AIG Insurers Can Run, But Can They Hide Under New Brand?

Alex Rodriguez isn't the only one with a major image problem on his hands. American International Group is also seeing its reputation go down the tubes, thanks to reckless credit default swap trading by its Financial Products unit, forcing the company to rely on mounting federal funds to stay afloat. Can AIG's innocent and financially-sound insurers distance themselves from their parent's toxic brand?

That's the question of the day, following AIG's announcement last week that it would restructure to give its p-c subsidiaries some breathing room and a new corporate identity--AIU Holdings Inc.

Will this gambit work? It can't hurt, given the kind of abuse being heaped on the parent firm and the subsequent tarnishing of the reptuation of any company associated with the troubled organization.

It started getting really ugly this past weekend.

When Saturday Night Live reported on the federal governments latest commitment of another $30 billion to keep American International Group out of bankruptcy, its fake news anchor announced that AIG would use $15 billion to build the worlds biggest toilet, then use that to flush the other $15 billion down the drain!

When a caller to WFAN--a New York radio sports talk station--asked whether the Yankees had insurance to cover the $27.5 million salary of injured star Alex Rodriguez, the host said that if so, he hoped the policy wasnt with AIG, because it was probably worthless!

The reputational plunge prompting such gallows humor after months of relentlessly negative publicity--with little chance of any letup in sightspurred AIG to take drastic steps.

It is tragic, but we think its best if we distance ourselves from the damaged brand of our parent, said John Doyle, president and CEO of AIG Commercial Insurance, speaking before the Conference of Special Risk Underwriters in New York.

In spite of our best efforts to separate ourselves from the problems of our parent, and get the message out that our insurance company assets are separate and secure, we did conclude that we needed to create more distinction between us, according to Mr. Doyle. That way, market noise or negative news about AIG does not affect our insurance business.

How will AIG pull this off? By forming AIU Holdings Inc. to provide a safe haven for its Commercial Insurance Group and other p-c operations. Mr. Doyle described the launch as the first step to create a new business separate from our parent company. This will enable us to better distinguish ourselves.

AIU Holdings will have its own board of directors and management team, as well as a brand identity distinct from AIG--which initially will own 100 percent of the new organization. Sometime next year, AIU hopes to diversify its ownership and raise capital by selling off a minority stake--probably 20 percent, via an initial public offering, depending on market conditions, according to Mr. Doyle.

AIU Holdings will likely issue its own financial statements and hold separate calls with the analyst community to further establish the new company as independent from AIG, he noted.

Mr. Doyle said the restructuring was also critical to provide direct access to the debt and equity markets, as well as offer stock to attract and retain key people.

He emphasized that AIGs insurers remain a force to be reckoned with, since its carriers are still profitable, well-capitalized and separated by regulatory firewalls from their troubled corporate parent.

However, its clear that the shadow cast by AIGs notorious credit-default swapping Financial Products unit eclipse whatever positive story the insurance subsidiaries tell.

Will the restructuring make any difference in the market? AIGs insurance subsidiaries can run, but can they hide from their parents toxic brand?

Forming AIU Holdings gives AIGs p-c companies some financial and management flexibility, but from a marketing standpoint, will it be more than a corporate fig leaf?

Is this different than when Philip Morris Companies was reborn as the innocuously-named Altria Group? I think so. Altria was little more than a cheap paint job to cover up a corporate reputation permanently stained by cigarette smoke.

In this case, AIGs insurers were not the guilty parties. Instead, it was guilt by association. Distance may yet make the buyers heart grow fonder.

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On a side note, I wanted to thank the Conference of Special Risk Underwriters for lifting restrictions on press coverage of its meetings. In a blog posting on Dec. 6, 2007, I blasted CSRU for banning any media attendance, reversing years of open access.

Last year, the ban was technically lifted, but only if reporters were willing to pay to attend. That was a non-starter, as the press does not pay to cover public news events.

Now, all restrictions have been lifted. That's good for the media, because we get access to news and newsmakers. It's good for CSRU, which gets good publicity for its events. And it's good for the industry, which should not be meeting behind closed doors--not with so many critics already convinced insurance is a giant conspiracy to cheat policyholders.

Most importantly, it's good for the public, which benefits from the information the media relays from such events.