Do you know who AIG are? Not be confused with our very own IAG (Insurance Australia Group Limited)…
Well AIG, American International Group, are also insurers, not Australian insurers like IAG but American insurers… And guess what, they have a very chequered past. It is not a surprise that they have chosen to pay for a deal that represents the “next biggest sponsorship deal in all of rugby”. See http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=10840350. The word ‘insurer’ does not appear once in the article. I wonder why that would be?
AIG has been very busy this month with AIA Group Limited (AIA), its “Asian wing” announcing that it would acquire the Dutch Insurer’s ING Group insurance operation in Malaysia. The deal is said to be valued at €1.3 billion (US$1.7 billion). This acquisition is the second-biggest inorganic expansion in less than a month, when AIG’s pan- Asian insurer (AIA) bought the British insurer – Aviva Plc’s operations in Sri Lanka for $109 million.
Read more: http://community.nasdaq.com/News/2012-10/aigs-aia-to-buy-ing-malaysia-analyst-blog.aspx?storyid=181225#ixzz29EG4an5W
In addition to the AIG five-and-a-half year deal with the New Zealand Rugby Union it has also sponsored five other national teams… Richie McCaw stated “It’s really flattering that a company this big has chosen New Zealand rugby to be its cornerstone sponsorship.” “It shows incredible respect for our traditions, heritage and record of success.” Somehow I think it’s more than traditional cultural values at play! Don’t you?
AIG have been busy indeed.
In 2008 AIG, failed in the USA. AIG held a vast asset portfolio and also engaged in securities lending of the assets backing its’ insurance. This allowed AIG to lend its’ assets to others for cash collateral which AIG would then invest. A securities lender could invest in safe assets like government securities or, for a higher return, a company like AIG could invest the collateral in mortgage-backed securities. If the mortgage-backed securities lost value, then AIG would have to meet the difference with AIG’s own money. They did lose value and this created a further liquidity problem for AIG. In addition these assets which were lent were from AIG’s subsidiaries and, when allocated back to the subsidiaries, exposed the insurers to increased solvency risk.
The State regulators of the time were unaware of the significant size of the lending operation due to the ‘off balance sheet’ nature of the transactions. The U.S. Government gave AIG an USD 85 million emergency loan followed by another loan of USD 37.8 billion less than a month later as well as another bailout of USD 40 billion the month after that. One has to ask, how much in total has been doled out, and how much has been paid back and who were the real beneficiaries? In 2008 the ordinary American was looking at a tab of around USD 800 billion. So AIG has well and truly blotted its copy book in the U.S. One could argue that the American taxpayer is actually sponsoring the All-Blacks.
In Addition in 2006 AIG was implicated in the manipulation of local government bond issues. At least USD 7 billion worth of “phantom bonds,” which were intended to aid the poor and supply computers to inner city schools, instead only benefited companies such as AIG. In one such “phantom bonds” case in Florida, an AIG unit conspired with other financial services firms to extract fees from a USD 220 million bond issue that was intended to promote affordable housing for low income families. Unbeknownst to the local government agency involved, AIG’s deal meant the less money that actually went to affordable housing, the more money AIG and its fellow companies would make. AIG and its co-conspirators eventually took USD 12 million in fees. Not a penny went to the affordable housing. The deal also violated U.S. tax laws, which would eventually force AIG to settle with the IRS. AIG was involved in similar deals in Georgia, Oklahoma, and Tennessee.
I cannot help but wonder whether AIG sees sponsorship with a winning team such as the All Blacks as hopefully rubbing off on them- because thus far their track record is dismal. Perhaps it is also an opportunity to undo some of the reputational damage they have already sustained. But this raises a serious question- is this the class of outfit New Zealand wants to be associated with – another ‘suspect’ insurance giant?
One also wonders what else might be afoot- perhaps the purchase by AIG of one of our own struggling insurers? Are these the first signs of the American insurer heading to our shores? I can’t help asking if Mr. Key may have had more on his mind than DotCome, and the film industry during his last visit to the U.S.
William Selway, Martin Z. Braun and David Dietz, “Broken Promises, ” Bloomberg.com, October 4, 2006.
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