General Body Meeting 10-31-12

1. General Body Meeting 10-31-12

2. Welcome

3. Etiquette in Asian business culture • Strict distinction between colloquial vs. business language/manner • What is spoken & not spoken • Following the unspoken rules = measure of professionalism • Culture of respect • Head bow > handshake • Appreciation, Humbleness • Reserved, concise, formal • No schmoozing

4. How To • Steps to help you make positive first impression • Importance of the question “Where are you from?” • 3 lines in 3 East Asian languages (Korean, Japanese, Chinese) • Hello • My name is X • Nice to meet you (difficult, but automatic gold star) • Everything is written in polite/honorific speech • Show that you understand and respect culture the person comes from

5. Korean • Anyounghaseyo안녕하세요. • X iragohapnida X 이라고 합니다. • Jalbutakduripnida잘 부탁드립니다.

6. Japanese • Hajimemashite始めまして。 • vs. Konnichiwa こんにちは。 • X to moushimasuX と申します。 • Yoroshikuonegaishimasu • よろしくお願いします。

7. Chinese • Nin hao您好。 • Wojiao X 我叫 X 。 • Hen gaoxingrenshinin很高兴认识您。

8. Hello • Anyounghaseyo안녕하세요. • Hajimemashite 始めまして。 • Nin hao您好。

9. My name is • X iragohapnida X 이라고 합니다. • X to moushimasuX と申します。 • WojiaoX 我叫X 。

10. Nice to meet you • Jalbutakduripnida • 잘 부탁드립니다. • Yoroshikuonegaishimasuよろしくお願いします。 • Hen gaoxingrenshinin很高兴认识您。

11. News Updates

12. Media & Telecom

13. Disney & Lucasfilm • Disney acquires Lucasfilm for $4.05B • Second largest takeover since 1995 merger with Capital Cities • Gives Disney: • Star Wars franchise (7th film to be released 2015) • Indiana Jones franchise • Industrial Light and Magic (special effects) • Transaction Details • Half cash and stock • Includes issuance of 40M new shares • George Lucas is “the sole shareholder”

14. American International Group, Inc. Financials Sector Jiwon Ok, Samson Cheung, Trevor Lu, Manu Rathore, Robert Wong, Kevin Chang, Christy Matthews

15. Agenda • Business Operations What is AIG? • Macroeconomy & Industry Trends Why invest now? • Competitive Environment AIG vs. competitors • SWOT Analysis 360˚ Evaluation • Financial Analysis Fundamental Analysis • Quant Team Technical Analysis • Proposal Recommendation

16. Investment Thesis • Largely undervalued, still unjustly “out of favor” • Memories of the financial crisis collapse • AIG paid its dues, government now opting out by end of the year • High profitability, strong fundamentals • Significantly low P/E ratio, profit margin at 30% ROE at 24% • Treasury selling stocks • Creates a mass amount of supply -> downward pressure on stock price • Current price significantly low compared to pre-liquidity crisis price • Much potential for upward movement as rebound continues

17. Company Information & Business Operations Samson Cheung

18. AIG Background • Engages in the provision of insurance products and services for the commercial, institutional, and individual customers in the United States and internationally • AIG was the 29th-largest public company in the world • Four segments: • Chartis (formerly AIU), rebrand in 2009 • SunAmerica Financial Group, founded in 2009 • International Lease Finance Corporation (ILFC) • United Guaranty Corporation (UGC)

19. 4 Business Segments • The Chartis segment offers property casualty insurance products (46%) • The SunAmerica Financial Group segment offers life and retirement insurance package (46%) • More than 30% growth in operation income in Q2 2012 • The Aircraft Leasing segment acquires and leases commercial jet aircraft to airlines • Acquired in 1990 with the goal of diversification (5%), solid operating income • UGC offers residential mortgage guaranty operations (3%) • Operating income tripled

20. 4 Business Segments, cont.

21. Liquidity Crisis • AIG's share price had fallen over 99% to less than $10 by end of September 2008 • Suffered a liquidity crisis following the downgrade of its credit rating • Credit rating decreases –> Post additional collateral with its counter trading parties (pay cash) • AIG did not have enough cash and were threatened to file bankruptcy • Federal Reserve bailout – credit facility of up to $85 billion

22. Pre-Liquidity Crisis • In 1998, one franchise of AIG, AIG Financial Products (AIGFP), began to sell Credit Default Swaps • They were rated AAA, highest rating possible • In 2007, U.S. mortgage market began to deteriorate -> LC • Important to note that throughout the crisis, AIG’s insurance businesses were- and continue to be- healthy and well capitalized • “The losses that occurred as a result of AIGFP’s actions have no direct impact to AIG’s policyholders.”

