Willumstad Replaces Sullivan as AIG CEO

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New Chief Sees ‘No Sacred Cows’ in Turnaround Plan; Ready to Divest of Non-Insurance Holdings

American International Group, the world’s biggest insurer [by capitalization], replaced CEO Martin Sullivan on June 15, after it suffered two quarters of record losses from risky mortgage bets and its share price more than halved over the past year.

Sullivan is the latest Wall Street chief to lose his job amid large losses stemming from the collapse of the U.S. subprime mortgage market, which triggered a global credit crunch.

AIG named veteran former Citigroup banker Robert Willumstad, who was already AIG chairman, as its new CEO, effective immediately. He told Reuters that he plans to craft a turnaround plan for AIG by early September that will likely include plans to shed some of the sprawling group’s non-insurance entities.

Willumstad has vowed to undertake a thorough review of its worldwide operations and indicated that he could shed people and units as part of his plan to turn around the company.

Willumstad is no stranger to the company, having been chairman for two years.

“We expect the company to de-lever its balance sheet through asset sales, with a focus on preserving and strengthening its core insurance franchise,” said Standard & Poor’s analyst Catherine Seifert, in a research note.

AIG Financial Products, a unit which took risky mortgage bets resulting in large losses, is the division most likely to be cut, said Bill Fitzpatrick, a financial stock analyst at Optique Capital in Racine, Wisconsin, which owns about 400,000 AIG shares.

“The P&C [property casualty insurance] business will probably remain intact, and the same thing for life insurance,” said Fitzpatrick.

Willumstad told investors that he sees AIG’s insurance business as its “core franchise and the core skill set” of the group, which may hearten those who have recently grown concerned that AIG’s insurance operations could be losing their edge.

AIG, which has been in the insurance business for 89 years, posted lower than expected operating earnings for the last quarter, rattling investors already spooked by large losses from risky subprime investments.

While Willumstad indicated his review could lead to asset sales, he did not specify where cuts could be made.

“Nothing is off the table, and there will be no sacred cows,” Willumstad said.