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Insurance giant AIG selects a new chief

Robert Willumstad, a former executive at Citigroup, replaces Martin Sullivan at the struggling company.

June 16, 2008|From the Associated Press

NEW YORK — American International Group Inc., which has lost billions on bad bets on the mortgage market, on Sunday named former Citigroup Inc. executive Robert Willumstad to replace the insurer's besieged chief executive.

Willumstad, 62, will take over from Martin Sullivan, 53, effective immediately, the company said. Stephen Bollenbach, the former chief executive of Hilton Hotels Corp., will be named AIG's lead director.

AIG named Willumstad chairman of the board in fall 2006, about a year after he left his post as president and chief operating officer at Citigroup. Citigroup had passed him over for the chief executive job, which went instead to the now-dethroned Charles Prince.

Sullivan, a native of England who had worked with AIG for 37 years, joins a long list of chief executives who have been pushed out since the credit crisis started slamming the financial services industry last year.

The list includes Citigroup's Prince, Merrill Lynch & Co.'s Stanley O'Neal and Wachovia Corp.'s Ken Thompson.

New York-based AIG -- the world's biggest insurer with $1.05 trillion in assets -- lost $7.8 billion during the first quarter of the year because of investments and contracts tied to bad loans.

The insurer's first-quarter deficit was even worse than its fourth-quarter loss of more than $5 billion.

After its two straight quarterly losses, AIG revealed plans to raise $20 billion in fresh capital -- but investors reacted skeptically, unsure that extra cash would solve the insurer's problems.

Shares of AIG have fallen by more than 50% over the last 12 months, closing at $34.18 on Friday.

"In the coming months, we will conduct a thorough strategic and operational review of AIG's businesses and their performance," Willumstad said in a statement Sunday. "The board and I recognize that results over the past two quarters have been unacceptable, but we are confident in AIG's future."

George L. Miles Jr., chairman of the AIG board's nominating and corporate governance committee, said Willumstad's "broad managerial and financial services experience makes him the right person to lead AIG through today's turbulent markets, drive further organizational change and rebuild shareholder value in the years ahead."

Besides big losses, AIG is reportedly facing a regulatory investigation.

The Securities and Exchange Commission reportedly began looking into whether AIG had overstated the value of contracts called credit default swaps.

Credit default swaps, or CDS, are essentially insurance policies that investors buy to protect against loan defaults, including sub-prime mortgage defaults.

A $9.1-billion loss in AIG's CDS portfolio dealt the insurer its most significant blow during the first quarter.

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