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Interview with Robert Benmosche

AIG: Keeping Its Promises

Interview with Robert Benmosche

"AIG is a company that keeps its promisesto the American public, our clients, our shareholders and bondholders,” saysBob Benmosche. "It’s about having the ability to count on the AIG promise andthe AIG skills.” In the following interview, conducted in August, AIG’sPresident and CEO talks about AIG’s progress and rebranding, the propertycasualty industry and getting the right return on risks, opportunities with IndependentBroker Networks, and more.

 

AIG’SPROGRESS AND REBRANDING 

Please tell us about AIG’s progress since2009.

For us at AIG, the real question for thefirst year to year and a half after I got to AIG was: Will AIG make it? AIG appearedto be in crisis. If we weren’t a company that had shareholder value, then thequestion was: What would happen to the bondholders, clients, and so on? In January2011, we were able to do the restructuring, having taken AIA public at thatpoint. By May, we were able to sell 100 million shares of AIG stock to thecapital markets, which demonstrated to the Federal Reserve and the U.S. Treasurythat we were able to raise capital, if we needed, to fund the company.

Since then, we’ve continued to makeprogress. As of August 2012, we’ve reached the point where the U.S. governmentonly has approximately $24 billion of cash that has not yet been returned, whichdoes not include more than $18 billion of profits. If you look at the profitsthat have been earned up until now, it’s clear to everyone without questionthat the crisis at AIG is over; that AIG has sustained itself; that we’re still,on a shareholder equity basis, the largest insurance company in the world andmaking progress on our market capitalization as well.

That’s good for clients, it’s good forbrokers, it’s good for everyone. Because now they can see that they can counton AIG to be there.

 

The company is returning to the AIG name.What led you to this decision?

I believe we’ve gained new respect frompeople about the capability of the company. We’re a strong, vibrant, leadingcompany in the insurance sector around the world. We feel at this stage of the game,it makes sense to return to the AIG name.

The changing of the brand signifies what webelieve, and what our research is telling us. The buyers of our products feelvery good about AIG today and have a lot of confidence in us. And we’rebuilding that confidence around the world.

Our rebranding approach in the fall, oncewe’re ready, is that AIG is a company that keeps its promises to the Americanpublic, our clients, our shareholders and bondholders. It’s about having theability to count on the AIG promise and the AIG skills.

 

What are AIG’s plans for continuing to buyback shares from the U.S. Treasury?

AIG continues to focus on capitalmanagement. Capital management is not necessarily just buying back shares. It couldbe buying back our debt. It could also be buying companies. For instance, we decidedto buy Fuji Fire and Marine, which was an acquisition we made in Japan. We alsorecently bought the broker-dealer from The Hartford for our Advisor Group. Sowe will do what we think is in the best interest of our shareholders. Buybacks areclearly one of several options.

 

What are your thoughts on being regulated bythe Federal Reserve?

We recognize and respect the need forregulation. The Federal Reserve has to look at large financial institutions, orlarge institutions that can have an impact on the financial markets. For acompany like AIG, the Federal Reserve would make sure that noninsuranceactivities would not affect the insurance activities or the financial markets. Whenwe think about AIG, we’re a very large company. We have a large amount ofresources at the holding company, which means they are not regulated byinsurance company regulators in the states or countries we do business in. A regulatorlike the Federal Reserve would oversee the totality of the company.

People need to be comfortable that AIG is well-run,has excellent risk management, and can be supportive to the insurance companiesif there is a problem. It would be an important statement for the FederalReserve to make that we have sufficient liquidity and sufficient riskmanagement so that we can live up to all of our obligations and promises, andnot cause a problem for the financial markets. It says to the outside world thatwhen AIG says it’s strong enough to live up to its promises, we have aregulatory body – an independent third party beyond the rating agencies, beyondoutside accounting firms – that says, you know what, we agree with them. That’sour approach and why we’re working hard to be ready for that day of supervision.

 

Besides acquiring broker-dealer WoodburyFinancial from The Hartford in July, are you looking to make other acquisitions?If so, in what areas?

In looking at potential acquisitions, wefeel it’s important to stay within our realm of insurance. We’re looking atanything in the insurance arena that we think would provide us with a goodinvestment return – better than buying back our debt or buying back our stock. Ireally can’t give you a more definitive answer other than that we look at what thebest return is for the company’s shareholders over time.

 

EXPERIENCEIN INSURANCE AND AT AIG

How and why did you enter the insuranceindustry?

When I was at PaineWebber in the early1980s, I was asked to take on marketing responsibility for the insurance area. Thatwas my first exposure. I didn’t think, however, that I would be involved ininsurance after I moved into other aspects of the securities business…until I decidedto change my career in 1995.

I was looking for something else. One ofthe options was to help the Metropolitan Insurance Company think through distribution strategies. Ifigured that working for a mutual insurance company, you’d get a little bit ofquality of life. It didn’t last very long. I wound up helping them restore the fieldforce. Within a couple of years, I was surprised to find that I was named theChairman, CEO, and President of MetLife. Then we decided it didn’t make senseto stay as a mutual, so we took it public in 2000.

