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AIG's Benmosche Can Talk, But Can He Walk the Walk?

American International Group CEO Robert Benmosche's pay package is worth $10.5 million a year. And judging by the hype he is garnering for the once-crippled company, Benmosche is well-worth it. AIG shares have risen from $13, when it was first announced that the former MetLife CEO would come on board, to nearly $56 today.

Even The New York Times is perplexed. "Who would want to buy a stock that's still 80 percent owned by the government?" asked an analyst in today's story.

Like Madonna, Benmosche is his own best PR agent. Reinventing a company's image is a very important skill. Having taken up residence at his villa in Croatia, he is granting interviews to media like Bloomberg who have stopped by thinking they were getting a scoop. What they were getting was a dose of optimism: AIG is not interested in a fire sale of its assets because they are worth a lot. The company is intact and now under strong leadership.

Benmosche is also politically astute. He has reached out to former AIG CEO Hank Greenberg who has been sniping from the sidelines at other former CEOs like Martin Sullivan and Ed Liddy.

Why is this important? Greenberg controls more than 12 million shares of AIG and used to sell the stock in bulk when it traded above $60 a share, driving the price down. Benmosche doesn't want to see this happen on his watch.

One cannot discount Benmosche's skills, but there are still problems plaguing the giant insurer. The big one: its balance sheet. It is leaking cash and clients and for very good reason. It has a bad reputation, so bad, in fact, that AIG chiseled its own name off the office wall in New York City. And that reputation is well-deserved. In its annual survey of auto insurers, J.D. Power ranked AIG as among the lowest, a distinction it has also had in years past.

Then look at last quarter's earnings. True, AIG showed a profit, but that was largely due to hedging activity, which made the company look better even while its investments had declined in value.

In terms of bread-and-butter insurance, critics say AIG has been holding onto business by slashing rates, thereby picking up the policies of those most likely to crash and burn. The key to this is the "combined ratio," which tells you how much money AIG made on the policies it wrote. The answer: about zero on its commercial and less than 2 percent on its general insurance.

Despite cutting prices to the point where even competitors like Chubb and Liberty Mutual said "ouch," AIG still saw a decline in premiums of 18 percent to about 21 percent in most areas. AIG has also lost a big chunk of change in its retirement division.

Is anyone really ready to sell AIG short? Not likely. Remember, it's still backed by the full faith and credit of the U.S. government and now, Hank Greenberg. But does it deserve to trade at $50 a share? To borrow a line from Nancy Reagan, "Just say, 'No.'"

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