The Greenberg Era Ends Abruptly

Sullivan generally was given a solid rating by analysts, although some worried that he lacks Greenbergs all-inclusive knowledge of the company. A native of the United Kingdom, he joined the company in 1971 in London and in 1991 was made COO of AIG Europe.

During his first day in the new post, Sullivan sought to reassure the market that the company could carry on, saying there were strategies in place to take it “to new heights” and keep its entrepreneurial focus, and that he could rely on the management team to fill in any knowledge gaps he had.

A.M. Best and Standard & Poors rating services put the company on watch with negative implications. Moodys Investors Service lowered its outlook to negative from stable, while Fitch lowered its rating from “AAA” plus to “AA-plus” with a stable outlook.

Best said AIG had sound fundamentals and good bench strength in its leadershipa view mentioned by others, including Fitch Managing Director Julie Burke, who referred to the companys “deep management team.”

Andrew Kligerman, an analyst at UBS Investment Research, was high on the company, noting that the property-casualty side of AIGs businessthe sector under investigators scrutinyrepresents less than 40% of the corporations earnings. He called AIG an “incredible value. They have a fortress of a balance sheet.”

Even reports that the board might ease Greenberg out entirely by May and leave the new team without the benefit of his vast knowledge and connections, he said, had a possible silver lining because then “this management team would have the opportunity to really thoroughly analyze and clarify any issues.”

At Bank of America, analyst Brian Meredith said he expected no long-term impact from Greenbergs surrender of the CEO spot, noting that the company has “high quality senior management running each of its major units.”

Expressing caution was Morgan Stanley Equity Research, which warned that investors should bide their time because the extent of regulatory probes are still not fully understood, and the analysts are not convinced that AIGs prior-year p-c loss reserves are adequate.

Management at AIG said at this point they knew of nothing from ongoing internal reviews or auditing efforts that would materially affect the company, but they said they could not rule anything out.

A.G. Edwards and Sons analysts expressed concern about the 10-K delay, seeing “the potential for more bad news to come from AIGs internal accounting review of certain transactions.” The firm also wondered about CFO Smiths unexplained leave.

However, based on Spitzers prior settlements with firms he has pursued, A.G. Edwards estimated any settlement would be for an amount below 5% of earnings and immaterial to AIGs financial statements.

Key among the deals Spitzer apparently is examining is a 2001 transaction where AIG provided reinsurance for Berkshire Hathaways General Re. The contract reportedly involved $500 million of premium and $500 million of insurance and a $5 million fee for AIG.

A.G. Edwards said the Berkshire contract has been tied to AIGs $23 billion stock deal to acquire life insurer American General in 200l. At issue, according to the analysts, is whether AIG committed securities fraud by using the Berkshire arrangement to pump up its share price.

Daniel Hays is a senior editor and Michael Ha an assistant editor of NUs Property & Casualty edition.

Reproduced from National Underwriter Edition, March 17, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.