23. 5-Yr Graph

24. Rebound • US Treasury is opting out by the end of the year and government is earning profits at the same time • AIG just announced the completion of the U.S. Department of the Treasury $18 billion offering of AIG common stock • America’s $182.3 billion total commitments to AIG is fully recovered • Federal Reserve realizes more than $12 billion combined positive return from AIG’s commitment $$$$$

25. Rebranding Initiatives • Taking proactive steps to rebrand themselves back to AIG as a single brand name • Chartis back to AIG • SunAmericawill become AIG Life and Retirement • Further strengthen the global firm's presence • Fully integrate the global insurance operations, while continuing to respond to market and customer needs

26. Macroeconomy & Industry Trends Trevor Lu

27. Government Activity • US Treasury recently sold $18 billion of its stake in AIG, lowering ownership from 53% to 21% • AIG itself bought back $5 billion • Government had been waiting for an appropriate time to get out, making a profit of $12.4 billion • AIG confident in itself, selling off parts of subsidiaries to get enough capital to buy the shares

28. Performance vs. Markets • Has outpaced the S&P 500 by 40% the past year • Very high beta of 1.93 • Average Beta of industry: .91 • Reflects shaky past performance and not fundamentals or future prospects —AIG —S&P 500

29. Industry Trends • Standard & Poor’s gives the insurance industry “cautious optimism with a touch of uncertainty” • Upswing in premium pricing cycle, with net written premiums growing 3.3% in 2011 • Realized investment gains grew 22.8% in 2011 • Demand increasing after record-setting year of natural disasters

30. Timing • AIG’s price currently reflects an overreaction to numerous factors, making the stock undervalued • Pessimistic speculation about the upcoming fiscal cliff • The US government selling of shares • Volker Rule coming into effect soon • Insurance industry as a whole experiencing a growth period, with Property & Casualty up 9.6% in 2012 • Multiline up 16.3% after falling 23.2% in 2011z

31. Volker Rule • The Volker Rule prevents banks from making certain kinds of speculative investments • AIG is considered a “systemically important” financial institution and will be subject to oversight • CEO Robert Benmosche has explicitly stated that AIG will not be affected • Recent changes to the rule allows insurance companies to engage in propriety trading • AIG mostly takes long-term positions in securities that match their long-term policy obligations

32. Volker Rule, cont. • Financial services only represents 6.32% of AIG’s total revenue (Reuters) • If Volker Rule isn’t amended further as expected, there will still be a minimal effect

33. Competitive Environment Manu Rathore

34. Competitive Environment 34 • AIG’s businesses operate in highly competitive environments, both domestically and overseas • AIG’s main competitors are Allianz and AXA Group • Allianz competes with AIG directly in property and casualty insurance • AXA Group competes directly with AIG in the life-insurance sector

35. Annual Premiums by Region

36. AIG & Other Industry Competitors 36

37. AIG & Other Industry Competitors, Cont. 37

38. Graphical Comparison with Top Competitors 38

39. Why AIG over Allianz • Poor post-recession recovery for Allianz due to European sovereign debt crisis • Uncertainty surrounding Solvency II • Solvency II, an EU directive to come into effect in 2014, forces insurance companies to rely more on assessments of credit risk by private rating agencies • It would affect European financial institutions, especially insurers

40. Competition from Allianz • Both are also competing for the $50bn Chinese insurance market, which recently opened after China eased regulations on foreign companies • ChartisChina is the already the largest foreign property-casualty insurer in China

41. Credit Rating for Allianz • In December 2011, S&P placed Allianz on CreditWatch due to: • Effects of exposure to euro zone sovereign debt • Related bank debt and deposits • The impact of the expected slowdown in Europe • This would lower the returns from Allianz in light of Solvency II’s policies

42. AIG v. AZSEY

43. Why AIG over AXA? • Similar to Allianz, it is based in Europe and will be affected by Solvency II • The outlook for the Paris-based company was cut from stable on negative by Fitch • Competition from AXA • AXA put forward a bid in 2008 to buy AIG’s life-insurance unit, though the deal did not go through

44. AIG v. AXAHY

45. AIG v. The Market 45

46. Competitive Environment Summary • The insurer has paid its dues • It’s P/E ratio is much better than the alternatives and the industry • Expansion in China • AIG will not be affected by Solvency II

47. SWOT Analysis Robert Wong, Kevin Chang

48. Insurance Industry Key Success Factors • Ability to Effectively Manage Risk • Market leaders in the Insurance industry achieve this by: • Diversifying through offering a range of insurance products • Creating and managing a portfolio of high quality assets • Disciplined underwriting processes • Cost effective distribution systems • Possession of accurate information

49. Strengths

50. Strengths • Repaid TARP debts and removal of government oversight • Geographic and product differentiation • $5 billion of excess liquidity • Sale of AIA shares in March 2012 • In June and July 2012, AIG received payments of $77 million and $6.0 billion, respectively from Maiden Lane III proceeds