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AIG – Management Vs. InvestorsName: Grant KalilDate: 19.02.2016

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Case Overview

2/21/16 Kalil 2

Question: Was it smart for AIG to ommit to ret!rnin" #2$ %illion to s&are&ol'ers(

Answer: It 'e)en's on lon" term strate"* of om)an*

Case

Case Structure

Case Background Available strategies Answer  

 AIGOverview

In'!str*Overview

+ri""er 

,ana"ement -trate"*

Investor -trate"*

 Al)&a%et -trate"*

-ol!tion

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Background: Industr! AIG and t"e #rigger

2/21/16

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Ins!rane In'!str* Overview

2/21/16 Kalil

Market #raits

!*er ower -i"nifiant for lar"e

or)orations

ivalr*3i"& as ins!rane seenas ommo'it*

$on % Market #raits

-I4I Non%an5 -I4I

Cre'it ratin" 7tremel* im)ortant

&isk Aggregation Business

Well mana"e' ris5 8 Client onfi'ene

is5 mana"ement t&ro!"&:'iversifiation reins!rane li!i'it*

Business Model

rie ris5 an' &ar"e )remi!m for it

Interest earnin"s an' reven!es

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 AIG ; Com)an* Overview

2/21/16 Kalil $

 AIG

201:#6.%neven!e

-&are

rie:#$1<2

O:∼=>

#$16%n Assets

201$

-3 ret!rns:#12%n

Deferre'

+a7 Asset:#19.$%n

+ra'in" at ∼0>

'iso!nt to %oo5val!e

eer "ro!)O 8 10>

'n"a((Investors

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+ri""er: Conflit %etween Investors an' ,ana"ement

2/21/16 Kalil 6

O)en letter fromativist investor Ia&n

?#2$%n@ es)onsefrom mana"ement

Investorsa''e' to %oar'

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Strategic )(tions Available to AIG

2/21/16 =

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O)tions availa%le to AIG

1. ,ana"ement -trate"*

2. Ativist Investor -trate"*

. ,er"erB wit& Al)&a%et

2/21/16 Gro!) $ <

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,ana"ement -trate"* ; Inremental

2/21/16 Kalil 9

Management

-trate"i

Or"anisationalO)erational

&eturn *+,bn over twoears to s"are"olders

Divest!res ; No &ol* ows

201=: &)- /01

9 ,o'!lar %!siness !nits

-)lit )ortfolios O)eratin" ?#$6%n@ Ee"a* ?#=%n@

7)ense re'!tions*/.2bn

Im)rove FC%!siness ?#2%n@

O "oal !nrealisti Con"lomerate 'iso!nt Inentive )lans Onl* inremental &an"es

Investor Issues

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Investor -trate"* ; Drasti -trate"i -&iftB

2/21/16 Kalil 10

-maller sim)ler 

,etEife e7am)le

4o!s

OH10>

+rans)aren*

,oral&aar'

Costs

Investor 

De-I4I

!re la*FC

-treamlineO)erations

 A''.Dislos!res

O %ase'inentives

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2/21/16 Kalil 11

Investor 

De-I4I

!re la*FC

-treamlineO)erations

 A''.Dislos!res

O %ase'inentives

-O+ anal*sis s&ows %rea5 !) onl*

sli"&tl* val!e a''in"?*,3.,4 vs. *,/.5+@

Cre'it atin" w/o 'iversifiation

Cost to %rea5 !) om)an* %eforemo'!larisation

Eoss of 'eferre' ta7 asset

Management Issues

Investor -trate"* ; Drasti -trate"i -&iftB

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,er"erB wit& Al)&a%et ; ,oon s&ot

2/21/16 Kalil 12

4inte&-*ner"ies

Ea% ofinnovation

e'!eCosts

+e& Ins!rane5now&ow

i" Data C*%er ins!rane

4!t!re of 4inte& Driverless ars

Jse Goo"les te&5now&ow to streamline %!siness

artner wit&Investment

an5

3an'le volatilit* ofins!rane laims

C!lt!re i" fis& to swallow

&isk

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 AIG O)tions +imeline

2/21/16 Kalil 1

/. Combine Management andInvestor Strategies +. Moon s"ot wit" Al("abet

,ana"em

ent

-

trate"*

2016

201<In

vestor

-

trate"*

2020

Stabilise

)(timi6e

,o'!larisation

+rans)aren* Cost re'!tion

O im)rovement

Divest

4o!s

De-I4I

Cre'it atin"

,er"e wit& Al)&a%et

,er"e -*stems

Create Innovation Ea%

4inte& Kin"

2016

201=

201<

2020

Define s*ner"ies

O)timie

Data minin"

C*%er se!rit* lea'er 

Driverless ars

##########

2019

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Case Answer 

2/21/16 1

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#2$%n Commitment smart( It De)en's

2/21/16 Kalil 1$

/. Combine Management andInvestor Strategies

+. Moon s"ot wit" Al("abet

*+,bn 7A8)'# 9 SMA&#

romise' )a* o!t

8

reat&in" room in s&ort r!n

8

+ime to s!staina%l* o)timie

romise' )a* o!t

8

Inrease in om)an* val!ation

8

Eess attrative mer"er )artner 

*+,bn 7A8)'# 9 'MB

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L!estions