Maurice Greenberg, the former chairman and chief executive officer of American International Group, has written his old company urging management to renegotiate their $85 billion government loan, warning that its current terms could destroy the firm.

In a letter filed with the U.S. Securities and Exchange Commission, written to AIG's current CEO, Edward Liddy, Mr. Greenberg attached a “plan to save AIG.”

As Mr. Greenberg calculates it, AIG's $85 billion federal loan “carries an actual interest rate in excess of 14 percent, and on top of that, the government receives 79.9 percent of the ownership of AIG.”

He added that “bottom-line, this means AIG cannot pay off this loan from the proceeds of selling assets in this market, nor can it pay the annual interest rate from earnings.”

Mr. Greenberg warned that as a result, “thousands of jobs will be lost, pensioners will lose their savings, and millions of shareholders will be disenfranchised. It is a lose/lose plan.”

However, he added, “if the loan were changed to non-voting preferred stock, with an approximately 5-to-6 percent dividend and a 10-year right of redemption for AIG at a 10 percent premium, this could be turned into a win/win situation.”

AIG at a minimum should be “afforded the same borrowing terms as other companies,” according to Mr. Greenberg, who is currently chairman and CEO of C.V. Starr and Company, once closely affiliated with AIG.

He noted that since the loan was arranged, the Federal Reserve has stepped up direct lending to scores of financial institutions, and even for nonfinancial firms on “terms far less onerous than those imposed on AIG…”

Mr. Greenberg's AIG stock holdings, now estimated at $1 billion, were said to be about $20 billion when he left the company amidst an accounting scandal in 2005, with allegations that finite reinsurance deals were misused to artificially bolster the company's balance sheet.

Meanwhile, New York Attorney General Andrew Cuomo last week excoriated AIG over multimillion-dollar outlays for executive bonuses, “golden parachutes” and executive junkets during its fiscal crisis, and threatened to sue if the company did not act to recover the money.

Mr. Cuomo released a letter he sent AIG, stating that “the taxpayers of this country are now supporting AIG through rescue financing, which makes such expenditures even more irresponsible and damaging.”

He added a “demand” that the AIG board of directors “cease and desist any such further expenditures and review, rescind and recover all past unreasonable expenditures.”

In response, AIG said it would fully cooperate with Mr. Cuomo's office, noting that “on Oct. 10, we issued a clear directive ending all activities that are not essential to the conduct of our business. We will continue to take all measures necessary to ensure that these activities cease immediately. AIG's priority is to continue focusing on actions necessary to repay the Federal Reserve loan and emerge as a vital, ongoing business.”

AIG outlays first came into the spotlight for criticism at an Oct. 7 hearing in Congress by the House Oversight and Government Reform Committee, where members of the panel slammed the company for expenditures that included $440,000 for a function at a the posh St. Regis Monarch Beach Resort in California.

It was originally described as a retreat for executives, but later AIG said it was a function to reward independent life insurance agents. The company canceled a similar event for property-casualty agents.

However, Mr. Cuomo said the company, after securing the Fed's original $85 billion loan, had paid “hundreds of thousands of dollars for luxurious retreats for its executives, including an overseas hunting party and a golf outing.” The spending, he said, violated New York's debtor and creditor law, which deems such payments to be fraudulent conveyances.

The congressional hearing also revealed that with problems mounting in 2007–and with AIG losing $5 billion in the final quarter alone–the AIG board gave its then chief executive officer, Martin Sullivan, a cash bonus of more than $5 million, as well as a new compensation contract that provided him with a golden parachute worth $15 million. Mr. Cuomo's letter criticized these moves.

Also disclosed by Congress was the fact that Joseph Cassano–who headed the AIG Financial Products unit that put the company in its current financial bind with its sale of credit default swaps to protect mortgage-backed securities–after being terminated in February without cause, was allowed to keep up to $34 million in unvested bonuses and was placed on a $1 million retainer.

Mr. Cuomo's letter said AIG had made “unwarranted and outrageous expenditures…even as the company slipped toward insolvency.”

In addition to seeking to recover monies, Mr. Cuomo wrote that the company's board “must also immediately institute new protections to prevent future abuses, and provide this Office with an accounting of executive compensation and benefits. We hereby place AIG and its Board on notice that this Office will seek appropriate sanctions and remedies if the Board does not comply.”

The AIG board, he said, must review, rescind and recover all improper payments where appropriate, and provide his office with “an accounting of all executive compensation, including but not limited to bonuses, stock options, severance payments, gratuities, benefits, junkets, and any and all other perks from Jan. 1,2007, to date.”

Last week, Senate Finance Committee Chair Max Baucus, D-Mont., wrote Federal Reserve Chairman Ben Bernanke to suggest that “if AIG was throwing money around for tee times and hot-stone massages while begging for Federal Reserve dollars, it's a scandal and an outrage and heads will roll. I want to know who we can fire and how we can get this misspent money back, and I want both of those things to happen pronto.”

Rep. Paul Kanjorski, D-Pa., chair of the House Capital Markets Subcommittee, asked the government to impose on AIG the executive pay reforms contained in the Emergency Economic Stabilization Act, and called for AIG to “reimburse the federal government for every expense incurred during this retreat.”

In related news, a survey has found insurance brokers more confident than risk managers about the financial security of AIG's commercial insurance units. The polling was done by New York-based Advisen Ltd., after the AIG liquidity crisis and following a similar survey of risk managers. (See NU, Oct. 6, page 7.)

Seventy-five percent of those surveyed said they were “very confident” or “somewhat confident” in AIG's security.

Advisen said “the vast majority of brokers characterized the attitude of their clients as 'wary' about the unfolding situation at AIG, but with only one respondent claiming clients are 'panicked,' most brokers of commercial insurance are confident in AIG after the federal loan and few are recommending clients switch from AIG.”

The survey of risk managers by Advisen found that about two-thirds intend to get quotes from AIG's competitors at policy renewal, but according to the broker survey, few buyers have yet given their broker firm instructions to replace AIG.

“Survey results show that brokers have communicated to policyholders that AIG's insurance subsidiaries are secure,” said David K. Bradford, Advisen's executive vice president and chief knowledge officer.

However, Mr. Bradford said that “while brokers have been a force for calm in the marketplace, survey responses indicate that brokers don't yet know how much diversification clients will seek, or whether this crisis will impact overall market pricing or brokerage income.”

Advisen conducted its survey from Sept. 26-30 with 611 respondents, with almost 20 percent working for one of the four largest brokers. Twenty-three percent said they had offered to get quotes to potentially replace AIG, while 23 percent said they recommended no action at present.

Brokers said 1 percent or fewer of their clients directed them to replace AIG at renewal, and even fewer asked that AIG be replaced midterm.

In conversations with brokerage firm executives attending the Council of Insurance Agents and Brokers Insurance Leadership Forum earlier this month, “the story lines are the same as when we surveyed brokers a week earlier,” Thomas P. Ruggieri, Advisen's chief executive officer, said from the CIAB conference in Henderson, Nev.

“Execution risk of the asset sales has been cited as a common concern among brokers. They also worry about the potential of breaking up the commercial p-c units,” he said. “But while brokers are watching ratings actions carefully, they are comfortable with the present security of AIG's property and casualty subsidiaries.”

(Additional reporting by Arthur D. Postal and Matt Brady.)

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Fed's Loan Terms Could Spell Doom For AIG, Greenberg Letter Warns

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