Aig Case Study

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Case Study: Coping with Financial and Ethical Risks at AIG Cesare Lucritzia Capella University In 2008-2009, AIG became one of the most controversial financial bailouts in U.S. history. AIG underwrites insurance risk coverage to insurance companies. If an insurance company acquires too much risk, they then go to AIG who is a reinsurance company. Reinsurance companies enable insurance companies the ability to sell more insurance policies and enable growth. Within AIG there was a division that was selling insurance on mortgage-backed securities that are known as credit default swaps. As the value of homes continued to rise in 2008, the contracts that AIG made with these credit default swaps expired and AIG pocketed the premiums.…show more content…
Employee incentives also came into play in the corporate culture. Senior executives were on the receiving end of bonuses even though they were making bad business decisions. “AIG offered cash awards and other perks to 38 executives and a retention program with payments from $92,500 to $4 million for employees earning salaries between $160,000 and $1 million.” (Ferrill, Fraedrich, Ferrill, Pg. 369). A stronger ethics program is something that definitely needed to be incorporated in AIG’s company culture. The problem was that there were so many unscrupulous executives involved in so many layers of corruption, that there was no code of ethics or conduct to draw from. In a way, it was like a corporate free for all. With Greenberg greasing palms of U.S. and international officials, nobody below him on the food chain was ever brought into question until the company literally collapsed. When you’ve got someone at the helm with no scruples, how can those below have a role model to follow? This company needed to be completely dismantled from the top and restructured from the bottom up. There are many things that AIG could have done differently to prevent its failure and subsequent bailout. First, AIG needed to increase its transparency. AIG also needed to increase its accountability. Internal audits needed to be conducted monthly with such risky portfolios. There needs to be a more realistic assessment of liabilities that AIG incurs along

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