The News

■ show me the money

AIG Unveils Plan To Repay Taxpayers

For Federal Bailout Funds, With A Profit
Deal in principle set with Treasury, Federal Reserve Bank and credit facility trust
By ChaD HEMENWAY action is expected to close during the 2010

A
merican International Group has struck a deal in prin- fourth quarter.
FRBNY also has about $26 billion in
ciple with federal officials “designed to repay all its obligations preferred interest in two special purpose
to American taxpayers” while positioning the company as vehicles. AIG said it will use $22 billion in
TARP funds to purchase an equal amount
“strong, independent and worthy of investor confidence.” of interests in each SPV and give them to
AIG released details of its plan last week the 2011 first quarter if regulatory approv- the Treasury as part of the plan to allow the
to pay back taxpayers for bailing out the als go through, AIG said. Treasury to sell stock to the public.
mammoth company, gradually allowing The Treasury, which had owned 80 In a separate statement, AIG said it has
the federal government to reduce its vari- percent of AIG after the bailout, is to own entered into an agreement to sell Japan-
ous forms of financial assistance. 92.1 percent of the com-
The plan will allow the company to mon stock of AIG after This is a pivotal milestone as we
“concentrate our full attention on manag- it converts the $49.1 bil- deliver on our long-standing promise
ing our businesses for the benefit of all of lion of preferred shares it
to repay taxpayers, and we thank the
our stakeholders,” according to Robert H. has under the Troubled
American people for their support.”
Benmosche, president and chief executive Asset Relief Program into
officer, who said AIG will “repay the tax- about 1.66 billion shares Robert H. Benmosche,
payers with a profit.” of common stock. AIG President & CEO
“This is a pivotal milestone as we de- The Treasury will
liver on our long-standing promise to re- then sell the shares to
pay taxpayers, and we thank the American the public over time. This step will not oc- based life insurance subsidiaries Star Life
people for their support,” he added. cur until the FRBNY is repaid, AIG said. Insurance Company and Edison Life Insur-
AIG said its $20 billion direct debt to The exit strategy “dramatically acceler- ance Company to Prudential Financial Inc.
the Federal Reserve Bank of New York and ates the timeline for AIG’s repayment and for $4.8 billion—with about $4.2 billion
the $26 billion interest the FRBNY has in puts taxpayers in a considerably stronger coming in cash. The transaction is expect-
two special purpose vehicles will be repaid position to recoup our investment in the ed to close during the first quarter of 2011,
company,” Treasury Sec- pending regulatory approvals.
retary Timothy Geithner This money will be put toward retiring
[This exit strategy] dramatically
said in a statement. the remainder of FRBNY’s preferred interest
accelerates the timeline for AIG’s
To repay the FRB- in the SPVs, AIG said.
repayment, and puts taxpayers in a NY, AIG said it will use In a message from Mr. Benmosche,
considerably stronger position to recoup its own resources and the chief executive said that, considering
our investment in the company.” proceeds from other how well AIG’s operating companies have
Treasury Secretary Timothy Geithner assets—including an rebounded, taxpayers can expect to profit
initial public offering of from their support of the company.
American International But experts have already said the sale of
in full. Also as part of the plan, the com- Assurance Company Ltd. on the Hong stock has everything to do with timing. If
pany will issue common stock to the U.S. Kong Stock Exchange, subject to approvals shares are sold quickly, it could drive down
Treasury Department. and market conditions. AIG said it will also the price and reduce the return. Should the
The repayment of senior debt and con- use proceeds from the $15.5 billion sale Treasury get rid of its stock in the company
version of common stock by the Treasury of American Life Insurance Company to rapidly, AIG could face a credit downgrade,
are each expected to be done by the end of MetLife Inc. The ALICO-to-MetLife trans- the experts warned.

6 | National Underwriter Property & Casualty | October 4, 2010 property-casualty.com


