American International Group's (AIG) Growth and Future: The Greenberg Factor


Code : LDS0011

Year :

Industry :Banking, Insurance and Financial Services

Region : USA

Teaching Note:Not Available

Structured Assignment :Not Available

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AIG’s Start and Growth An American salesman cum ice cream parlor owner Cornelius Vander Starr (Starr), who went to China for a job, opened a small insurance company calledAmerican AsiaticUnderwriters (AAU) in Shanghai in 1919. First he started selling property/casualty insurance policies for American companies in China. In 1921, Starr set up Asia Life InsuranceCompany (Asia Life) and beganmarketing life insurance policies to the Chinese. The business prospered quickly and the company expanded rapidly to other parts of Asia like Hong Kong, Indochina9 , Jakarta, Kuala Lumpur and the Philippines. This growthwas fueled in part by Starr’s focus on hiring, training and promoting local people to topmanagerial positions, a practice that became a hallmark of theAIGculture. In 1926,Starr opened an office in NewYork, setting upAmerican International Underwriters (AIU) to provide insurance on foreign risks taken byAmerican companies....

AIG’s Rise - Greenberg Factor Greenberg joined American Home in 1960 on invitation of Starr and gained his confidence quickly to become the president of AmericanHome in 1962. By then,AmericanHome had become a large complex organization and its expensive and unwieldy traditional agency systemwas hindering its growth. After analyzing the business,Greenberg sold American Home’s agency business, and restructured the company into a commercial insurer selling through brokers.Greenberg also developed substantial reinsurance facilities, which enabled American Home to invest in large projects. The restructuring plan included innovations in product and services, such as difference in conditions coverage for non-traditional perils, and emphasizing deductibles rather than first-dollar coverage.Greenberg also introduced personal accident insurance through AmericanHome.Greenberg insisted on underwriting profits and installing an underwriting andmanagement teamthat could accomplish this goal. As a result, American Home gained credibility among brokers and their large corporate customers...

AIG’s Troubles – Greenberg’s Role Since 2002, the shareholders started worrying over the succession plan, as Greenberg was leading the company for more than 35 years. Some analysts felt that his refusal to name a successor suggested that he trusted no one else to run the business. They were also concerned about the weak governance of AIG. Critics argued that Greenberg’s involvement in two private companies (Annexure 3), which had substantial dealings with AIGposed a conflict of interest. “It’s an old-style board dominated by a charismatic and highly successful CEO. Investors are basically jumping out of an airplane with him without a parachute. The standard governance protections (Annexure 4) aren’t there,”18 said Charles M. Elson, director of the Center for Corporate Governance at the University of Delaware....

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AIG’s Future Some industry observers opined that AIG would be a vastly different company withoutGreenberg. They said that his departurewould bring downAIG’s performance.David Schiff, editor of Schiff’s InsuranceObserver, an industry publication, said, “If you believe he was a talented guy, to lose him probably is not a positive. But you have no idea how well the next guy will do.Mathematically he can’t achieve the same record Hank did. Nobody canmake the company grow at the rate Hank did.” 36 Another analyst, Jay Cohen ofMerrill Lynch, was optimist in saying that since AIG’smanagement was strong, and the culture of profitability and growth was well ingrained in the company, the change in leadership could help AIG resolve the investigations...

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