Welcome to the Deep Dive. Today we're taking
a long hard look at a name that really embodies
the entire arc of 20th and 21st century global
finance. American International Group, Inc. AIG.
And this isn't just, you know, the story of an
insurance company. Not at all. It's a century
long saga of ambition, of unchecked expansion,
catastrophic failure, and then a government rescue
so unprecedented it basically reshaped global
regulation. When you look through the sources
for this deep dive, the sheer scale of AIG today
is... It's immediately apparent. Right. We're
talking about a multinational finance and insurance
giant that operates in over 80 countries and
jurisdictions. 80. That's incredible. And the
level of integration into the global economy,
I think, is captured by this one fact. AIG serves
87 % of the Fortune Global 500 companies. So
it's not a stretch to say it's a critical artery
of worldwide commerce. It truly is. Exactly.
AIG became less of a company and more of, I guess,
an economic ecosystem. So our mission today is
to follow that entire evolutionary path. We're
going to start from its most unlikely birthplace.
Then we'll go through its transformation into
a financial titan, its spectacular near collapse
in 2008, the massive government intervention
that followed. And then, you know, the painful
but ultimately profitable recovery that culminated
years later. And before we jump back a century,
I think it's worth grounding ourselves in what
AIG is right now. Good idea. So in 2024, they
operate primarily from their headquarters in
New York City, 1271 Avenue of the Americas. They're
structured around two clear pillars. general
insurance, that's global commercial and personal
lines, and life and retirement, which focuses
on group, individual, and institutional markets.
And they also have a standalone tech -enabled
subsidiary. And despite the decade of, well,
dismantling they went through, they remain financially
colossal. Oh, absolutely. As of 2024, the company
is reporting total assets of $161 .3 billion
and a workforce of about 22 ,000 employees. But
for anyone tracking modern finance, AIG will
forever be defined by, well, by one specific
moment in time. That defining moment is without
doubt the 2008 financial crisis. I mean, AIG
became the symbol of too big to fail. The poster
child. Exactly. It received the largest government
bailout of a private company in U .S. history.
The initial credit facility from the New York
Fed was authorized up to $85 billion. And it
just ballooned from there. It ballooned to a
total commitment of around $180 billion. That
single figure really defined the crisis. But
here is the incredible twist. And this is the
part of the narrative that so often gets simplified
or just forgotten. AAG didn't just take the money
and vanish. They completed what has to be the
ultimate turnaround. By 2012, AIG had repaid
a grand total of $205 billion to the US government.
Which resulted in an astonishing positive return,
a profit of $22 .7 billion for the US Treasury
and the New York Fed combined. So the government,
acting as the lender of last resort, not only
stabilized a critical institution, but actually
made a profit for the taxpayer. That remarkable
outcome is just crucial context for understanding
the high stakes decisions that were made back
then. OK, so that sets the stage for a pretty
dramatic history. Let's start at the very beginning.
Section one, the global foundation and initial
growth from 1919 to 1979. And we have to start
with AIG's roots, which are geographically fascinating.
Yeah, we're starting very far from Wall Street.
The American International Group was founded
in Shanghai, China on December 19th, 1919. That's
the ultimate aha moment in this story, isn't
it? The company that would later be rescued by
the U .S. Federal Reserve. began as a foreign
enterprise in a developing market. It's incredible.
So the founder was an American, Cornelius Van
Der Star. What drove an American entrepreneur
to set up shop in China at that time? Well, Star
was a visionary. He recognized just the tremendous
potential of these rapidly modernizing yet completely
uninsured Asian markets. So he established his
agency, originally called American Asiatic Underwriters,
or AAU. AAU. He saw that traditional Western
insurance models just hadn't penetrated these
regions yet. It was a blue ocean opportunity.
And I guess the expansion was rapid, which must
have confirmed his instincts about the demand.
Absolutely. The AAU quickly expanded branches
all throughout China and then into Southeast
Asia key hubs like the Philippines, Indonesia
and Malaysia. So this established AIG's core
philosophy from day one. It was a global enterprise
first, tailored to local needs rather than just
a U .S. company exporting its services. That
global DNA is absolutely key to understanding
its eventual complexity and its eventual risk.