Mr. Benmosche said that over the last
year, AIG has sold non-core units, bolstered
its financial strength, improved liquidity,
increased risk management and stabilized
core insurance businesses.
The company has also “de-risked”
AIG Financial Products—the unit in
charge of the credit default swaps that
were blamed for the company’s down-
fall, he added. When AIG was bailed out,
this unit’s exposure to derivatives was $2
trillion. At the end of the second quarter
of this year, however, the exposure was
reduced 70 percent to $602 billion, Mr.
Benmosche noted.
The unit “will no longer pose a sig-
nificant financial risk to either AIG or the
broader financial system,” he said.
The federal government made more
than $182 billion available to AIG about
two years ago when it faced a liquidity cri-
sis due to a downgrade in its credit rating,
which required AIG to post more collateral
to its credit default swap trading partners.
AIG said it owed the government $101.2
billion as of June 30.
Rating agency A.M. Best Company said
the government’s involvement in AIG was
never supposed to be permanent, therefore
“the announcement of this final plan is
not itself a trigger for a rating action.”
The ratings of all AIG subsidiaries re-
main unchanged. The issuer credit rating
of “bbb” of AIG is unchanged, with a nega-
tive outlook.
“With the removal of this [govern-
ment] support, AIG will need to stand on
its own, reestablish itself in the capital
markets, restore shareholder confidence
(particularly with institutional investors)
and demonstrate its ability to maintain
sufficient liquidity, which is no long ac-
cessible through government sources,”
A.M. Best commented, adding that it
Photo courtesy of ohioattorneygeneral.gov
would continue to monitor the execution
of the plan.
SECURITIES SUIT
In other AIG news, a federal judge in New
York has denied a request by the company
 continued on page 40
property-casualty.com October 4, 2010 | National Underwriter Property & Casualty |
T O P  S T O R I E S O F  T H E  W E E K
■ litigation
MMC To Pay Ohio $4.75M
To Settle Bid-Rigging Suit
By mark e. ruquet
M
arsh & McLennan Compa-
nies has agreed to pay Ohio
$4.75 million to settle an anti-
trust lawsuit stemming from allegations
that the company’s insurance broker-
age firm engaged in a bid-rigging and
kickback scheme in return for lucrative
contingent commissions.
Last week, Ohio Attorney General Richard
Cordray said MMC
settled a lawsuit filed
in Cuyahoga County
Common Pleas Court
that accused MMC’s
brokerage subsidiary
Marsh of “conspir-
ing with various in-
surers to eliminate
competition in the
commercial casualty
insurance industry.”
The suit accused Marsh of conspiring
to provide customers with fictitious quotes
that created a false impression that com-
petitive bidding had produced the best
possible price during the years 2001-2004.
A total of 26 public entities—includ-
ing universities, schools, municipalities,
retirement systems and public authori-
ties—will receive portions of the recent
Ohio settlement.
“We are pleased to have resolved this
matter, which relates to events dating
back to 2004 and earlier,” MMC said
in a statement. “The settlement makes
no findings against Marsh, includes no
fines or penalties, and expressly does
not include any admission of liability
by the company.”
“This settlement regains a piece of
what we lost as a result of secret conspira-
cies that ultimately cost Ohioans millions
in premium payments by schools, uni-
versities, cities, counties and others,” said
Mr. Cordray in a statement.
The attorney general’s office said it has
recovered more than $27 million as a result
of the lawsuit against Marsh and various
insurers. Earlier this year, Mr. Cordray
settled with American International Group
and Hartford Financial Services Group for
more than $9 million.
Cases are still pending against ACE
American Insurance Company and Chubb
Corp. related to
the Marsh allega-
“This settlement regains tions, the attorney
a piece of what we lost general said.
as a result of secret The accusations
conspiracies that stem from the
ultimately cost Ohioans investigation by
millions in premium former New York
payments,” says Ohio AG Attorney General
Richard Cordray. Eliot Spitzer that
alleged Marsh en-
gaged in a bid-rig-
ging and kickback scheme over the placement
of insurance with carriers paying lucrative,
volume-based contingent commissions.
MMC paid $850 million into a settle-
ment fund in 2005 to end the New York
investigations. As part of the agreement,
MMC gave up taking contingent commis-
sions, which was a substantial part of its
revenues at the time, resulting in tremen-
dous disruption to the company.
At the beginning of this year, Marsh,
along with Aon, reached an agreement
with the New York, Connecticut and
Illinois attorneys general that would
allow them to once again accept con-
tingents, but under new disclosure rules
being mandated by the New York In-
surance Department for all producers,
starting on Jan. 1.
A representative for Marsh said there are
no more attorney general cases pending re-
garding this matter, but a handful of private
policyholder lawsuits remain. NU
7
plan under water?
continued from page 42
work in some agencies but don’t work
in others. An employee stock owner-
ship plan can be a useful tool in certain
circumstances but not others. The key
is that the transfer mechanism must be
properly matched to the attributes of a
particular agency.
Given the environment, it is clear that
many agency perpetuation plans are under
serious stress. In light of this, in 2010 Rea-
gan Consulting has launched an initiative
that will soon be released, called the “Pri-
vate Ownership Study.”
In this study, which involved hundreds
of agencies nationwide, we have dug deep-
ly into how successful agencies are accom-
plishing their perpetuation objectives. It
has been fascinating to learn how they are
dealing with each of the four pillars. (The
