The Courage to Compete: The World According to Greenberg

In 1968 when the Maurice “Hank” Greenberg took over what was to become American International Group (AIG), it was an insurance agency selling other insurers’ policies around the globe. Within years, AIG was no longer selling other companies’ policies but was itself bigger than the biggest of insurance companies in the world.

Twenty-five years ago when Greenberg took AIG public, it had a market value of about $300 million. When he retired in 2005, it was about $180 billion.

“A pretty good ride,” is how in the following interview Greenberg describes his years building AIG, taking it public and driving its growth.

While the numbers are impressive, Greenberg’s tenure at AIG was about more than just financial performance, just as this World War II and Korean War veteran’s life story is about more than AIG.

He began as an underwriter at Continental Casualty in 1953 and rose to become president of the company that was then C.V. Starr in 1968. He began the expansion by buying up agencies and companies and ventured into new products and foreign lands, including China.

Greenberg became known for a strict management style, tight-fisted claims handling, product innovation, risk-taking and — above all — insistence upon on an underwriting profit. During his tenure at AIG, he saw subsidiaries nationalized; was instrumental in having the services sector of the economy recognized in world trade agreements; helped write the laws that have made Bermuda an insurance center; pioneered in opening China’s economy to the world; built relations with world leaders; advocated for globalization and championed improved education in the U.S.

In 2005, after New York Attorney General (now Governor) Eliot Spitzer had raised allegations of improprieties in accounting, Greenberg resigned as chairman and CEO of AIG.

He may not be running AIG but he’s not gone from the insurance stage. He’s not through buying, building and, as some describe his management style, bullying his way to new successes in insurance. Greenberg is now chairman of privately-held C.V. Starr & Co. Inc., a global investment firm that owns about 36 million shares of AIG, representing $2.4 billion in value as of March 31, 2007. Greenberg today is busy transforming C.V. Starr and its agencies into another major insurance player. The Starr agencies, which currently produce $1.5 billion in gross premiums annually, include C.V. Starr Co., a specialist for public entities and contractors; Starr Marine for ocean marine; Starr Aviation for aviation risks; and Starr Tech for energy and technical industries.

In a wide-ranging video interview with Insurance Journal’s Andrew Simpson at the Target Markets Program Administrators Association Mid Year Meeting in Atlanta in May, Greenberg discussed his years at AIG, the Spitzer allegations, world leaders he has known, regulation, contingent commissions, Florida, his plans for C.V. Starr and more. The following excerpts are from the longer interview. The video interview in its entirety may be viewed at www.insurancejournal.com.

You joined the Army in 1942 at age 17 and landed at Omaha Beach on D-Day. You earned a Bronze Star. You served again in 1950 in the Korean War. What effect did your military service have on your career and on your attitude about business?
Greenberg: Well, it didn’t have an impact on business, but it certainly did on my career. I went in when I was very young. In many ways I matured in the military service. I separated as a Captain, when I was a Private obviously. You learn responsibility. You either have leadership or you don’t. I think that served me quite well during my career.

Did you ever think that those were years taken away from your business career?
Greenberg: No, look, World War II was a war of good against evil. The entire country was mobilized. It was a patriotic war. I never thought for a moment that I lost any time.

It was somewhat different than Korea. I had just finished law school and I was recalled. I was a reserve officer. I don’t think I lost any time. I spent a year in Korea. It was something I had to do and I did it.

Let’ skip ahead to 1968 when you were named president of what you grew to be AIG. At that time did you have a grand vision of where you wanted to take AIG?
Greenberg: Well, no, not at first obviously. I became president of American Home soon after I joined Starr in 1960 actually, at the end of ’60. It was not to run American Home but to develop an accident health business because I had joined Starr from Continental Casualty Co. where I was the youngest vice president in the history of the company.

… Then I took on American Home, which was a very small company at the time. I think we had about $12 million in premiums. I turned it into a brokerage company rather than an agency company. It became what is now known as the brokerage group of AIG.