Right. So while the focus was initially on Asia,
Starr wisely recognized he needed a U .S. foothold.
He did. In 1926, he opened the first American
office, the American International Underwriters
Corporation, or AIU. And the AIU was crucial
because... It was crucial because it allowed
Starr to service the increasing number of U .S.
and multi... multinational businesses that had
operations over in Asia. And then as political
volatility started to rise in the Far East leading
up to World War II, Starr made a critical preemptive
move. He started focusing on Latin America. Exactly.
It was an early lesson in geopolitical risk management.
It sounds like proactive hedging, really. It
was. By the late 1930s, AIU had established significant
operations, including an office in Havana, Cuba.
And that steady growth in Latin America proved
essential. It helped to offset the decline and
eventual shutdown of business in parts of Asia
as the war intensified. So by 1939, he makes
the decisive move and relocates headquarters
from Shanghai to New York City. And that solidified
AIG's status as a multinational entity, but now
based in the U .S. After the war, the global
military presence of the United States must have
provided a whole new path for AIG's growth. A
very lucrative one. AIU leveraged its American
association to get into occupied territories
like Japan and Germany right after World War
II. And what were they selling there? primarily
providing life and general insurance products
for American military personnel. It was a really
strategic entry point that quickly paved the
way for providing coverage to local civilian
populations and the rebuilding economies. And
this European expansion really solidified AIG's
international footprint further into the late
40s and 50s. Yeah, we see rapid growth into France,
Italy, and the United Kingdom. Meanwhile, Starr
was also integrating the domestic American side
of the business, which was still lagging a bit
behind the international network. So in 1952,
he acquired Globe and Rutgers Fire Insurance
Company and its subsidiary, American Home Fire
Assurance Company. By the close of the decade,
the CV Starr organization was a true global behemoth.
Covering general and life insurance across more
than 75 countries. 75 countries. It's an incredible
reach. So now we get to the internal revolution.
Reorganization and the rise of Greenberg from
1959 to 79. This is where the company shifts
from Starr's sort of entrepreneurial vision to
a tightly managed modern corporate structure.
And the key personnel decision was C .V. Starr
hiring Maurice R. Greenberg, universally known
as Hank Greenberg in 1960. Right. He was initially
tasked with developing an international accident
and health business. But his impact, as we'll
see, went far, far beyond that. The sources credit
Greenberg with implementing a genuinely revolutionary
strategic shift in the U .S. market. Can you
tell us about that move away from salaried agents?
Greenberg fundamentally reorganized one of Star's
U .S. holding companies into a successful multiple
line carrier by focusing entirely on selling
insurance through independent brokers instead
of salaried agents. And that was a radical departure
for a major insurer at the time. Completely radical.
So why was that business model so critical? What
was the advantage? Well, it was a game changer
primarily because of cost control and risk management.
By using independent brokers, AIG essentially
shifted the cost of sales, salaries, offices,
benefits onto the broker. Which dramatically
lowered AIG's fixed overhead. Exactly. And crucially,
it gave AIG immense pricing flexibility and discipline.
If a line of insurance became unprofitable, AIG
could just jack up the price. And the brokers
would either have to absorb the reduced commissions
or just find another carrier. That's it. AIG
wasn't burdened by high fixed costs, which meant
they could afford to set out competitive markets
and wait until the pricing was right without
fearing these massive quarterly losses from carrying
an expensive sales force. And that aggressive
focus on underwriting discipline and tight operational
control became Greenberg's enduring signature.
It defined the company for decades. This level
of expansion, it must have demanded a unified
corporate identity. It did. By 1967, American
International Group, Inc., AIG, was incorporated
as the overarching umbrella organization for
most of Starr's diverse insurance businesses.
Starr named Greenberg his successor in 1968,
marking the transfer of power. And then AIG went
public the following year in 1969. Right. The
1970s brought back those geopolitical headwinds
that Starr had faced decades earlier, though.
That global reach had its downside. AIG was forced
to curtail or even cease operations in several
volatile regions across the Middle East and Southeast
Asia because of changing political dynamics and
nationalization efforts. But true to form, AIG
used its specialization to find new markets.
