Executive Summary
The report investigates AIG’s position in the insurance industry based on its market, financial, strategic, and societal aspects. The discussion uses various forms of analysis, including PESTEL, Porter’s Five Forces Model, VRIO, and SWOT. The analysis sought to find the company’s position based on its value, strengths, weaknesses, and internal and external environment, among other angles.
The main findings are that AIG is highly valuable and occupies a relatively higher position in the global insurance industry. Despite being affected by the ongoing Ukraine War and global inflation, the firm has a positive stock value and financial situation. AIG enjoys the strength of its American and international presence and has an excellent brand reputation, making it unbeatable. In conclusion, AIG is in a better economic and industry position to engage with its rivals in the market. It also has critical value in the global market, keeping its stock and revenues growing despite inflation and other economic factors.
Introduction
AIG is a global insurance company operating in approximately 70 countries. With its headquarters in New York, the firm has at least 36000 colleagues providing property casualty insurance, retirement solutions, life insurance, and other financial services (American International Group, 2023b). AIG’s generic strategy is to achieve underwriting success, focusing on product development and creating a medium-sized portfolio (Trefis, 2021). The strategy helps to exit non-profitable operations and partner with competitors to manage various risks.
AIG competes with Swiss Re, MetLife, Allianz, Liberty Mutual, Loews, Marsh McLennan, and Berkshire Hathaway (Trefis, 2021). AIG has been equally growing with the tremendous growth of the insurance industry for the past ten years (American International Group, 2023b). The company’s revenue increased from $52.06 billion in 2021 to $56.437 billion in 2022 and is expected to do better in the 2023 financial year (American International Group, 2023a). Although AIG was affected by the 2020 global economic recession, it is already recovering and in a relatively higher market position.
PESTEL Framework
Political Factors
Political factors mainly cover government operations that affect the operations of a business. AIG enjoys stable political stability in the United States, where it coordinates most of its functions (Hemenway, 2022). However, it may experience adverse effects of political instability in other nations in which it has invested. As of April 2022, the company considered cutting insurance covers for Ukraine and Russia, where war has significantly reduced its growth (Hemenway, 2022). As a global firm, AIG is differently affected by government regulations of various jurisdictions and countries. Favorable terms ensure better operations chances, and AIG often invests in positive-regulations-based regions.
Economic Factors
The company is slowly recovering from the 2020 global economic recession and registered increased revenues in 2022. Although it might be affected by the poor economies of Ukraine, Russia, and other developing countries, the firm was on the right track based on the fourth quarter report on December 31, 2022 (American International Group, 2023a). The general insurance registered the most robust underwriting profitability ever recorded, with a doubled income of $2 billion from 2021 (American International Group, 2023a). The company repurchased $779 million of common stock, paid $243 million in dividends, and redeemed $ 1.8 billion (American International Group, 2023a). At the end of the financial year, AIG should record incredible profits.
Social and Technological Factors
People understand the need for life and property insurance with increased risks of natural causes of death in the US and other developed nations. AIG is enjoying new customers from all its branches (American International Group, 2023b). Employers are also embracing and encouraging employees to adopt the culture of insurance. With the introduction of AI, AIG employs the technology to collect and analyze data to derive critical business insights (American International Group, 2023b). Indeed, it has built AI-based digital transformation through software and apps that use machine learning to help users.
Environmental and Legal Factors
AIG has proven socially responsible by developing environment-friendly strategies to sustain a changing climate. According to American International Group (2023b), the company is in the top league in environmental conservation efforts. It was the first in the industry to issue a policy statement recognizing the effects of climate change. AIG also called on federal legislation to minimize greenhouse gas emissions.
Currently, the organization supports the reclamation of polluted properties and the development of green real estate (American International Group, 2023b). Legally, AIG is conversant with employment and intellectual property laws. As of 2022, the company had 26,200 employees and has not recorded significant employment lawsuits (American International Group, 2023b). AIG is excellent in intellectual property law, considering it deals with property compensation.
Porter’s Five Forces Model
Competitive Rivalry
AIG is among the largest insurance companies in the world. However, it has a variety of rivalries, including Allianz, Berkshire Hathaway, Liberty Mutual, Loews, Marsh McLennan, and MetLife. The company has more than 100 years of experience, but following its many competitors, it can barely make a move unnoticed (American International Group, 2023b). The insurance industry is fast growing, and AIG is expected to face stiff competition.
Supplier Power and Buyer Power
AIG operates in an industry where bidding and procurement suppliers are more than buyers. This means that the suppliers have minimal bargaining power over product and service prices, giving buyers more control (Trefis, 2021). The suppliers provide less differentiation and fairly standardized products at a low switching cost. Therefore, AIG quickly switches from one supplier to another in search of favorable prices. Following a wide range of suppliers, the buyers may have the power to control the costs if there are many producers (Trefis, 2021). Unfortunately, the product producers are few; hence, they own the price control over the buyers and suppliers.
