American International Group Inc.
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Case Code: BSTR115 Case Length: 34 Pages Period: 2002 Pub Date: 2002 Teaching Note: Not Available |
Price: Rs.500 Organization: American International Group Inc. Industry: Financial Services Countries: USA Themes: Corporate Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Product Segments
AIG carried out its operations through four product segments, namely, life insurance, general insurance, financial services, retirement savings and asset management. AIG was the second largest life insurance company in the US. Life insurance was AIG's largest product segment in terms of revenues generated and its operations were spread over more than 70 countries. This segment was highly successful because the company had a broad product range, trained its agents well, and used a variety of distribution channels like banks, retail stores and the Internet...
Geographic Segments
AIG had subsidiaries in more than 130 countries. The company segmented its global operations into Domestic, Far East and Other Foreign operations (Refer Exhibit II). The Far East operations included the company's Chinese, Japanese and Korean operations. 'Other foreign operations' was further divided into nine geographic segments namely Africa, Australasia, Central Europe and CIS, Europe, Latin America, Middle East, South Asia, Southeast Asia and UK/Ireland. The domestic segment comprised Canada and the US. This segment generated $36.83 billion in revenues, which accounted for 59.01% of AIG's total revenues in 2001 (Refer Table III)...
Other Foreign Operations
This segment comprised all the other regions in which AIG operated. This was the smallest contributor to the company's revenues accounting for 13.58% of total revenues in 2001 (Refer Table VI). Some of the major regions in this segment were Africa, Australasia, South Asia, and UK/Ireland. AIG had operations in five countries in Africa, namely Kenya, Nigeria, South Africa, Uganda and Zimbabwe. In Kenya, the company operated through American Life Insurance Company (Kenya) Ltd. (ALICO Kenya), and AIG Global Investment Company...
Human Resources
AIG was known for its performance-based career advancement policy. Employees usually joined at an early age and left the company after several years of service. The company fostered an informal and open environment. The CEO, Greenberg, himself met employees at all levels to keep track of the developments in the company. The organizational culture of the company was described as dynamic, innovative, result-oriented and opportunity-driven. AIG believed that just the bi-weekly salary was not enough to motivate employees. In addition to the comprehensive basic benefits package (Refer Exhibit III), AIG also provided a wide range of supplementary benefits to its employees...
Finance
In 2001, AIG generated revenues of $62.40 billion, an increase of 9.4% over its revenues of $57.06 billion in 2000. The company's assets increased by 15.5% to $492.98 billion in 2001, while shareholders' equity stood at $52.15 billion compared to $47.44 billion in 2000. AIG reported a return on equity (ROE) of 11.9% for the year 2001. However, excluding the losses due to the US terrorist attacks, and charges related to the acquisition and restructuring of American General, the ROE was 15.5 %(Refer Exhibits IV and V)...
Social Responsibility
Since its early years, AIG had participated actively in social welfare. In 1955, the company established the Starr Foundation in New York. The Foundation was created mainly to support education and projects in medicine and healthcare, public policy and culture. It offered scholarships to about 80 colleges, universities and secondary schools. The foundation also supported organizations that offered need-based financial aid to students attending secondary and post-secondary schools. It had a special scholarship programs for the children of AIG employees. The Foundation's support in medical and health care areas included aid for research, and for care to neglected communities. It also gave aid for meeting other human needs like literacy, housing and nutrition programs...
Corporate Governance
According to analysts, though AIG had a remarkable record of growth and profitability for more than two decades and was rated as one of the best insurance companies by many rating agencies, the company followed poor corporate governance practices. At AIG's AGM of 1999, three stockholder resolutions denouncing its corporate governance practices, were presented. The criticisms were mainly about the composition of AIG's board. They said that the board was composed largely of insiders...
Future Outlook
At the beginning of the new millenium, AIG had emerged as a global leader in the insurance and financial services industry. AIG was also a leader in asset management for individual and institutional markets in the US. The company had one of the largest retirement savings businesses in the US. After the IT boom in the late 1990s, there was a widely felt need in the IT industry for network security insurance like coverage for virus attacks, denial-of-service problems, disruption of a company's systems by hackers, and website defacements. Several IT companies opted for this type of insurance, and the e-insurance market witnessed significant growth in 2000-2001. In 2000, AIG entered the e-insurance market with the formation of AIG e-Business risk solutions...
The Global Insurance Industry
The global insurance industry was being influenced by external factors including emerging distribution channels to market insurance products, consolidation and globalization of insurance companies, rapidly developing technology and changing laws and regulations. In the late 1990s, insurance companies around the world believed that the size of the company influenced market power and helped in reaping the benefits of economies of scale in the insurance industry...
Exhibits
Exhibit I: AIG Consolidated Statements of Income
Exhibit II: AIG Subsidiaries Worldwide
Exhibit III: Basic Benefits to AIG Employees
Exhibit IV: AIG Consolidated Balance Sheets
Exhibit V: AIG Consolidated Statements of Cash Flows
Exhibit VI: E-Business Sites Accessible Through The AIG Internet Gateway
Exhibit VII: Stock Price Chart: April 1999 - July 2002
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