How did they pivot this time? They specialized
in niche products that very few other insurers
could handle on a global scale. Things like complex
energy infrastructure coverage, large -scale
transportation and shipping insurance, and highly
specific commercial liabilities. their ability
to manage complexity into a key market advantage
they did expanding coverage even while the political
world around them was in some ways shrinking
this resilience fueled by that underwriting expertise
propel them into the next era of hyper expansion.
OK, let's move into that era. Section two, expansion,
financialization and regulatory headwinds covering
the crucial years between 1979 and 2007. This
is defined by AIG's transformation from a complex
insurer to a globally interconnected financial
conglomerate. And this is where they lay the
fatal groundwork for 2008. The 1980s saw AIG
actively pushing the boundaries of what insurance
even meant. They became the go. to insure for
risks that others just wouldn't touch. We see
the introduction of highly specialized offerings
like pollution liability insurance and there'll
be political risk insurance. Covering clients
against government seizure or instability in
foreign markets. Exactly. These weren't your
standard auto or home policies. These were massive
specialized contracts that required huge capital
backing and intricate global knowledge. And by
listing its shares on the NYSE in 1984, they
signaled their full entry into the capital. markets.
That listing was essential, right? It provided
the capital needed for true diversification beyond
basic underwriting. Absolutely. The 1990s saw
AIG make acquisitions that took it far outside
core insurance. The most prominent example has
to be the purchase of International Lease Finance
Corporation, or ILFC. And they were one of the
world's largest providers of leased aircraft
to airlines globally. Yes, a huge player. That's
a massive shift. I mean, leasing airplanes is
fundamentally different. from collecting premiums
against a fire damage. What did ILFC do to AIG's
balance sheet? It injected vast amounts of non
-traditional leveraged assets. So instead of
just ensuring the risk of an airline losing a
plane, AIG now owned the plane. So they were
assuming the capital risk and the revenue stream
from the lease. Right. And this added complexity,
it added leverage, and it added a stream of income
that was largely uncorrelated to the insurance
cycle, which at the time was seen as genius diversification.
And during this period, AIG remembered its roots,
making a landmark return to China in 1992. That's
a huge point. AIG received the first foreign
insurance license granted by the Chinese government
in over 40 years. That wasn't just business.
It was a potent symbol of global political influence.
A testament to Star's original vision, really.
They were leveraging their unique history as
an American company born in Shanghai to secure
unparalleled market access. Domestically, they
targeted the burgeoning retirement market, acquiring
Soon America Inc. in 1999, which was run by Eli
Broad, diversifying into retirement. retirement,
savings and annuities. By the turn of the millennium,
AIG was really touching every single aspect of
finance. Which leads us right into the peak of
growth and scandal from 2000 to 2005. The first
years of the new millennium were marked by massive
acquisitions like American General Corporation
for life insurance and annuities and aggressive
entry into major emerging markets like India.
The sources also mentioned the company moving
in the highest geopolitical and financial circles.
I'm thinking of that strategic advisory venture
they created in 2000 with the Blackstone Group
and Kissinger Associates. That level of interconnectedness
is hard to overstate. This wasn't just some consulting
agreement. AIG was an investor in Blackstone.
Right. The advisory venture was designed to provide
top -tier strategic counsel. But what's truly
ironic, and it highlights the systemic links,
is that Blackstone later became an advisor to
AIG during the 2008 crisis. So they were essentially
consulting on the breakup of a company they had
previously advised on growth. Exactly. And Greenberg
himself was engaging in high -level diplomacy.
We know he made significant investments in Russia
in the early 2000s, including a personal meeting
with Vladimir Putin in 2003. Yes. To discuss
strengthening U .F.-Russia economic ties and
AIG's role in that, this was AIG at its absolute
global political zenith. But the hypergrowth
contained these dangerous internal flaws. The
first public cracks appeared in November 2004
when AIG settled with the SEC and the Justice
Department for $126 million. And that was related
to the sale of so -called non -traditional insurance
products, a euphemism for questionable financial
engineering. That was the warning shot. And then
came the full regulatory barrage, which led to
the ousting of the titan himself. Hank Greenberg.
