AIG 2008 Annual Report Download - page 5

AIG 2008 Annual Report 3
Moving forward, AIG will con-
tinue to have access to the remaining
NY Fed credit facility. Following
the repayment of the outstand-
ing amount on the facility with the
preferred interests and securitization
notes, the total amount available to
AIG under the facility will be at least
$25 billion.
Also on March 2, AIG announced
its intention to form a general insur-
ance holding company, composed of
its Commercial Insurance Group,
Foreign General unit, and other
property and casualty operations, to
be called AIU Holdings, Inc. The
new holding company will have its
own board of directors, management
team and brand distinct from AIG.
The name of the company is derived
from American International Under-
writers, a world-class organization
whose legacy can be traced back to
its formation in 1926.
Taken together, AIU Holdings,
Inc. includes the largest U.S. under-
writers of commercial and industrial
insurance, and the most extensive
international property-casualty
network. AIU Holdings, Inc. is a
unique leading franchise with more
than 40,000 employees worldwide
and over 650 products and services
that generate net premiums written
in excess of $40 billion.
The steps toward this separation
of AIU Holdings, Inc. will assist AIG
in preparing for the potential sale
of a minority stake in the business.
This ultimately may include a public
offering of shares, depending on
market conditions.
Further, AIG announced that it is
considering combining its domestic
life and retirement businesses to en-
hance market competitiveness. With
combined assets of $240 billion, 16
million customers and over 300,000
licensed  nancial professionals, the
combined companies would be op-
erating from a position of signi cant
strength and business diversi cation.
AIG’S PRIORITIES GOING FORWARD.
Preserving the value of our business-
es and returning value to American
taxpayers have been the top priori-
ties for AIG since the U.S. govern-
ment’s initial investment in AIG in
September 2008. AIG was the  rst
TARP-funded company to embark
upon a clear plan to return value to
taxpayers—predicated on divesting
assets, reducing unnecessary expens-
es, and keeping our insurance busi-
nesses healthy and well capitalized.
To reduce expenses, we initiated
a thorough review of all company ex-
penditures, events and other business
activities last October. In the wake
of that review, AIG has taken several
measures to control expenses, further
align the company with the interests
of taxpayers, and ultimately become
a more focused and competitive
enterprise, including the cancellation
of more than 600 conferences, meet-
ings and other events that were not
essential in the current environment.
Executive compensation has re-
ceived a great deal of attention since
AIG received public aid. As I write
this letter, there is bitter controversy
over retention contracts that were
written for AIGFP employees in
early 2008. AIG was legally bound to
honor those contracts, which provide
incentive for AIGFP employees to
remain and carefully unwind transac-
tions as the business is being closed
down. I am pleased that, in light of
the controversy, a number of AIGFP
employees have agreed to return all
or part of these payments.
Even prior to this controversy,
however, we had taken a number of
steps to restrict executive compensa-
tion. I agreed to serve AIG for $1
a year in 2008 and 2009, with no
bonus, no severance agreement and
no equity contribution of any kind.
For AIG’s top seven executives,
there will be no annual bonus for
2008 and no regular salary increase
through 2009. In addition, these
executives gave up their right to
receive severance and did not accept
payments from their deferred com-
pensation accounts, money that they
earned over the years and had every
right to receive. Salary and bonus
restrictions have been put in place
for the entire senior partner group
of 50.
To keep our insurance businesses
healthy, we have emphasized the
need to maintain quality customer
service and, just as important, to
maintain discipline in our business
practices. Our goal is to achieve an
underwriting pro t. We will not
arti cially price business to build
market share—our pricing must ap-
propriately re ect risk. As I have said
repeatedly, we do not want to  nd
ourselves sitting on a pile of unprof-
itable policies after we emerge from
this dif cult period.
BOARD AND MANAGEMENT CHANGES.
With the considerable change that
has taken place at AIG over the
past year, there have been signi cant
changes in corporate leadership.
Martin J. Sullivan stepped down as
President and Chief Executive
Of cer in June following a 37-year
career with AIG. Robert B.
Willumstad assumed the role of
Chairman and Chief Executive