AIG's Benmosche in 'Race Against Time' to Fix Insurer (Update1)

By Hugh Son, Erik Holm and Andrew Frye
Bloomberg News
August 4, 2009

Aug. 4 (Bloomberg) -- American International Group Inc.'s next chief executive officer, Robert Benmosche, takes control of a money-losing company that has overwhelmed four predecessors since 2005.

The challenge facing Benmosche, 65, who replaces Edward Liddy next week, is to stem an exodus of customers and employees from New York-based AIG while dismantling what was once the world's biggest insurer to repay loans within a $182.5 billion government bailout.

"He's in a race against time," said Cathy Seifert, an equity analyst at Standard & Poor's with a "sell" rating on AIG. "The sooner they're able to consummate a significant deal, the better. Right now there is a downward spiral, but that could turn around if they're able to get positive momentum."

Benmosche was chairman and CEO of MetLife Inc., the largest U.S. life insurer, for eight years through 2006 and oversaw the company's transition to a publicly traded business from a policyholder-owned firm. Liddy said in May he would step down as soon as a replacement capable of leading AIG for at least three years was found. AIG's September bailout has been revised three times amid more than $100 billion in net losses since 2008.

Benmosche "came in and he kind of changed the culture" at MetLife, said Steven Schwartz, an analyst with Raymond James Financial Inc. who has covered the insurer since 2002. MetLife became "more focused on profitability and returns" rather than size, Schwartz said.

Reynolds to Depart

The insurer's restructuring chief Paula Rosput Reynolds, previously considered by analysts to be a CEO candidate, will leave the firm this quarter, AIG said yesterday in a statement. The company will report second-quarter results on Aug. 7.

Before joining MetLife in 1995, Benmosche was an executive vice president at PaineWebber Inc. where he directed the merger with Kidder Peabody, AIG said. While he was at MetLife, the insurer paid more than $11 billion for Travelers Life & Annuity, which included operations in Europe, Asia and Latin America.

"This is a very good choice," said Donald Marron, former CEO of PaineWebber while Benmosche worked there and current CEO of buyout firm Lightyear Capital LLC. "He understands the insurance business; he understands the operating side. AIG needs someone that can help restructure both."

AIG's board approved $7 million to $10 million in compensation for Benmosche, according to the Wall Street Journal, which cited unidentified people familiar with the matter. It was unclear if the pay would be approved by Kenneth Feinberg, who is reviewing executive pay for the Obama administration, the newspaper said. Liddy took a salary of $1.

Credit Suisse

Benmosche has been on the board of Credit Suisse Group AG since 2002. AIG's consumer lender unit will receive as much as $975 million selling mortgage-backed certificates to the Zurich- based bank, the insurer said last month. Victoria Harmon, a spokeswoman for Credit Suisse in New York, had no immediate comment.

AIG has said it may hold public offerings for two non-U.S. life insurance businesses and a property and casualty operation to help repay the bailout. The company has struck deals to sell more than 20 assets for about $7.4 billion since the rescue, including a U.S. auto insurer, an equipment guarantor and a Japanese office tower. That compares with more than $40 billion the company owes on a Federal Reserve credit line, in addition to a $40 billion Treasury investment.

"We will focus on this mission: maximizing the value of the company's assets and meeting all of our stakeholder obligations," Benmosche said in the statement. Benmosche, who was also named to AIG's board, was unavailable to comment further, said Christina Pretto, a spokeswoman for the insurer. Liddy has said he also intends to step down as chairman and that the CEO post and top position on the board should be split.

Government Rescue

Lawmakers, including Representative Elijah Cummings, grew frustrated with the costs to prop up AIG and the rescue funds that flowed to banks that did business with the insurer. Fed Chairman Ben S. Bernanke has said that AIG, the insurer of 100,000 companies, municipalities and retirement plans with ties to the world's largest financial firms, is too big to fail.

"While I have sincere optimism about Mr. Benmosche's ability to take the helm of AIG, I caution him that my colleagues and I will be closely watching," Cummings said yesterday in an e-mailed statement. He called for Benmosche to submit a financial disclosure similar to those required for top appointees to federal agencies.

Liddy came under fire from lawmakers and some called on him to quit because of AIG's plan to give $165 million in retention pay to employees of the Financial Products unit, which helped push the firm to the brink of bankruptcy. The bonus plan was created before Liddy became CEO, and he persuaded some recipients to return part of the awards.

AIG's Chiefs

AIG was run for more than three decades by Maurice "Hank" Greenberg, who stepped down in 2005. Martin Sullivan held the top post for three years and was forced out after saying losses tied to home loans would be "manageable." Robert Willumstad was CEO for about three months before Liddy was appointed.

Reynolds was hired last year by Liddy. She previously was CEO of Safeco Corp. and arranged for the company's sale last year to Liberty Mutual Group Inc. for $6.2 billion.

AIG's stock has declined more than 95 percent in the past 12 months.

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