The beating that insurance giant American International Group has sustained over the past months claimed its first major executive casualty yesterday, as CEO Martin Sullivan stepped down in the wake of steep losses triggered by subprime mortgage investments.
Sullivan’s resignation, which took place at a board meeting, capped a months-long saga in which the venerable insurance company came under scrutiny from New York State insurance regulators, racked up nearly $8 billion in losses and drew the ire of its former chairman, Maurice “Hank” Greenberg.
AIG Chairman Robert Willumstad, 63, takes the CEO role, effective immediately. News of Sullivan’s ouster was first reported by The Wall Street Journal’s Web site yesterday afternoon.
One of the largest and most recognized insurance firms in the world, AIG has lost more than half its value over the past year as the behemoth has followed the lead of several large financial firms and stumbled as a result of its bets on bonds backed by junk mortgages.
Making matters worse, AIG has also been the target of a probe by the New York Insurance Superintendent’s office over the insurance firm’s accounting for losses on esoteric derivatives known as credit default swaps.
The bad news spurred attacks from many investors, not the least of whom was Greenberg, who was a harsh critic of Sullivan. The ex-AIG monarch ran the insurance firm for four decades until he was forced out after coming under scrutiny from former state Attorney General Eliot Spitzer.
Willumstad, who joined AIG after he was passed up for the CEO title at Citi in favor of Chuck Prince, is a respected Wall Street veteran, who as a result of being an outsider might be better suited to implement change at the company, the Journal said.
AIG shares closed up Friday 50 cents to $34.18, but in the year to date they have fallen a breathtaking $24.12, or 41 percent.