Here's How to Make Sure AIG Is on the Right Track

AIG cleaned up it's mess, but how do you make sure it stays clean?

Jul 28, 2014 at 7:00AM

In a matter of a few years, AIG went from worldwide insurance-leader to the brink of bankruptcy. Since then, the company sold-off non-core operations and has made an attempt to reinvigorate its culture of profitable underwriting. But how can investors know if the company is succeeding on this front?

To find some answers, Motley Fool analyst David Hanson recently sat down with Larry Cunningham, the author of The Essays of Warren Buffett: Lessons for Corporate America Warren Buffett himself said of the book, "Larry Cunningham has done a great job at collating our philosophy." Cunningham contributed on former AIG CEO Hank Greenberg's book The AIG Story. In the following video, Cunningham gives his thoughts on AIG's turnaround and what investors need to be focused on.

An insurance company's worst nightmare is your investing opporuntity
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest insurance cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

A full transcript follows.

Hanson: How do you think investors and shareholders should monitor that culture, and the values at a company like AIG? At Berkshire we can have confidence that the values that have been there for so long are going to be there in the future.

But with a company like AIG, that had a transformation in values -- and they appear to be back on the right track -- but how would you, personally, monitor that going forward? Would it be listening to management, or would it be through the numbers; are they writing good insurance? How would you weigh those two things?

Cunningham: Traditionally, AIG's culture was, under Hank Greenberg and C.V. Starr before him, back to the '50s and '60s was focused on underwriting profit. That was how they measured everything. At Berkshire, its float is the principle measurement of operational success on the insurance side. At AIG, it was all about underwriting profits.

That meant a disciplined assessment of risk, and underwriting policies only when you were making money. But that also meant that the company went out and pitched business and created products and developed new lines of insurance, opened markets in 130 countries. It was a very adventuresome, internationalist, ambitious, bold kind of leadership and culture that pervaded it.

It was very easy to see, in the numbers, in how the underwriting profit went, and in the growth and stability. With all the upheaval after Hank left, and the London trades blew the place up and the government came in to rescue it in some ways, but basically lend it enormous amounts of money that it had to repay by selling businesses -- it was a very different place. Those expansive attitudes I think have been eclipsed, been cut back substantially, so now you've got a stodgy insurance company.

I think the new leadership will have to figure out, is it the new AIG or the old AIG? They really did make a big change. It's symbolic; they changed the logo. It's a new AIG.

I think the insurance analysts and followers and shareholders will be very interested to see, is this a company that's going to be a stodgier kind of place, or the more expansionary place?

To your question, I think you look at the qualitative and the quantitative. You listen to the notes that management is sounding, what they're telling us, and then how it shows up in the numbers, both on underwriting profit, size of float, growth in float, and then growth in markets. Are they going to regrow in the Philippines or Taiwan, East Asia, and make China their home again, or not?

That's a very big, dynamic story. I'm sort of in suspension on that. I don't have a strong opinion about what direction that company's going to take. I used to own AIG stock. I don't anymore.

David Hanson owns shares of American International Group. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information