'The AIG Story'

choi

James Freeman, Insurer to the World; In the 1960s, AIG insured a CIA mission to retrieve a sunken Soviet submarine from the floor of the Pacific Ocean. Wall Street Journal, Feb 5, 2013
http://online.wsj.com/article/SB ... 78302269191198.html
(book review on Maurice R Greenberg And Lawrence A Cunningham, The AIG Story. Wiley, 201*)

Quote:

"Taking over in 1968, Mr Greenberg launched the company on one of the great winning streaks in corporate history. By 2005, the authors report, the value of the company had increased by 19,000%, and AIG was the world's largest insurance company.

"After Mr Greenberg left [in 2005], AIG took on mortgage risk in two significant ways. It agreed to insure against the potential default of tens of billions of dollars in mortgage-backed securities, including many that held risky subprime loans. To further juice its profits, AIG also began buying more mortgage-backed securities itself. Compounding the risk, it was making these purchases with cash that it [did not have]

Note:
(a) Maurice R Greenberg
http://en.wikipedia.org/wiki/Maurice_R._Greenberg
(1925- ; nickname "Hank"; joined CV Starr as Vice President in 1960, was promoted to Chairman and Chief Executive officer in 1968 (until ousted in 2005))   
(b) The review commented, "The authors argue that, no matter how mundane or exotic the risks, AIG focused on what is known as an underwriting profit. Put simply, insurance companies can make money in two ways. The first is by analyzing risks and pricing their coverage above the cost of the eventual claims from policyholders. The second is by exploiting 'the float,' the time between the collection of premiums and the payment of claims. By investing premiums wisely during the float, insurers can be profitable even if their underwriting is weak."

The first ("analyzing risks and pricing their coverage") is underwriting profit.