CASE ANALYSIS

JIREH E. MALINUCA
AMY ROSE ABALUNAN
MBA 203 – HUMAN BEHAVIOUR IN ORGANIZATION
Case 10: Did AIG Ensure Risky Decisions?

I. Introduction:

Having an insurance to be able to prepared for worst scenarios in life is one of the goals for every household. In
the Philippines there are a lot of insurance companies offering enticing insurance policies that goes with
bundled benefits like health, death and with investments and etc. Signing up for a membership comes with a
monthly payment from policy holders which will also be invested by the insurance companies for them to profit
in exchange for our protection.

American International Group Inc., was a global leader in the business of selling insurance but in the 2008 the
company was on the brink of collapse as it incurred huge amount of loss due to bad decisions of the company

II. Issues Underlying the Problem

Due to foreclosures on home loans rose to high levels. AIG had to pay out on what it had promised to cover.
The AIGFP division ended up incurring about $25 billion in losses. Accounting issues within the division
worsened the losses. This, in turn, lowered AIG's credit rating, forcing the firm to post collateral for its
bondholders. That made the company's financial situation even worse.

III. Alternative Solutions to the Problem

1. Avoid making too much risky decisions that will cause future financial problems
2. Government interventions in policy making and regulations
3. Transparency in company’s financial position to guide the investors decision making

IV. Conclusions

In conclusion, AIG has made bad and risky decisions in their insurance policies which they gambled on
collateralized debt obligations that resulted to their near downfall in 2008. However, the intervention of the US
Government has help them bounce back and survived the financial crisis.

V. Recommendations

It is recommended therefore that the company strengthened their internal policies and profitability strategies.
They must inform the policy holders about the status of the company and they should always ensure the
capability of the company to meet its obligations with the insurers.