I acquired other companies. I acquired National Union. I acquired The New Hampshire. By then it was a significant organization. That gave birth to AIG. I put them all together under a holding company. I built that out and I built our own life company out. I bought some other companies and expanded into financial services. I bought International East Finance, which was a rather small airline leasing company at the time.

It’s not small anymore.
Greenberg: It’s the largest in the world. All of AIG’s life business when you aggregate domestic and foreign, is the largest in the world. So it was a pretty good ride.

When and why did the idea of going public come to you?
Greenberg: We went public in 1970. In order to grow we needed more capital, so that was a natural thing to do. I’m not sorry we went public. We had a market value of about $300 million. When I retired it was about $180 billion.

Not a bad ride.
Greenberg: A pretty good ride.

Your patience with China and your getting to know people has paid off. I wonder, in looking at the economy today, both in China and how fast it is moving and the rest of the world, is patience an option for companies today like it was for you?
Greenberg: Sure. It depends on what your strategies are. Whether it’s India or Russia or any market that was closed to foreign service sectors, it takes patience to open. You had better be persuasive. You have to make a good case for why.

It’s mostly open now around the world. There are very few places that aren’t, maybe one or two places in Latin America that are closed. But by and large, the world is open. It’s not for all service sectors. There are some that remain less open.

Yeah, it takes patience. But you have to have a strategy, not just patience. You have to know what you want to do and how you’re going to get there. It took a long time.

What are the investment opportunities for foreign companies in China today?
Greenberg: Almost everything. … They’ve now got the fourth largest economy in the world with 1.3 billion people. They are coming up the technology ladder very rapidly. The insurance sector, when it was finally opened — when we got a license in 1992 we were the only foreign company — there are now dozens of companies, domestic and foreign in China. So the market has hardly been touched yet.

But it has a long way to go. It takes a lot of knowledge and experience both on the buying side and selling side. But that’s true in most of the major sectors in China. Yes, they are much better than they were. But they have a long way to go. They need a capital market and they are beginning to develop one. They need a lot of capital to grow the economy. Last year over $61 billion of direct foreign investment went into China. It has a huge trade surplus. They have reserves of over $1 trillion U.S. dollars now; that is the largest in the history of the world.

We buy a lot of things from China. There is a lot of misunderstanding about that though because a lot of products go into China to complete the product that is going to be exported. So many countries, including ours, are selling components to China, which then get assembled and exported. However, it is a very, very fast growing economy. And it will be that way for many, many years.

In your career, you have met with many world leaders and counseled presidents. Have you ever entertained the idea of entering politics yourself?
Greenberg: No, not for a moment.

Why not?
Greenberg: You do what you think you do best. I think I would be a lousy politician.

What world leaders that you have met have impressed you the most?
Greenberg: Oh, there are many. I think in our country most presidents have great qualities. I knew Nixon quite well and I was a great admirer of his grasp of foreign policy … it was uncanny. He had weaknesses but he had great strengths.

I think President Clinton was a very articulate and fast learner. I think the first President Bush was a fine leader in a different way. President Bush today has some great qualities. He has got a lot of problems but every president that we’ve had is an unusual person.

Jiang Zemin, who was the president of China, and Zhu Rongji, who was the premier of China, that’s the prior administration to the current administration, were outstanding leaders. Deng Xiaoping, who was the first one I met, will go down in history as the father of opening China to the outside world. The implementation by Jiang Zemin and Zhu Rongji just couldn’t be better.

The current leadership, Hu Jintao and Wen Jiabao are doing an outstanding job. China has 1.3 billion people. They have lifted 300 million people out of poverty. They have 900 million more to go. It is an awesome job.

If you go around the world, I have met many of the leaders in Europe and in Japan, Russia, each one being somewhat different. But it’s part of the job.

Speaking of politicians — Mr. Spitzer and his civil charges. I understand several of the charges have been dropped already. Do you know when that is going to be resolved? Do you have any indication?
Greenberg: I think pretty soon. He dropped all the money issues, the so-called financial issues. What’s left had no effect whatsoever on AIG’s income statement. None at all.

