INSURANCE: With an expected rise in demand across the sector, AIG chief Hank Greenberg is upbeat on prospects, writes Adrian Michaels
This year might feature another acquisition or two, high-level talks in China, South Korea and Washington, an uncannily steady share price and instant anger for anyone daring to mention retirement. In other words, it will mostly be business as usual for Mr Maurice "Hank" Greenberg, the indefatigable 76- year-old who has run AIG, the world's largest insurer by market capitalisation, for more than 30 years.
However, this year the sector will be dealing with its largest challenge: more than $40 billion (€44.7 billion) of losses from the terrorist attacks of September 11th. There are also weighty legislative and business questions about the subsequent reductions in underwriting capacity, the future of terrorist insurance and its cost to customers.
For AIG, however, there are opportunities. The industry will see the steepest premium price increases for years as it takes advantage of an expected rise in demand for its services. That will happen as customers reassess their risk and put business with the insurers they think are best able to pay up. The biggest and most capitalised insurers will be able to raise premium prices steeply. AIG's net pre-tax losses from the World Trade Centre attacks are estimated at $820 million (€918 million). It should make that up in no time.
Mr Greenberg says the priorities had already been set before the terrorists attacked. "Before September 11th, the insurance industry was beginning to recover from 10 years of price-cutting and blood-letting in the industry. The market was beginning to respond to some price increases that were woefully, desperately needed by some companies."
That trend was given a huge shove on September 11th. There are reports that insurers are pushing for rate increases of several hundred per cent in some commercial lines of business. Reinsurers, on whom insurers rely to take some risk, are almost uniformly denying coverage for future terrorist attacks. The industry in general says it can offer little cover since it cannot say how frequent or how expensive attacks will be.
Customers who need terrorist insurance cover will have to pay large premiums for any policies that are eventually offered separately from property cover.
Washington had been debating federal help but initiatives stalled in December.
Mr Greenberg does not agree with Mr Warren Buffett, head of Berkshire Hathaway and a fellow giant in the financial services sector, that not pricing terrorism cover separately in the past was a mistake.
"I don't know if it was a mistake. Terrorism was not a threat in the US of the dimensions that we've seen," he says. "Obviously with reinsurers saying 'we will not cover terrorism' by and large, the primary companies can't absorb it. You don't have enough capital in the insurance world to do that . . . These are realities that have changed the world of insurance."
Terrorism cover will not be alone in having to be purchased separately from property insurance. Insurers will also be looking to strip out other speciality insurance, such as protection from computer viruses, and to charge accordingly.
Mr Greenberg acknowledges the work AIG has to do in rewriting its coverage models: "There's no question insurers are going to have to be smarter about risk management. In a soft market, companies become less stringent about risk management because they are concerned about their top-line growth. When the market turns, you go back to basics. People underwrite better, their risk selection is better."
Mr Greenberg is also set to focus on continuing the integration of American General, the domestic life insurer that he won for an AIG-record $23 billion after it had already agreed to be bought last year by Prudential of Britain.
Internationally, AIG is hoping it will soon seal its protracted takeover of some financial units of Hyundai in South Korea. In China, it will face intensifying competition now that the country is in the World Trade Organisation and the market is opening up.
Mr Greenberg is scathing of rivals who believe AIG should relinquish concessions on ownership of subsidiaries that it has been awarded by the Chinese government.
"When we went to China in 1975 and began to build a relationship, where were the other companies? . . . We paid a price for being first. If you take away the benefits of pioneering, why pioneer?"
His comments well represent the strident attitude and total command that have taken AIG to its dominant position. Despite the size of his empire, Mr Greenberg is the company's sole spokesman. Equity analysts who follow his company have received personal telephone calls after writing negative comments.
September 11th was a day for strong leadership, too. He was at AIG headquarters on Pine Street, just north of Wall Street and very near the twin towers. AIG had 55 people in the World Trade Centre. It lost two of those, while 24 family members of AIG staff also perished.
One of Mr Greenberg's sons had a worse situation to deal with. Jeff Greenberg is chairman of insurance broker Marsh & McLennan, which had hundreds in the World Trade Centre - 295 of whom died. Father and son speak often. The AIG man says: "You don't get over that kind of loss. You have to cope with it."
Another of Mr Greenberg's sons, Evan, resigned from AIG and his role as heir apparent in late 2000. But there are no signs that this year will see an answer to questions about Mr Greenberg's successor.
Since Evan's departure, his father has repeated often that age is irrelevant and the board will decide when the time comes. He is chairman of the board.
The lack of information has been portrayed by some critics as an Achilles heel. Mr Jack Welch, former boss of General Electric, publicly groomed the three people vying for his job and chose Mr Jeffrey Immelt 10 months before retirement.
At AIG, there is as yet no public activity. But Mr Greenberg says there is a plan and plenty of talent for the company to stay strong after he leaves - whenever that is. - (Financial Times Service)
