AIG looks to Africa

RISKAFRICA Magazine - - CONTENTS - Hanna Barry

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.”

Re­brand­ing Char­tis

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.

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