I retired in 2006 after eight years as CEO,restoring MetLife as the leader in our industry. (We were second in the U.S.when I started, and when I retired, MetLife was the largest in North America.)I retired to Dubrovnik, Croatia, to become a winemaker.


What made you decide to come out ofretirement?

First and foremost, I realized thatAmerican business was in rapid decline because people had lost confidence in theability of corporations to do the right thing. And I thought if AIG were tofail, it would be difficult for the industry to recover. It’s a very importantinstitution. I felt, and my family and close friends felt, that I could make adifference – that, along with my meeting with Hank Greenberg, who basically feltthat if I were to do the job, he would be able to support the vision that Ihad, which was to restore AIG and do what we, in fact, have done.

In 2009, I said to the people of AIG that wewere the icon of everything that went wrong in America in 2008. But if we allworked hard and had a vision that we all believed in, we could pay back theAmerican people for their support with a profit and be left with one of thestrongest insurance companies in the world.

The people of AIG at that time rolled uptheir sleeves and worked as hard as they could. What I say to them today isthat we can actually become the icon of everything that’s right about America.

 

Whatmade you decide to stay on at AIG, despite your diagnosis/illness?

When I was diagnosed with cancer, it was beforewe did the restructuring with the Federal Reserve. I felt that if I were tostep down before I physically needed to, we would lose the momentum. I feltthat we’d come too close to achieving the turnaround, and I wanted to make surewe reached the point where there was great confidence that this would happen. Myfamily and I agreed that I should keep fighting this, keep doing what I had todo.

The good news is, while the original chemodid not work, they put me on a therapy in late November of 2010 that, by Januaryof 2011 – just as we were doing the restructuring with the Federal Reserve – hadan effect. I didn’t know how much time I had, but the doctors said I had moretime. And I’m still having more time. Then, in May of 2011, the crisis at AIG wasover. This company would be here and continue to be strong. And the team thatwas here could carry the ball if I couldn’t. I’m still here kicking andscreaming. I couldn’t be happier.

 

Whatdrives you to succeed?

I guess it’s something to do with my mother.When my dad died, I was 10. He didn’t have a will, didn’t have any lifeinsurance; he was 50 years old and left my mother with $250,000 in debt. My momhad a motel, cabins, a restaurant, and a bar. She was able to get her four kidsoff to school every day, close the bar at one in the morning, and start therestaurant at six in the morning. And she did it with a smile.

She made all of us go to college. We had topay for it; she didn’t have the money to do it. But she made us all go tocollege. I spent almost seven years driving a Coca-Cola truck selling soda. Imade the most money of any salesman because I worked hard at it. It put methrough all of my educational experiences – prep school as well as college. I’mproud of what it was able to do to get me started in life.

When I look at my life, what’s clear to meis that however difficult the hand is that you’re dealt, it’s your hand. You need to make the most ofit. If you wait for somebody else to do it for you, it won’t happen. I believewe are what we choose to make of ourselves. And I recognize that if you take ona responsibility, you have to live up to it. Coming to AIG was something Ichose to do. I will see it through. That’s what drives me to succeed. And Ienjoy it.


Howwould you describe the corporate culture at AIG, and how has it changed sinceyou arrived at the company in 2009?

The AIG culture is about innovation, entrepreneurialism,and empowerment of people at the point of sale in working with our clients andour brokers. We’ve got to preserve those strengths.

On the other hand, we are changing into a culturethat relies much more on analytics, data management, and data mining. We are highlyskilled as technicians, underwriters, and product creators. We were not that skilledin leveraging information to help us think through what pricing should be andwhat risks really should be considered.

The new AIG has all of the old strengths, andwe’re adding to them a whole new strength of being very analytic, withpredictive data modeling and other information-gathering tools to help us be evenbetter than we were before.

 

FUTUREOF THE INSURANCE INDUSTRY

 Inwhat areas of the world does AIG see the best growth potential?

AIG has a deep relationship in many placesaround the world. One area where we see real growth is China. On the personallines side, we’re going to look to expand in mandatory auto. On the commercialside, we can leverage our global footprint for Chinese companies doing businessoutside of China. We also see Korea as an opportunity. And we continue to seeJapan as an important market for us. We’re very large in Japan; we’re still thelargest foreign property casualty insurer in the country.

We also see Brazil as a vibrant growtheconomy. We were very big in Brazil before the crisis. Unfortunately, we had tosell our joint venture there. Starting from scratch, we’re making greatprogress, especially using the AIG brand in Brazil, and we think we can comeback. We’re also strong in Argentina and Mexico. We have been in Argentina fora long time and have a big operation there. Overall, Latin America still lookslike a great growth opportunity.

There are opportunities for us in the MiddleEast, Asia, and parts of Europe. And we are – and expect to continue to be – amajor player in the United States, with more innovation on the propertycasualty side.

