 by when Cornelius Vander Starr set up an insurance agency in Shanghai, China. Starr was the first Westerner in Shanghai to sell insurance to the Chinese. When his business was successful there, he expanded to Asia, Latin America, Europe, and the Middle East.

In 1962, Starr gave management of the company's unsuccessful U.S. holdings to Maurice R. 'Hank' Greenberg, who shifted the company's U.S. focus from personal insurance to high-margin corporate coverage. Greenberg focused on selling the insurance through independent brokers rather than agents because Greenberg wanted to avoid selling insurance at prices which occasionally became too low (to cover the future payouts) given marketplace competition; a company with agents must pay their salary even while selling little to no insurance. Instead, with brokers, AIG could price insurance properly even if it suffered decreased sales of certain products for long lengths of time with very little extra expense. In 1968, Starr named Greenberg his successor. The company went public in 1969. Greenberg resigned as the company's CEO in February 2005 amid concern from the board about regulatory inquiries.

On 6 April 2006, AIG president and chief executive Martin J. Sullivan, announced American International Group (AIG) as the new shirt sponsors of English football team Manchester United, in a British record shirt sponsorship deal of £56.5 million (£14.1 million a year) over four years.

Business Model

major focus of AIG's insurance business model is the concept of an underwriting profit. For example, an auto insurer collects money every month from its customers in the form of premium. Should a customer have a covered auto accident, the company pays out a claim. In the time between the receipt of each premium payment and the paying of the claim, the money received by the insurer can be invested. Returns from investments are the primary source of profits for an insurance company. If the amount of premiums taken in is greater than the claims paid out even before taking into account investment returns the excess additional profit is called an 'underwriting profit'. Greenberg believed that it was necessary for an insurance company to make an underwriting profit, even though typically most insurance companies do not.