Hoping To Put Out Fire, Former Allstate Chief Jumps Into AIG Frying Pan

(MoneyWatch)  Like a good neighbor, former Allstate CEO Edward Liddy is there.

Liddy was reportedly named CEO of AIG shortly after the New York-based insurance giant was given an $85 billion federal government bailout. As part of that deal, AIG CEO Robert Willumstad announced he was leaving and the government brought Liddy in to run the store. Liddy was Allstate CEO from 1999 until 2006.
In addition to seven years at the top of Allstate, 62-year-old Liddy comes armed with a reputation for taking a sharp, analytical approach to assessing insurance risk and corporate strategy even if it results in controversial and unpopular decisions. For example: In 1995, Allstate backed away from writing new insurance coverage for parts of Florida that had been hard hit by hurricane damage. It also raised rates. Florida consumers and insurance regulators were outraged, but Allstate has not backed off from its stance.

Moreover, Liddy has a reputation for shaking things up within the managerial ranks. Shortly after becoming Allstate CEO, Liddy swept away many longtime managers, often veterans who had been with the insurer since it was part of Sears Roebuck, and quickly assembled his own team.

Liddy also overhauled the Allstate agency network by turning many fulltime insurance agents into company contractors, cutting many agents' compensation. To this day, Liddy is scorned by those Allstate agents.

Moreover, Liddy has shown he can make money in times of great adversity. In 2005, when Hurricane Katrina cost nearly $3 billion in Allstate claims, the company made over $1 billion.

Still, Liddy's Allstate experience doesn't make him the perfect fit for taking on the huge AIG job. Allstate is primarily a domestic insurance firm, selling auto and home insurance to individuals, while AIG is a multinational corporation with a presence across many business lines and in 100 countries.

Working with the government, Liddy is expected to do some heavy lifting at AIG. He'll have to focus on running the healthy parts of the insurance company; participate in the orderly spin-off of some of its business lines and companies; assist in determining the financial risk of AIG's widespread portfolio; and help dispose of those deeply-damaged assets that sparked the bailout.

Moreover, Liddy has to accomplish all this while the company's stock is tanking and investor confidence in AIG, and the entire financial system, is also dropping like a rock.