results of the study will soon be available
and are free to the industry).
Internal perpetuation isn’t for everyone.
It requires a significant investment in time
and resources and carries with it no guar-
antee of success.
In addition, a well-selected strategic
acquirer can often bring more than just a
big payout to the table—it can also offer
for more information
Reagan Consulting will soon release
its “2010 Private Ownership Study.”
Information about the study, or about
Reagan Consulting, can be found at
www.reaganconsulting.com.
growth capital and resources that enable a
selling agency to improve its game.
At the same time, simply planning
for internal perpetuation can be reward-
ing. Why? Because many of the keys to
internal perpetuation—such as building
a healthy, high-performing operation and
developing the next generation of tal-
ent—create superior shareholder returns
regardless of the perpetuation alternative
that is ultimately selected. NU
 Kevin Stipe is a Senior Vice President and
Principal at Reagan Consulting Inc., an Atlanta-
based management consulting firm that devel-
oped and produces the “Independent Insurance
Agents and Brokers of America Best Practices
Study.” He may be reached at (404) 233-5545
or by e-mail at Kevin@reaganconsulting.com.
40 | National Underwriter Property & Casualty | October 4, 2010 property-casualty.com
champion
continued from page 14
position because we’re problem solvers.”
Although IMA has reaped the benefits of
being large, with plenty of resources to draw
from, size doesn’t have to be a prerequisite
for success—it’s more important to know
who you are and be able to clearly articulate
why you’re different and how that benefits
the customer, according to Mr. Cohen.
“There are a lot of people out there
and you must be able to find your busi-
ness’s value proposition and articulate it
clearly,” he said.
Specialization is important as well. “Be-
ing a generalist in this day and age doesn’t
work. Find an industry or industries where
you can become an expert and that will be
part of your differentiation.”
This issue is especially relevant to Mr.
Cohen, who moved to Denver in 1989,
during another bad economy, to run part
of IMA’s initial expansion.
repay taxpayers
continued from page 7
to have a securities fraud class-action law-
suit against it dismissed.
U.S. District Judge Laura Taylor Swain,
in the U.S. District Court for the Southern
District of New York, denied motions from
AIG and current and former executives
and directors to dismiss the case on vari-
ous grounds.
The allegations presented by the
plaintiffs in the case “support an infer-
ence that is at least as compelling as any
opposing inference that AIG and the
defendants knew facts or had access to
information suggesting that their pub-
lic misstatements were not accurate,”
wrote Judge Swain.
An investor group of plaintiffs led by
the State of Michigan Retirement Systems
has accused AIG and some of its executives
and directors of “materially misstating the
extent to which AIG had accumulated ex-
posure to the subprime mortgage market
through its securities lending program and
its credit default swaps portfolio,” accord-
ing to court documents.
“This decision is not a ruling on
the merits and simply allows the case
to proceed to discovery,” Mark Herr, a
representative for AIG, said in an e-mail.
“We are confident that when all of the
“Your business strategy and thought
process should not change based on ex-
ternal environment,” he said. “Figure out
who and what you are, and be it, regardless
of the market. What changes is your tactics
and how to attack the market.”
A laser focus on sales is also indispen-
sible, he asserted. “This economy is losing
so much in size, with exposure rates going
down, that the core of our commission is
going down, too,” he noted. “What’s sus-
taining us is new business sales, which helps
growth. You have to focus on the sales side
for the long term, not the short term.”
It doesn’t hurt to have fun, either. “One
of the measurements of success I use is to
walk around the office and see if I hear
laughter,” Mr. Cohen noted. “People spend
a lot of time here, and we want to make
sure they enjoy it.” NU
 Laura Mazzuca Toops is Editor of American
Agent & Broker, part of Summit Business
Media’s Property & Casualty Media Group, which
includes National Underwriter.
facts come out, as they did during the
course of the [Department of Justice]
and [U.S. Securities and Exchange Com-
mission’s] joint two-year investigation,
it will be clear that no fraud occurred
and shareholders were not misled as to
any of the risks.”
In June, the SEC ended its investigation
of AIG and Joseph Cassano, former head
of the AIG Financial Products unit that
managed the CDS portfolio, without filing
charges. A month prior the DOJ ended its
investigation of the company and did not
file charges.
Mr. Cassano is named as a defendant
in the class-action lawsuit along with for-
mer chief executive Martin Sullivan and
other executives.
According to court documents, two
confidential witnesses have said AIGFP
could not economically hedge its CDS
portfolio. However, executives such as An-
drew Forster, an executive vice president
with AIGFP, told investors in May 2007
that AIGFP could handle “the worst reces-
sion I can imagine,” and that “it’s actually
fairly easy for us to hedge any of the risks
that we perceive.”
The group of plaintiffs is comprised of
investors who purchased securities issued
by AIG between March 16, 2006 and Sept.
16, 2008—the date the federal government
agreed to an $85 billion bailout of AIG. NU
Copyright of National Underwriter / Property & Casualty Risk & Benefits Management is the property of
Summit Business Media and its content may not be copied or emailed to multiple sites or posted to a listserv
without the copyright holder's express written permission. However, users may print, download, or email
articles for individual use.