Greenberg was forced out in February 2005 amidst
mounting fraud investigations led by the SEC,
the Justice Department, and the New York Attorney
General, Eliot Spitzer. The scope of the scandal
was enormous. The subsequent NY Attorney General
investigation resulted in a staggering $1 .6
billion fine for AIG, one of the largest corporate
fines at the time. And the internal fallout was
immense. What did the internal investigations
uncover about the company's accounting? The investigations
revealed significant accounting errors, forcing
AIG to restate financial statements for multiple
years, specifically 2000 through 2004. So this
not only cost them billions in fines, but also
severely eroded investor confidence in AIG's
financial integrity. Just before the housing
market began its rapid descent, the company was
structurally weak and politically damaged before
the storm even hit. And this brings us to the
actual mechanism of failure. The single most
destructive strategic mistake AIG ever made.
The credit default swap trap from 2005 through
2008. Yeah, this section has to be thoroughly
dissected. It represents the profound failure
in corporate governance that the FCIC later identified.
In 2005, Martin Sullivan took over as CEO. Meanwhile,
AIG's financial products division AIGFP in London,
led by Joseph Cassano, was aggressively entering
the over -the -counter derivatives market. OK,
let's get technical for our audience here. We're
not talking about simple car insurance. We're
talking about credit default swaps or CDSs based
on collateralized debt obligations, CDOs. How
exactly was AIG involved and what was the underlying
bet? AIG was acting as the protection seller
in these agreements. A CDO is essentially a package
of various mortgages, including many subprime
ones. Banks that own these volatile CDOs, they
wanted insurance against them defaulting. So
they purchased CDSs from AIG and paid a periodic
premium. So AIG was betting that the underlying
mortgages, even the subprime ones, would just
continue to pay out indefinitely. Precisely.
They were insuring tens of billions of dollars
of these derivative products. Their total exposure
was $441 billion worth of complex securities
that were originally rated AAA. $441 billion.
And of that total, $57 .8 billion were directly
backed by subprime loans. AIGFP banked on the
model, which suggested default risk was virtually
zero. But the fatal flaw wasn't just the bets
they made. It was the internal systemic failure
to manage the consequences of that bet. That
is the critical distinction. A core tenet of
insurance and finance is hedging risk or setting
aside capital. AIG did not purchase reinsurance
to hedge this enormous exposure. Furthermore,
and this is the most critical point, AIGFP did
not set aside significant capital reserves, nor
did they require initial collateral from their
trading partners for these swaps. They were operating
a massive, multi -hundred billion dollar exposure
as a completely uncollateralized bet. Why would
any major financial institution, especially one
rooted in the discipline of insurance, allow
that to happen? It speaks volumes about the unchecked
power of the financial products division and
the lack of regulatory oversight on over -the
-counter derivatives. AIGFP felt the risk was
negligible because the underlying securities
were nominally rated AAA. They just saw it as
easy premium income. with no capital requirement.
But the regulatory environment allowed this massive
systemic risk to build up in the first place.
Absolutely. The sweeping deregulation of OTC
derivatives, including CDS, meant that federal
and state regulations, specifically those requiring
capital and margin requirements that are common
in traditional markets, were eliminated. It created
a loophole large enough for AIG to drive a multi
-billion dollar liability through. You could
say that. And when the housing market finally
crumbled in 2007 and 2008, the dominoes fell
fast. The drop in housing prices meant the value
of the underlying subprime -backed CDOs plummeted.
AIG's credit rating was subsequently downgraded,
and the terms of the CDS contracts contained
a tripwire. What was the tripwire? A credit downgrade
automatically required AIG to post immediate,
massive amounts of additional collateral to their
counterparties. But the company had zero liquidity
to meet those demands. None. And that effectively
triggered a complete failure across the entire
conglomerate. That unhedged, uncollateralized
bet created a liquidity run that the traditional
insurance operations simply couldn't withstand.
And that takes us directly to Section 3, the
2008 liquidity crisis and bailout. The failure
of AIG wasn't a matter of if, but when, and how
large the hole would be. The instability was
immediately reflected in the executive suite.
