I received a call today from an attorney who asked me what I thought about today's AIG announcement of its first quarter loss (see below).
Let's look back a short while before coming back to May 8th.
February 10, 2006 AIG announcement of settlement with Eliot Spitzer and New York State Insurance Department (and I received calls like I did today and in the months after 9-11-with press induced fears that life insurance and workers comp exposures from 9-11 would cripple structured settlement annuity insurers)
March 17, 2006 Business Insurance states that AIG posted a 6.5% increase in profit despite a drop in net income in the 4th quarter (attributed to the charge for the settlement)
May 8, 2008. American International Group (AIG) reports a $7.81 billion first-quarter loss and announced plans to raise $12.5 billion in new capital. According to the Wall Street Journal. the insurance giant, which has been battered by soured investments on credit-default swaps and other mortgage-related investments, plans to sell new shares, equity-linked securities and fixed-income securities with a large equity component included. While the losses are a nice chunk of change, if the company raises that money, and there is no reason to suggest that it won't, then the filling of such "equity" offering will mean that investors believe in the future of the company.
If you have the jitters reading these things then take a deep breath, try and put things in perspective and discount the media sensationalism a bit. Calm doesn't sell newspapers!
Consider that AIG is the 18th largest company in the world according to the 2008 Forbes Global 2000 list with over a $trillion in assets and operations in 130 countries. AIG Investments comprises a group of international companies in 46 offices around the world and they alone manage nearly $753 billion in assets as of March 31, 2008 according to its web site. AIG was founded in 1919. When the company says it has the "strength to be there one has to consider that AIG has survived The Stock Market Crashes of 1929 and 1987, The Great Depression, The Real Estate Crisis of the late 1980s, World War II, The Korean War, The Bay of Pigs, The Vietnam War, the 1970s Oil Crisis, The AIDS crisis, 9-11, Eliot Spitzer (turned out he was the one who didn't survive) and plenty more economic expansions and contractions.
Consider that on May 6, 2008 UBS, Switzerland's largest bank, on Tuesday reported a first-quarter net loss of 11.5 billion Swiss francs, driven by a $19.5 billion write down tied to U.S. real estate and structured credit. The Stamford Advocate (my hometown Stamford CT is where the US operation for UBS is based) reported that 5,500 jobs are to be cut worldwide by mid-2009. That's seems a lot on its face, but then you dig deeper and realize that's out of a work force of over 83,000!
Actuaries for AIG's structured settlement annuity issuers, American General Life Insurance Company and American International Life Assurance Company of New York must certify their viability annually to insurance regulators . Both companies have received the highest rating of A++XV (Superior) by AM Best. Their assignees are rated A+XV (Superior) by AM Best and secured creditor is offered as an option.
Not withstanding an educated personal preference of the attorney or client , be wary of the opportunistic settlement planner who uses today's report to situationally trash AIG to suit their personal financial interests while concurrently placing business with them.
In a recent filing with the SEC, AIG reported that payout annuity volume for the first quarter of 2008 increased over first quarter of 2007. The report cited strong sales of structured settlements and terminal funding annuities (which are used to buy out defined benefit pension liabilities from terminating plans).