I believe you’ll see us continually growour life and retirement business in the U.S., but also begin to move backoutside the U.S. Having sold ALICO and taken AIA public, we still have theability, in places where we currently have licenses, to grow those businessesorganically or through acquisition – and, when the time is right, to expand toother countries.

Again, we’re going to focus on a handful ofcountries in the growth economies, and we’ll continue to keep moving in othercountries as well. We just had our 50th anniversary in South Africa. We have astrong operation there; it’s an important market.

AIG is strong in many places, and we want tomake sure we maximize wherever we can.

 

Whatis your outlook for the property casualty industry in general, and AIG’s propertycasualty business specifically?

There’s no question that when people focuson capital preservation, they need to be able to use insurance companies tosupport that capital base in times of crisis. That’s what insurance does. Ifyou look at large fires, tornadoes, earthquakes, tsunamis…this is all aboutcompanies not having enough capital to withstand those kinds of crises. So theyrent that capital from the insurance companies.

Clearly, I see the world growing, and I seethe need for insurance growing. Therefore, I see our business as a growthbusiness.

At AIG, what’s important is that we makesure that we don’t provide capital for an inappropriate return on the riskswe’re taking away from clients and putting on the books of AIG. We’ve got to bemuch more data-driven than before. That should give us a competitive advantagein making sure that whatever we are doing, it is priced appropriately for AIGand for the clients of AIG.

 

AIGis known for its innovative coverages. Can you tell us about how AIG isresponding to some emerging risks?

Whether it’s CyberEdge or whether it’staking a relook at workers’ compensation, which is more traditional to otherkinds of insurance, there’s no question that companies have to ask themselveswhether they understand what will happen under certain conditions.

Even at AIG, through our prior ownership ofa company, we had a break in data security using a third party in anothercountry. It was expensive and difficult to go through, and it required a lot ofremediation and disruption. You’ve seen what’s happened with other leaks wherepeople’s information is out there. This is a catastrophe that a company mayface, and it may not have the skills, the loss control, or the ability toinsure those resources when something does go wrong.

It’s not only having the insurance. It’salso having people who help deal with risk management. We’re going to sit downwith the client and broker, and say, "Here are the things you need to do to mitigatethe risk.” So they’re getting the benefit of our skills and our knowledge, aswell as our insurance products.

We’re going to continue to look at majorissues and see how we can support clients as they deal with those issues.

 

Whatare your thoughts on pricing and property casualty rates?

People are looking for a hard or softmarket, which has been the tradition of the business. What we’re looking at isnot prices per se, but risks and whether we’re getting the right return onrisks. For example, we looked at the way we were handling fleet risk in transportationcompanies. We realized that, regardless of price, we were not doing the rightrisk selection. Some of our competitors had better analytical tools. Theyunderstood what risks they should or should not write, and then they thoughtabout how they priced.

Part of what we’re going to see at AIG is alot more refinement in how we use data, which is a competitive advantage for usbecause we have more information than most about many risks. We just have to doa better job of mining it – especially on the property casualty side, but alsoon the life side. We’re doing a lot more analytics than we ever did before.That’s allowing us to be much more effective in selecting and pricing the rightrisk.

 

INDEPENDENTBROKER NETWORKS

Whatdo you see as the role of Independent Broker Networks in a global environment?

What we’ve seen is an industry that grew upbeing very product focused – focused on how to distribute its products and on findingspecialized brokers, who then found clients who needed those specialties. It’sclear that clients are now becoming more than just mono-product and mono-geography.

At AIG, we now have a Global Commercial businessand a Global Consumer business, versus a U.S. business and a non-U.S. business.We have to think about our financial lines products around the world, ourliability products around the world, our medical products around the world, becauseour clients now want us to pull all of this together. So the independent brokersout there that are much more limited in geography, limited by product, aren’tgoing to retain those relationships unless they can make themselves virtuallyappear as a global broker with broad skills.

Independent Broker Networks are allowing theirmembers to virtualize themselves by being part of a broader group providing servicearound the world. And we, as a manufacturer of product, are going to be able toprovide service around the world. So this form of independent distribution isimportant.

 

What’syour advice for Independent Broker Networks like BrokersLink?

We see Independent Broker Networks ashelping us be part of the solution in a broad way. Clients rely on us to domore than just be product sales organizations. I would encourage everyone to thinkabout how we can be more to the client than we are today – to ask clients, "Asyou think about our relationship, what more could we give you to make your jobeasier and better?” Sometimes we’re afraid to ask those open-ended questions.

It’s got to be beyond just financials. It’sgot to be problem solving – thinking about innovative ways to be more to theclients than just somebody who helps them work on the financial spreadsheets.

One change I’ve seen at AIG is that,because of the crisis, we have gotten closer to our clients. Clients arelooking to AIG and the broker toproblem-solve. So it’s all of us working together to be more client-focused andnimble in meeting their needs.

There’s no question that there’s got to bemore seamlessness as we think about the client. It can’t look like a patchworkquilt; it’s got to look like a blanket that’s been woven by everybody workingtogether.



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