Divide and conquer: American International Group touts its strength in diversity. (Cover Story).

American International Group has long loomed large as one of the oldest and biggest commercial property/casualty writers in the United States. But the acquisition of several large life companies in the past few years has boosted AIG's status in the life/health industry as well.

By net premiums written, AIG is the third-largest property/casualty writer in the United States (behind State Farm and Allstate) and the largest commercial insurer. By admitted assets, it also has risen to be the second-largest life insurer, behind Metropolitan Life.

Since the company's predecessor, C.V. Starr, an insurance agency, took root in Shanghai in 1919, AIG has built an international reputation. It's grown to include dozens of subsidiary companies and has cultivated the reputation of being a strict underwriter and a reliable producer of profits. The company has significantly outperformed its peers by posting both a five-year average combined ratio of under 100 and a pretax operating return on equity of 15%.

"Despite recording $769 million of pretax net losses in 2001 attributable to the Sept. 11 terrorist attacks, MG remains one of a select number of property/casualty groups that consistently produces outstanding operating results;' A.M. Best Co. said in its report on AIG's property/casualty operations. "AIG's consistently strong earnings are also a reflection of its distinguished trademark as a true global specialty insurance provider. Innovative product offerings, diversification and the ability to issue large limits of capacity are equally important."

On the life side, A.M. Best said AIG's "strength stems from its extensive worldwide distribution network, broad product offerings, consistently strong operating performance and considerable financial flexibility."

AIG operates through four divisions: general insurance, life insurance, financial services and retirement savings and asset management. With a consolidated net income of $5.52 billion in 2002, or $2.10 per share, AIG earned more than any other insurance company in the world--in fact, earned more than the next 18 largest property/casualty companies in the United States combined and more than all of the major European insurance companies combined, the company said in a letter to shareholders.

"There's not an insurance company in the world that comes close to our shareholder equity--$62 billion," said Maurice R. "Hank" Greenberg, chairman and chief executive officer, during the company's annual shareholder meeting in May. "The only other financial services company that comes close is Citigroup. We had record cash flow in general insurance business of $7 billion, compared with $1.4 billion a year ago. These are huge numbers--they demonstrate the momentum we have going forward."

Everything that MG does is based on risk selection, proper pricing and underwriting, Greenberg said. Industry watchers say the company has been successful in maintaining that vision.

"AIG has successfully broadened its scope without over-diversifying to areas outside of their core expertise," said Chris Winans, principal of Williams Capital Group.

Ira Zuckerman of Nutmeg Securities, said MG is a "great company. They pay attention to detail. They've set it up to be very compartmentalized. Each manager is responsible for a small area, and he's required to do well and he is compensated well if he does it well. Hank [Greenberg] is the orchestra conductor."

Although insurance veterans know MG as a significant presence in the property/casualty market, roughly 44% of AIG's pretax operating income stems from life insurance today. About 32% comes from non-life insurance, 16% comes from financial services and the remaining 8% comes from asset management and retirement savings. The company is also diverse geographically, operating in 130 countries.

Succeeding on Many Fronts

The company boasts that it is the largest commercial writer in the United States, the largest international property/casualty insurer, the most profitable and the most geographically diverse life insurer in the world, plus the third-largest consumer finance company in the United States. In the July 2002 issue of Forbes, MG was ranked as the third-largest public company in the world, based on profits, behind Citigroup and General Electric.

Domestically, AIG was launched when three property/casualty companies--National Union Fire Insurance Company of Pittsburgh, Pa., New Hampshire Insurance Co. and American Home Assurance Co.--were consolidated from the early 1950s through 1969. In 1968, Starr/American International Co. and various affiliates acquired a majority interest in National Union Fire and its two subsidiaries, Birmingham Fire Insurance Company of Pennsylvania and Lexington Insurance Co. National Union was restructured and American International Group was born.

"The strength of AIG is its diversification, its global presence," Greenberg said during the company's first-quarter 2003 earnings call. Greenberg has had a role leading the company for more than four decades, working first for the C.V Starr & Co. in 1961 and for MG since 1968. Greenberg was a strong advocate for the federal terrorism backstop legislation following Sept. 11, 2001, and more recently has been vocal on the need for tort reform.

Asked if AIG has ever considered selling off either its property/casualty or life/health operations to concentrate solely on the other, the company responded simply: no.

Since AIG was created, the company has launched several new companies and also has grown through property/casualty acquisitions, including the New Hampshire Insurance Co. in 1969, MU Insurance Co. in 1970, the Insurance Company of the State of Pennsylvania in 1970, the United Guaranty Group in 1981 and HSB Group Inc., the parent company of Hartford Steam Boiler Inspection and Insurance Co. in 2000.

AIG is also the majority stockholder of Transatlantic Holdings Inc., which went public and listed on the New York Stock Exchange in 1990.

RELATED ARTICLE: American International Group

Headquarters: New York 

A.M. Best Rating: Most AIG subsidiaries are rated A++. *

A.M. Best Co. Nos.: 70342; 18540

Chairman and Chief Executive Officer: Maurice R. "Hank" Greenberg

Subsidiaries include: National Union Fire Insurance Co., American Home Assurance Co., Hartford Steam Boiler Group, AIG Life Insurance Co., AIG SunAmerica Life Assurance Co., American General Life Insurance Co.

Founded: 1919 by the insurance agency interests of C.V. Starr

Core Businesses: General insurance, life insurance, financial services, retirement savings and asset management.

Corporate Financials (2002) **:

* Total revenue: $67.48 billion

* Total assets: $561.23 billion

* Net Income: $5.52 billion

Stock: NYSE: AIG

Web Site: www.aigcorporate.com

* Note: A.M. Best rating as of June 12, 2003

** Source: AIG's Securities Exchange Commission 10-K Filing