Reflections on the Fate of AIG

The AIG has been a settled part of the insurance scene for as long as I have been watching it. It was huge, centralized and driven by a singular and dominant personality. It nearly always evoked fear in the minds of competitors. If you were a specialist in a niche business, the AIG in theory could crush all your efforts and skills simply by rousing itself and taking an interest in what you were doing at the time.

I can remember many years ago losing a leading Malaysian terminal to the AIG. We braced ourselves for some sort of tempest but none came. Why not? Possibly because of the convoluted need for the approval of an underwriter in New York. Possibly because of the tendency of the company’s various parts and various people to wage war on each other. Possibly because the big man or one of his trustees showed no enthusiasm for the category. Or the underwriting policies and controls on cash and people were so mind-numbing they discouraged too much limb-climbing in operating companies.

How did this giant go from dominance to federal basket case in no more than a few years? There seem to have been the following way markers.

In the beginning the growth of the company was based on a vision for Asia, a huge domestic market, a driven personality running a culture of fear in the middle of a global web of local offices.

In the end, the company was based on the iron will of a very old man; it had no succession plans; it burnt some of its goodwill and hold on the imagination by engaging in corrupt practices in the U.S. market; it engaged in a fatal embrace with the insurance of financial services bonds and securitized debts and it leveraged all its capital 11 times over in the unwise but alluring world of financial engineering. It is almost as if the ordinary world and challenges of orthodox insurance was insufficient to satisfy a voracious appetite for profits and growth.

For some years I watched the AIG and its activities fairly closely. In its prime, I soon noticed that although the company inspired respect, fear and even awe, it had no hold on anyone’s affection. I have yet to meet a former employee who enjoyed working for the company. Maybe I will hear from one as a result of this short item.

But so far, as I can tell a hard, cold organization built up through the post war years by doing many things right in the modern insurance industry is going to the federal knacker’s yard, to be broken up and sold off, raising barely a thought of pity or regret in the eyes of beholders. Insurance is a people business. If you skimp on the humanity and instead concentrate on the numbers and money you may end up like Hank Greenberg being haunted by the 21st century’s version of Marley’s ghost.

This piece — reprinted in Insurance Journal with permission — first appeared in Bow Wave, the weekly marine and transport e-zine published by Sam Ignarski. To subscribe send an e-mail to: Sam@WavyLine.com.