AIG replacing CEO Liddy, to revamp board

American International Group Inc. faces yet another challenge as it seeks someone to succeed Edward M. Liddy as chief executive of the embattled company.

Finding the ideal candidate for that job may not be easy, analysts said. The new chief will have to work to keep the company stable while leading it through its dismantling, all the while facing continuing public and government scrutiny.

AIG announced that Mr. Liddy, who is also chairman, will step down as soon as his replacement is found. In addition, AIG said it will separate the CEO and chairman roles and reconfigure its board so a majority of its members will be the six newly elected independent directors. The search will be conducted by the new board and the federally appointed trustees of the AIG Credit Facility Trust.

“Working with the board, Mr. Liddy has determined that coincident with the reconfiguration of the board, the company should also initiate the necessary actions to install a more permanent team and structure,” AIG said in a prepared statement.

Mr. Liddy, a former CEO of Allstate Corp. of Northbrook, Ill., came out of retirement to join AIG in September at a salary of $1 a year.

He was the New York-based insurer’s fifth chief executive since 1919 and its third in a year. Mr. Liddy took the position during the federal bailout in September 2008 by the Federal Reserve Board, replacing Robert B. Willumstad.

Mr. Willumstad was installed as CEO in June 2008 after the ouster of former chief Martin J. Sullivan, who replaced longtime chairman and CEO Maurice R. Greenberg in 2005. AIG’s only other chief was company founder Cornelius Vander Starr.

Mr. Liddy said in a statement: “Much work remains to be done at AIG, but much has already been accomplished. With the financial assistance of the Federal Reserve Bank of New York and the U.S. Department of the Treasury, we have made substantial progress in stabilizing AIG, reducing the systemic risk that led the government to rescue the company, protecting our policyholders and our businesses, and developing a plan to repay American taxpayers.”

Now, after being given access to more than $180 billion in federal aid, AIG has sold some assets and is looking to sell more.

In April, it announced plans to accelerate the spinoff of its property/casualty lines into a special-purpose vehicle in preparation for the possible sale of a minority stake in the business.

AIG also continues to pursue the sale or spinoff of various other operations.

Observers said Mr. Liddy’s departure is not a surprise.

“He came in as an interim person,” said Cliff Gallant, an analyst at Keefe Bruyette & Woods Inc. in New York. “[Mr. Liddy is] a good man, and he clearly stepped into what he knew to be a very difficult situation, and I think he held handled it with about as much grace as you could have expected.”

The timing of his departure is better than it would have been a few months ago, when the company was in a “day-to-day crisis mode,” said Jennifer Marshall, a senior financial analyst with Oldwick, N.J.-based A.M. Best Co. Inc.

Still, Mr. Liddy’s departure leaves the company with another challenge.

“The most important thing for the company is stability, and I think the sooner you get a permanent person who can lay out a vision for the company, the better,” Mr. Gallant said.

And finding a replacement CEO may be difficult given AIG’s situation, analysts said.

“You’re going to need somebody who’s had a unique set of experiences,” said John Wicher, who runs an eponymous consulting firm in San Francisco. AIG “is going to need somebody who is forward-looking and inspiring, and can re-energize the employees, the broker community and others that the AIG which they knew and loved is going to be reinvigorated,” he said.

“The flip side is, because of the public ownership, you’re going to need someone who can navigate the very difficult politics of all of this,” as well as someone capable of unwinding non-strategic assets and AIG’s large derivatives positions, Mr. Wicher said.

“Then you ask yourself, who in the world would want that job?” he said.

Bill Bergman, an analyst with Chicago-based Morningstar Inc., said: “They’re going to be looking for someone with good expertise and experience in restructuring, including the legal aspects of restructuring a large enterprise,” as part of the skill set of the new CEO.

Some names already have surfaced as possible candidates. Mr. Gallant said he has heard that AIG’s vice chairman and chief restructuring officer, Paula Rosput Reynolds, is a candidate. “That makes sense. She has an insurance background” and has led other industries as well, Mr. Gallant said.

An AIG spokeswoman declined to comment.

Judy Greenwald is a reporter for sister publication Business Insurance.