AIG looks to Africa
On his recent visit to South Africa, RISKAFRICA had the opportunity of interviewing Peter Hancock, CEO of Chartis, American International Group’s (AIG) property-casualty businesses. He told us about his decision to join AIG after the 2008 bailout, how the company has been successfully rebuilt and plans to rebrand Chartis under the AIG name.
It would be an understatement to say that AIG’s need for a $182 billion bailout from the 2008 financial crisis made headlines. Media reports have described it as “arguably the most shocking event during the financial crisis” and “the most loathed of the rescues”. Joining AIG in early 2010 to oversee finance, risk and investments, including the insurer’s money-losing credit-default-swap unit, Peter Hancock arrived with 20 years of experience at J.P. Morgan under his belt, where he served as the firm’s chief financial officer and chief risk officer.
“It was a unique opportunity. A company that is a leader in its industry, with enormous breadth and scope of operations, that needed to be refocused,” was Hancock’s cool reply to an incredulous: what were you thinking? “I hit it off with the CEO, Robert Benmosche, whom I’d not met before.” Benmosche wanted to turn the company around. The initial strategy had been to dismantle AIG under the prior CEO, Ed Liddy, but when Benmosche took over in the summer of 2009 he came on the condition that the company was not to be dismantled, but rebuilt. “The premise under which I joined was that this was a going concern; that the company was worth a lot more together than broken into pieces,” continues Hancock.
Much of his first year at AIG was spent recapitalising the company in a way that was sustainable. Some two years on, and the US Government, including the Federal Reserve Bank and the Treasury, has fully recovered its $182 billion commitment to AIG, plus a profit. Grateful to US taxpayers for their assistance, Hancock feels that AIG has fulfilled its promise, not only to repay the assistance, but to rebuild the company in
a way that is valued by the marketplace. He says that from a market practice point of view, AIG is proud of the way it treats its customers, but welcomes regulators who can validate this. “We welcome greater oversight and the transparency and rigour it brings to our operating processes. The events of 2008 are a good reminder that there needs to be a commitment to a real openness about enterprise risk. All companies of any scale and complexity need to demonstrate to all stakeholders, policyholders, investors and customers that they can deliver on their longterm promises.”
Hancock was appointed CEO of Chartis in March 2011. With operations in 90 countries, Chartis was fairly fragmented at the time and his strategy has been to unify the company culture around common themes; most notably, focusing on value over volume. “This centres on understanding our customers and what they value most about what we do for them. We are not trying to do everything for everybody, but rather focusing on those lines of business where we feel that the scale of our operations brings something significant.” A broad geographic network means that Chartis can bring particular value to clients who are looking to operate globally. It plans to target areas in which its customers have growing needs, for example, emerging economies and specialist lines of business.
Technology, data and the chief science officer
In an increasingly uncertain world, Hancock believes that the insurance industry needs to be agile and flexible, using technology to minimise fixed costs and focus on meeting clients’ needs. Technology, along with the best talent and analytical tools, are the keys to success. “In a low-interest-rate environment, the industry can no longer rely on its investments and will have to make money through excellence in underwriting. This involves underwriting discipline, but also means investing in technology to understand the risks you are taking,” he explains. In this regard, the important role that data plays cannot be overstated. “At the end of the day, insurance is all about understanding what the data can tell you about risk and the relative riskiness of different insureds.
If we are trying to grow value as opposed to volume of business, then this ability to use new technology and new sources of data provides room for plenty of adaptation and optimism. The availability of data today was unimaginable five or 10 years ago.” Hancock believes that traditional actuarial techniques have their limitation because they tend to just extrapolate the past. In fact, so passionate is he about the opportunities around understanding, analysing and integrating data into business practices, that he created the position of chief science officer at Chartis. Appointed in January this year, Murli Buluswar reports directly to Hancock and has recruited a sizeable team in the short time he has been in this role. Hailing from a range of scientific backgrounds, including medicine, statistics, psychology and seismology, their work feeds into product design and underwriting. It also extends to understanding certain structural drivers of loss. For example, working with scientists from the John Hopkins School of Public Health to analyse over 10 million claims records, Chartis has understood some of the underlying drivers of the long-term medical costs of returning injured workers to work.
As patterns emerge, claims can be more efficiently processed, reserves more prudently set and underwriting improved. “We have one of the largest workers’ compensation insurance businesses in the US and over $20 billion in reserves set aside for future claims,” says Hancock. “We have tried to recruit individuals in the science office who have excellent listening skills and not quantitative skills only, so that they are able to work together with skilled underwriters. This produces the best outcomes, which is a blend of art and science,” he adds, quoting Mark Twain’s famous line: “History doesn’t repeat itself, but it does rhyme.”
Successfully rebuilt, last month The Wall Street Journal ran a story titled, ‘AIG’s record-breaking stock sale’. Having sold $38.2 billion of stock, US taxpayers have received a $15 billion positive return to date from the AIG bailout, which is being described as a success. In this light, Chartis will be rebranded AIG in October. “The Chartis brand was successful in unifying different antipodes in the property and casualty business, but as we simplified the company we believe that AIG is the right brand to operate under going forward,” says Hancock. The decision was reached with feedback from customers, distribution partners and brokers, who jointly feel that it is the better recognised brand for Chartis’s products. Hancock is confident that the AIG brand is well-known in the African market. “Those who are knowledgeable about insurance recognise our global standing and longstanding commitment to the local markets.”
Having operated profitably in South Africa for 50 years and in Kenya and Uganda for almost as long, Chartis will continue looking at growth in the sub-Saharan region with some interest. It will be expanding its reinsurance business and exploring opportunities in the energy and construction sectors. Where appropriate local partners can be found, or where local regulations allow the company to operate as fully controlled, Chartis will consider launching further primary insurance operations on the continent.
With plans to target profitable market share and expand its African footprint, it appears this is just the beginning of AIG rising.
Those who are knowledgeable about insurance recognise our global standing and longstanding commitment to the local markets.