CEO Sullivan resigned in June 2008, replaced
by Robert Willemstad. But the crisis was moving
faster than any internal management change could
handle. And the government ultimately mandated
Willemstad's replacement with Ed Liddy on September
17, 2008. Right. That signified that external
control had already taken hold. So the moment
of truth arrived in September 2008. Why was AIG,
more than almost any other institution, deemed
too big to fail? AIG's complexity and its global
reach made it uniquely dangerous. Unlike Lehman
Brothers, which failed the week before, AIG was
interwoven with every major global firm. It was
a primary trading partner to nearly 100 institutions,
including the giants of Wall Street, Goldman
Sachs, Morgan Stanley, Bank of America, and a
vast network of massive European banks. So if
AIG went under, those CDS contracts would instantly
default, triggering enormous losses across the
entire global barking system. Exactly. A September
2008 CNN Money article highlighted the terrifying
scale. AIG possessed over $1 trillion in assets.
That's far surpassing the size and complexity
of Lehman. Its failure wouldn't just cause panic.
It would seize up the plumbing of global finance.
This systemic threat, not necessarily AIG itself,
is what the government chose to save. That's
the key. So on September 16, 2008, the intervention
be banned. The New York Fed authorized the secured
credit facility. The largest government bailout
in history. The initial commitment was $85 billion,
and the terms were deliberately punitive. Punitive
how? To protect the taxpayer and discourage moral
hazard. The facility was secured by stock in
AIG -owned subsidiaries. And critically, the
government received warrants for a 79 .9 % equity
stake in the company. That 79 .9 % stake meant
the U .S. government effectively owned and controlled
the corporation, at least temporarily. It was
a temporary nationalization by necessity. Former
Treasury Secretary Henry Paulson later testified
that the terms were intentionally harsh. It was
a rescue, but one that came with a near total
loss of corporate autonomy for existing shareholders.
Let's delve deeper into the forensic analysis
of failure. The official postmortem reports were
blunt about who was responsible. The 2011 report
from the Financial Crisis Inquiry Commission,
the FCIC, laid the blame squarely on AIG itself.
Their conclusion was that the failure stemmed
primarily from the mass sales of those unhedged
insurance policies, the CDSs, without setting
aside the required collateral, capital reserves
or hedging the exposure. The FCIC famously concluded
that AIG suffered a profound failure in corporate
governance. What does that mean in practical
terms? It means the management, especially CEO
Martin Sullivan and the board, failed in their
fundamental duty to manage risk. The AIGFP division
in London was allowed to operate as a completely
opaque, unsupervised black box. Creating liabilities
that were exponentially larger than the traditional
regulated insurance units. They were essentially
operating outside the risk protocols that governed
the rest of the $1 trillion corporation. But
that internal failure was enabled by a regulatory
void? Precisely. Other analyses underscore the
regulatory dimension. AIG was only able to build
that systemic mountain of uncollateralized risk
because of the sweeping deregulation of over
-the -counter derivatives. If regulations had
required even a small fraction of margin or capital
reserves on those CDS contracts, AIG would have
hit a capital wall long before the exposure reached
catastrophic levels. And this brings us to the
most visceral moment of public anger, the bonus
outrage. Oh yeah, the public cynicism that stained
the recovery effort. This unfolded in March 2009,
just months after the initial bailout. AIG announced
it would pay executives over $165 million in
guaranteed retention bonuses. And the total potential
bonuses for the financial products unit, the
very group that caused the meltdown, could have
reached $450 million. A staggering figure. How
could a company kept alive solely by taxpayer
funds justify paying retention bonuses to the
very traders who destroyed the firm? It was a
monumental public relations disaster. The company
argued that the bonuses were actually obligated
and necessary to retain the few key people they
needed to help unwind the complex derivative
portfolio. They claimed that losing those employees
would cost the government even more in the long
run. Is the argument they made. An argument that
did not sit well with the public or with politicians.
Not at all. Newly inaugurated President Obama
and legislators from both sides of the aisle
reacted with immediate outrage. Senator Chuck
Grassley famously suggested AIG executives should
resign or commit suicide. A reflection of the
extreme public anger. Yes. The controversy reinforced
this public perception that Wall Street was operating
with a culture of entitlement and impunity, using
taxpayer funds to reward reckless behavior. This
episode defined the public narrative for years
and solidified AIG as a symbol of corporate greed.