The threat of Substitution and New Entry
Only a few insurance substitutes exist, mainly low-profit earning programs that cannot match AIG. Henceforth, there is no limit to how high AIG can raise its prices in the industry. Few substitutes have high-quality products but are often too expensive (Trefis, 2021). These factors weaken the threat of substitution in the insurance industry.
AIG is not threatened by new businesses entering the industry because it is on a different level (American International Group, 2023a). It takes many decades for a new company to get where AIG regards its business value and financial position. Therefore, a new entry would mean little to AIG’s competitive powers.
VRIO Framework
Value and Rarity
AIG has a high value in terms of market, intellectual property, and other rights, as well as a global and local presence. As of March 31, 2023, the value of the AIG market stock was $49.82, an increase of 2.30%. Allianz and Prudential Financial Inc. surpassed the firm’s values of $195.09 and 81.75, respectively (The Wall Street Journal, 2023). AIG’s intellectual property rights, trademarks, and copyrights are precious for thwarting competition. Its local and global presence is also critical because it diversifies the revenue sources by isolating the company’s balance sheet from economic cycles (Trefis, 2021). The firm is rare in terms of intellectual property rights and other rights because rivalries cannot copy them. However, its marketing expertise within America, talent management, and local and global presence are common.
Imitability and Organization
AIG has a high risk of imitability, and although it has a unique position in the industry, a disruption can increase the chances of imitation. AIG’s competitors often match its pricing strategies, sales force, and channel management. Talent management strategies and presence in local and global spheres are also imitable (Trefis, 2021).
AIG has attained a positive organizational strategy but has yet to explore all its potential. The company is leveraging its in-house expertise so far but has yet to fully utilize the potential of its intellectual property rights and other rights. AIG’s local and global presence organization is excellent because it has widely achieved diversity.
SWOT Analysis
Strengths
AIG enjoys a firm brand name enabled by a vast global presence. The company is in over 70 nations and jurisdictions and has a unique and visible logo. Its intellectual and copyrights are other company powers (Trefis, 2021). AIG enjoys substantial equity and capital market performance. As of March 8, 2023, AIG’s earnings were 89.9%, and it had paid ordinary and preference dividends (The Wall Street Journal, 2023). The company is a leading insurance franchise offering various services and products through an excellent distribution network.
Weaknesses
AIG is viewed from the perspective of a scam years later after the famous scandal. In 2003, the SEC sued the company for selling fake policies to enable the forging of misleading financial data. As the case was resolved, the company paid a fine of $10 million. This scandal has stained the reputation of AIG, and it still suffers from customer setbacks today (Trefis, 2021). Another weakness is that the firm is prone to fluctuating nation-based markets where the current inflation makes premiums expensive (Hemenway, 2022). As inflation increases with the progress of the Ukraine War, the firm may register reduced new customers.
Opportunities and Threats
AIG has not tapped the Chinese and Asian markets, but it has an opportunity to explore them. It also has a chance to clear its name from a scam perspective by complying with the law and minimizing the chances of lawsuits (Trefis, 2021). AIG can expand its portfolio into developing countries with stable economies to compensate for the fluctuating market in developing and conflicting nations. With the declining dollar value and introduction of a powerful China-based currency, AIG might experience financial losses in the future (Trefis, 2021). Following the increasing inflation, the company may pay increased interest rates with reduced revenues.
Conclusion
AIG is currently in a favorable position in the insurance industry and may do better with the portfolio expansion. The American and global presence is a significant factor in further exploring and rising in global position. AIG has few international competitors but is strong and needs an alternative strategy to defeat them. Unfortunately, AIG’s insurance operations are easily imitable, and due to the firm’s position in the industry, it cannot make a move without being noticed.
AIG has a chance to explore China and the Asian market but must be alert to possible political barriers, considering the rivalry between the US and China. Financially, AIG has a competitive advantage in terms of its growing revenue. This information will help me to start formulating some of my conclusions for CW2.
Reference List
American International Group (2023a) AIG reports fourth quarter and full year 2022 results. Web.
American International Group (2023b) Home. Web.
Hemenway, C. (2022) ‘Russia-Ukraine a ‘Complex’ Situation for Insurance Industry: AIG CEO Zaffino,’ Insurance Journal [Preprint]. Web.
The Wall Street Journal (2023) American International Group Inc. Dow Jones & Company. Web.
Trefis, T. (2021) American international group stock is fully valued. Forbes. Web.