How do you feel about the way he and the AIG board handled these complaints?
Greenberg: Well, how do you think?

I’d feel pretty upset, I guess.
Greenberg: That’s a mild way of saying it.

Do you think anything good has come out of Spitzer’s attacks on you, AIG or brokers?
Greenberg: Not at all.

If he were here today, what would you say to him?
Greenberg: Let’s not get into that.

Some state attorneys general are attempting to eliminate contingent commissions. Do you think this is necessary?
Greenberg: I think the whole contingent commission business was handled badly by the regulators. First of all, it should have been handled by the insurance commissioners, not by attorneys general. That’s the first thing. Second, contingent commissions were in existence long before I got into the insurance business. It was a market tradition.

Now if you want to change something that’s has been in the industry for many, many years, the logical thing to have done was call the industry leaders together, make your case and have them agree or disagree. If they disagreed, they could appeal that disagreement. We are a democracy. They could have taken it either to court or go to the legislature and get a bill passed into law.

Every state may have acted differently. I don’t know. But you would have had some legal basis for it, not the way it was done with a gun to your head, saying either give up contingent commissions or else.

Now you have to look at the market for contingent commissions, whether it is a broker or agent. Clearly I think if a broker is getting a contingent commission and he is getting a fee for services, then he ought to disclose that to his insured. I think many did. I personally went to the Insurance Commissioner in New York in 2004 and urged him to put out some rulings on that. I wrote him a letter about that.

So what they have done now is punished many companies and got big settlements. And now they have said it’s OK to do it prospectively. Now what is the difference between a prospect of commission that is contingent and a retrospective commission? Their argument was that brokers would steer business to the company where he got the highest commission. Well if you are going to do it prospectively or retrospectively, what difference does it make? You’re going to steer business where you get the highest commission, in their belief. I don’t believe that’s true. I believe brokers do act on behalf of their clients and place business where they think is best for the client. So now you have a two-tier market. Some brokers accept commissions as contingents and some don’t. But it caused a lot of unnecessary turmoil in the industry.

Several companies are giving in to the settlements, with Liberty Mutual being one that has decided to fight it.
Greenberg: Yeah, well I think [Liberty Mutual CEO Edmund] Kelly is right.

When you were at AIG you had goals that included 15 percent profit. Does that hold true at C.V. Starr?
Greenberg: Well C.V. Starr is a different company. It’s a private company. We have different agencies, which we are expanding globally. They were not before; they were domestic only. They are now operating in London, Hong Kong and they will be operating in Singapore as well. We will probably have an office on the continent.

We also have a syndicate at Lloyd’s, which is doing quite well. We wrote the first reinsurance treaty for Lloyd’s in China. Lloyd’s is now admitted in China as a reinsurer. We wrote the first policy for them.

C.V. Starr currently has a huge investment portfolio that is growing by the day. So there are a lot of things. We also have a similar business internationally with SICO, Starr International, which is a very big company in terms of assets. So a lot of the international operations are done through SICO and the domestic through C.V. Starr Co.

SICO is investing in Russia. We have just started a very significant commercial real estate business. We will be doing other things in Russia. We are making a lot of investments in China. I will be spending time in the fall in Asia. I’m looking hard at Vietnam, which I think will be like China in 15 years. So it’s an exciting thing.

Are you looking to acquire?
Greenberg: Yes. We started one new agency very recently in the health care field and we have added new products into the other agencies. And I’m on the hunt for other agencies.

How about an insurance company?
Greenberg: We started an insurance company in Bermuda, for life and nonlife. And there will be other companies being formed.

Part of your success at AIG had to do with product innovation: directors and officers, political risk insurance, kidnap and ransom. Where do you see opportunities in today’s world for product innovation?
Greenberg: Well, you know it is a big world and I have a lot of relationships around the world. Hence those relationships will be very handy to these two companies. It already is. Many companies don’t have all the products that they need. You have to develop products to fit the culture of a country. You can’t use one size to fit all. I don’t have to experiment. I know what they need.