We shift now to Section 4, de -risking recovery
and legal battles from 2008 to 2016. The government's
plan was simple. Use the 79 .9 % stake to force
AIG to shrink dramatically and liquidate assets
to pay down the debt. The massive asset divestiture
was a forced dismantling of the global empire
that CV Starr and Hank Greenberg had built over
decades. And AIG had to sell these assets, often
quickly, into a distressed market environment.
So what were the crown jewels they were forced
to sell first? The primary focus was on the most
successful international life insurance segments,
which were largely independent of the CDS disaster.
AIG created and transferred two massive international
life subsidiaries, American International Assurance
Company, or AIA, and American Life Insurance
Company, Ailey Code of the Federal Reserve Bank
of New York. And that transfer alone shaved $25
billion off AIG's debt. A huge chunk. And these
weren't small peripheral assets. AIA in Asia
was a market leader. AIA was the jewel in AIG's
Asian crown. Alico was sold to MetLife for $15
.5 billion in cash and stock in March 2010. Even
more remarkably, the combination of the IPO of
AIA and the sale of Alico raised a combined $36
.71 billion in November 2010. So these sales,
executed under duress, were absolutely vital
to generating the cash needed to exit the government
facility. And they also sold their Taiwanese
unit, Nan Shan Life, in 2011. What else went
on the chopping block to raise capital? The divestiture
was thorough. It touched almost every non -core
asset. They sold the Hartford scene boiler unit
to Munich Re for $742 million. The domestic auto
insurer, 21st Century Insurance, went to Farmers
Insurance Group for $1 .9 billion. They sold
a majority stake in reinsurer Transatlantic Re.
And their asset management business, Pinebridge
Investments, was sold for $500 million. It was
a complete reversal of the diversification strategy
of the 1990s. This painful, years -long liquidation
process eventually led to the crucial milestone,
full repayment and sci -fi status removal. The
government made good on its promise to exit.
The U .S. Treasury gradually sold its stock back
into the market. By September 2012, the Treasury's
stake was reduced substantially to 15 .9 percent.
A sign that AIG was stabilizing and market confidence
was returning. Exactly. And the final payment
was made in December 2012. Let's just confirm
those numbers one more time because they are
crucial to the historical narrative. On December
14th, 2012, the Treasury sold its final shares
of AIG stock. The total amount provided to AIG,
including all commitments, was $182 .3 billion.
And the total repaid by AIG was $205 billion,
which generated a confirmed profit of $22 .7
billion for the U .S. Treasury and the New York
Fed. That outcome fundamentally altered the legacy
of the bailout program. The company immediately
sought to control the narrative post repayment.
Yes. AIG launched the Thank You America advertising
campaign on January 1, 2013. The ads featured
employees, including the Recovery Era CEO Robert
Ben -Mosh, Directly thanking the American people
for their assistance. A necessary calculated
move to shift the public image from ungrateful
recipient of bailouts back toward successful
American institution. It was. And the ultimate
sign that AIG was no longer considered a systemic
threat arrived in 2017. That's when the U .S.
Financial Stability Oversight Council, or FSOC,
removed AIG from its list of non -bank systemically
important financial institutions. Sci -fis. Right.
And that sci -fi does. So shitting sci -fi status
was a huge regulatory win. It confirmed that
AIG had successfully de -risked and downsized
to a point where its failure would no longer
threaten the global financial system. It was
the formal government acknowledgement that the
restructuring had worked, and the firm was fundamentally
safer than it had been in 2008. Yet even with
that successful financial outcome, the legality
of the initial government action was challenged
in court. This brings us to the bailout litigation,
Star v. United States. This is a fascinating
legal challenge, specifically because of the
paradox it created. Hank Greenberg, through his
associated companies, sued the U .S. government
in 2011 for 40... billion. Forty billion. He
argued the terms of the bailout were illegal,
specifically that the government denied AIG access
to better loan terms offered to other institutions
and illegally demanded the 80 percent equity
stake. He called it a government extortion rate.
