Insurance Giant in Financial Crisis

May 14, 2008

The global insurance juggernaut known as the American International Group is in trouble. AIG, the biggest insurance company in the world, has lost $7.81 billion in the first quarter of 2008, according to its most recent financial report.

This lost comes on the heels of the unfortunate year of 2007, when the company’s stock went down from $70 per share to less than $60 per share. Presently, a share of AIG sells for only slightly above $40 on the New York Stock Exchange. To be exact, its stock went down recently by an entire 2.1% to $44.15 a share, and then decreased by an extra 7.6% during after-hours trading to its present worth of $40.80 a share.

The company is trying to compensate for the losses by generating new capital. Recently, AIG made known its intentions to come up with an additional $12.5 billion through the sale of additional shares and securities, including equity-linked securities and fixed-income securities.

However, AIG also recently increased its per-share dividend to 10%, or 22 cents per share. This move has drawn criticism and confusion from Wall Street observers. William Smith, the CEO of NYC-based Smith Asset Management was uncomprehending. “Why would you dilute your share holders and raise your dividend?,” he asked. “How do you justify that?”

The move that drew so much criticism has resulted in a loss of profits. Profit from shares went down by $3.56 million since last year, the equivalent of $1.41 a share. This is more of a loss than all of Wall Street expected for the year, which was only 76 cents per share.

AIG CEO Martin Sullivan explains what happened. “While we anticipated a difficult trading environment, the severity of the unrealized valuation losses and decline of value of our investments were beyond our expectations,” he stated to the press.

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