One market that is growing is private terrorism insurance. I wondered if you think that that would even be possible without TRIA, and if it should be renewed?
Greenberg: No. No. TRIA has to be renewed. The private sector has not got the capital to issue policies to cover weapons of mass destruction. That’s impossible. You need the entity that has the printing press to do that and that’s the U.S. government.

Yet I believe you feel differently about a federal natural disaster plan and whether the government should be involved in that.
Greenberg: Yes, I think they should not. We are in the insurance business. We are in the risk business. And if you start taking away every risk that industry is exposed to, then what do you need an insurance company for?

Are there things that government could do to encourage more private involvement?
Greenberg: Well, I think the private sector will do that. I think that hedge funds will get in. They have sidecars; they have all kinds of things. And you’ve got to get the right rate. That will happen if you have a major disaster. Rates will go up and some companies will go by the wayside and some won’t.

Do you have any advice for Florida?
Greenberg: I think what they did is, in many ways they confiscated that business. If that had happened in a foreign country I would be pounding on the State Department desk saying that we have had our business expropriated.

Do you think it will make matters worse?
Greenberg: I think it’s worse. Let the private sector deal with it.

Lloyd’s recently surveyed its brokers who said that the number one issue in the marketplace is cycle management. Surprised?
Greenberg: No. I think there will be cycles as long as we have an insurance industry because it is run by people. One generation of experience goes away and the new enthusiastic group comes in and starts all over again.

So you don’t think the current crop of CEOs will moderate or eliminate the cycles?
Greenberg: Well, it’s moderated a little bit because the rating agencies put greater emphasis on capital management. They have increased capital requirements. So that will slow it down a little bit but not entirely.

The insurance industry has received a black eye over Katrina claims. I wondered if you think the industry was fairly judged.
Greenberg: I think the whole, not just the industry, but the whole government failed in Katrina. I think it depended on the company and depended on the products they were selling. Flood and wind are two different issues. And if you are going to hold an industry to pay for claims they did not insure, obviously you are going to bankrupt companies.

Having said that, there have been times when the industry has to really recognize that it is in their own interest to pay claims. Take 9/11 for example. Most companies had war exclusion. Our government declared that we were attacked and that we were at war. But I don’t know any company that used in the war exclusion.

They waived it, I believe.
Greenberg: Absolutely.

But the same goodwill or PR didn’t follow Katrina.
Greenberg: No it didn’t. Each company did it differently.

Are there other insurers or brokers that you think do an exceptional job?
Greenberg: I think many companies do a good job. I think that many brokers do. I don’t know a broker that has deliberately done things improperly. I think the industry has professionals. Obviously they are not all the same. Some are better than others. It depends on the organization. Some are just domestic and some are in the foreign field.

But in order to be in the insurance business in my judgment, in the property and casualty, you have to diversify because you are going to have cycles. You are going to have times when the property/casualty business is not going to look very good. So that’s why I built a life business globally. That’s why I expanded to almost 130 countries. That’s why I built the financial services business. I wanted that diversification. So that when you had a bad period in one or two of your major businesses, whether it was mortgage guaranty insurance or something else, you had enough other businesses to make up for that slack.

It’s not easy. It takes courage to go into unknown fields. It takes a lot of hard work. It takes dedication. And it takes great commitment.

The more courageous, the fewer competitors I imagine.
Greenberg: That’s exactly right.

In terms of the importance of insurance to the economy of the world, do you think it gets the recognition it deserves?
Greenberg: No. I should say that with a qualification. In some countries I think it’s more, not only recognized, but also appreciated than in others. Look, in Congress you have a Banking Committee but you don’t have an Insurance Committee. When people think of insurance — many people, not all people — they think that when they spend $2,000 on insurance a year, they want to collect $3,000 in claims. So it depends. I think the insurance industry is always going to need a PR campaign that recognizes the good that they do for society.

You couldn’t build economies without insurance. It would be impossible. It protects capital. It protects factory workers. It’s a necessary ingredient.