The trial was a highly public affair, pitting
a corporate icon against the government officials
who saved the economy. We saw testimony from
Ben Bernanke, Timothy Geithner, Henry Paulson.
And Paulson's testimony confirmed the punitive
intent of the terms. Government lawyers, meanwhile,
were aggressive. They referred to the plaintiffs,
the shareholders, as ingrates who felt entitled
to a cheap bailout. It was a deeply emotional
case reflecting the scars of the crisis. Absolutely.
And the ruling from Judge Thomas Wheeler delivered
an extraordinary legal paradox. Judge Wheeler
actually sided with Greenberg on the core legal
principle. He ruled that the government's demand
for the 79 .9 % equity stake, which effectively
nationalized the company, was an illegal exaction.
An illegal exaction. Yes. The judge concluded
that the Federal Reserve Act did not authorize
the New York Fed to take ownership of a private
corporation by demanding its stock. An illegal
act by the government, yet zero compensation
was awarded. That's a tough loss for Greenberg.
Why did the judge rule against damages? Because
of judicial pragmatism. The judge ruled that
the plaintiffs suffered no economic damage because
they were saved from utter financial ruin. Right.
The judge's reasoning was summed up in a powerful
statement. If the government had done nothing,
the shareholders would have been left with 100
% of nothing. So the illegal act was simultaneously
the act that preserved some value for the shareholders.
That's the paradox. And the ultimate resolution
of the case solidified that pragmatic outcome.
Greenberg's subsequent appeal was dismissed because
the court ruled that the right to challenge the
specific terms of the bailout belonged to the
corporation. AIG, not the individual shareholders.
And AIG's board, having recovered the company,
had already opted not to sue. Exactly. The economic
reality saving the financial system and profiting
the taxpayer trumped the legal defect of the
nationalization mechanism. We turn now to Section
5, the modern era and restructuring. From 2017
to 2024, this phase is characterized by a focus
on core insurance competency and radical structural
simplification. The modern turnaround officially
began in 2017 with the hiring of Brian Duperio
as CEO. This was a significant hire because Dupereau
was a true AIG veteran. He'd worked there from
1973 to 1994. So the message was clear. AIG was
returning to its insurance roots and bringing
back leadership focused on underwriting expertise.
And Dupereau was fighting internal pressure immediately.
Activist investors, especially Carl Icahn, had
been loudly demanding that AIG be broken up into
smaller, more digestible units. But Dupereau
resisted that pressure. He did. Instead of dismantling
the company, he pledged to grow AIG by stabilizing
the core general insurance business while maintaining
its multi -line structure. His team, including
Peter Zafino, who was hired as COO in 2017, implemented
a major turnaround strategy. Focused on underwriting
discipline, stringent new risk guidelines, and
a complete overhaul of reinsurance strategy.
And this focus on fundamental competence quickly
paid dividends. How so? The structural changes
were visible. They reorganized the legacy segments
into clear, manageable units of general insurance
and life and retirement. And the success of the
new risk approach was validated in 2019 when
AIG reported its second consecutive quarter of
underwriting profits. A milestone that demonstrated
the core business was sound again. It really
was. They also made smart, targeted acquisitions,
which contrasts sharply with the scattergun approach
of the 1990s. Right. In 2018, they acquired Validus
Holdings, which brought in much -needed reinsurance
capacity, expertise in the Lloyds of London Syndicate,
and a crop insurance platform. They also acquired
Ellipse, a UK life insurance business. And concurrently,
they initiated the AIG 200 program. Which was
an extensive... multi -year internal effort to
modernize and digitize workflows and shed the
complex, costly legacy processes accumulated
over decades. A key part of managing risk is
dealing with past liabilities, the runoff portfolios.
That was the strategic purpose of Fortitude Re.
Established in 2018, it was designed to hold
those legacy runoff portfolios that AIG wanted
off its balance sheet. AIG sold a majority stake
in Fortitude Re in 2019 to Carlyle Managed Funds
and T &D Holdings. They effectively isolated
and de -risked the remaining old liabilities.
The ultimate structural simplification, however,
was the CoreBridge spinoff. This was the final
step in permanently separating the company's
risk profiles. This was the culmination of that
decade -long de -risking effort. AIG decided
to spinoff its life and retirement business into
a separate, independent public entity, CoreBridge
Financial. The goal was to separate the volatile,
capital -intensive general insurance business
from the steadier, fee -driven annuity and retirement
operations. And Blackstone returned to the scene,
but this time purely as a major financial partner
to CoreBridge. That's right. The Blackstone Group
acquired a 9 .9 % stake in the new CoreBridge
unit for $2 .2 billion cash. Furthermore, Blackstone
secured a long -term asset management agreement
for about a quarter of Corbridge's portfolio.
Providing Corbridge with instant capital and
validating its financial strength. Exactly. And
the Corbridge financial IPO in 2022 was the largest
U .S. IPO of the year, raising $1 .68 billion.
And AIG continues to streamline, focusing intensely
on its core competency as the leading commercial
and industrial insurer. The divestitures continue.
They sold crop risk services and significantly
sold the bulk of their reinsurance arm, Validus
Re, to Renaissance here for nearly $3 billion.
They also sold the U .K. arm of AIG Life LTD
to Aviva in 2024. These moves all underline the
core strategy, maximum operational efficiency,
minimum ancillary risk. So AIG is back to being
a focused, highly specialized insurer. Right.
And it remains the largest underwriter of commercial
and industrial insurance in the United States.
Finally, we can't ignore how AIG has managed
its image through global sponsorships. That's
a key indicator of its brand recovery and confidence.
For sure. During the peak of the Greenberg era,
they were famously the shirt sponsor for Manchester
United from 2006 to 2010. Right. Following the
crisis, as they rebuilt their image, they sponsored
the iconic New Zealand rugby teams, including
the All Blacks, starting in 2012. But their current
long -term sponsorship commitment is perhaps
the most strategic in terms of image. AIG is
the title sponsor of the AIG Women's Open Golf
Tournament, a commitment extended through 2030.
They significantly increased the total purse,
reaching $9 million in 2023, setting new prize
money benchmarks in women's major championship
golf. So this associates the brand not just with
global athletic excellence, but with promoting
equity and growth in women's sports. A powerful
statement. of corporate image repair. A very
powerful statement. So what does this all mean
for the informed listener? Let's recap the narrative
arc we've unpacked today. We started with the
global audacity of Cornelius Vanderstar founding
an American power in Shanghai. Then Hank Greenberg's
era of expansion and tightening control. To the
devastating systemic failure caused by selling
$441 billion in unhedged credit default swaps.
The story is a masterclass in global financial
risk management and the catastrophic consequences
of ignoring it. The internal cultural failure,
allowing the AIG financial products division
to operate as a rogue, uncollateralized black
box, nearly brought the world economy to its
knees. The learner's takeaway here focuses on
two powerful historical outcomes. First, AIG's
successful recovery highlights the effectiveness
of painful, targeted asset divestiture coupled
with ruthless operational discipline. And second,
the story provides an astonishing example of
governmental crisis intervention, where the taxpayer
ultimately generated a $22 .7 billion profit.
That positive financial return is essential context
when judging the crisis actions, and it brings
us directly back to the legal paradox raised
in the Starr litigation. AIG successfully shed
its systemically important status and spun off
its retirement arm. Right. So here is the final
provocative thought we leave you with, one that
builds on the details of the sources but asks
you to look ahead. Considering AIG made the government
a profit, does the legal conclusion of Starview
United States that the government's 79 .9 % equity
grab was an illegal exaction fundamentally flawed
under the Federal Reserve Act, even if it caused
no damages? Does that change how we should view
the operational rules for government bailouts
for critical institutions? I mean, if the mechanism
used to seize control and enforce the necessary
de -risking was legally defective, but the practical
results saved the global economy, how vulnerable
are other globally interconnected firms if they...
face a similar liquidity crisis today? Has the
law truly caught up with the reality of too big
to fail, or will future interventions also have
to rely on questionable legal maneuvering simply
because the outcome justifies the means? That's
the challenge ARG's complex history leaves on
the table. Food for thought indeed. Thank you
for joining us for the Deep Dive.