I think it’s fair to say it hasn’t been a great decade (or two) for AIG. Though it is still talked about with something approaching reverence as a career maker for many senior folks in the industry, the last twenty years or so could fill several text books with case studies on different aspects of corporate failure.
From excessive and unmanaged risk-taking, accounting irregularities, under-reserving, management churn, talent leakage, dubious M&A, and strategic mission drift, AIG has seen it all and done it all, and somehow found time to be at the centre of just about every P&C crisis to boot.
A popular refrain among some at the company during its last failed turnaround under prior CEO Peter Hancock was to avoid “dark blue” decisions, a reference to its rebranding exercise from its prior darker logo to an updated softer-blue.
Though that era turned out to be a false dawn, recent events have been dangerously encouraging even to cynics like me that a “New AIG” is finally emerging. And though predicting improvement at AIG is essentially the third-rail for external observers, it’s becoming increasingly hard to not be optimistic about its future.
Central to this dangerous optimism is the people the firm has attracted.
One thing I have said about the new AIG is that the company finally has the “A-team” in key management and underwriting positions to execute on a turnaround. For sure it is early days for a turnaround of this scale, but if you’re underwriting a turnaround as an external investor, the quality of the people in place doing the heavy lifting is by far and away the most important piece of due diligence you can do. And I personally think this is a management team you could get comfortable taking a bet on.
But one thing that has gotten less attention is the steps taken to improve the quality and relevant experience of AIG’s board of directors.
Just this week, the company announced three new nominees to its board, each seemingly highly qualified and value accretive.
In particular, the addition of former XL CFO Pete Porrino seems like a coup. Porrino is well respected across the industry and brings a wealth of relevant domain expertise and experience of complex (re)insurance turnarounds.
These additions come shortly after another big win for the company. In January, AIG announced it was adding former Chubb executive and CNA CEO Thomas Motamed, another highly respected insurance executive who deserves much credit for the improved health and valuation of CNA.
Like Brian Duperreault at AIG, Motamed eschewed quick fixes and chose the harder path of building from the foundations of field underwriting talent.
So what does this mean for AIG?
One of the defining features of the post-crisis decade for AIG was an excessive over-correction on its philosophy on risk-taking. With a management and board put in place by the Federal Reserve, many shareholders privately complained that when the government sold its last shares, the board appeared to have missed the memo that it worked for shareholders, not the government.
This manifested in an overly deferent relationship with the Fed, and a tolerance for slow progress toward lacklustre goals that would have been unacceptable at a normal company with well-aligned principals.
Of course, as subsequent events have shown, this is not to say AIG was averse to risk taking. The company appeared to be taking a lot of risks in other sub-optimal ways in its large-limit and centralized reinsurance strategy.
But the origins of this strategy was a belief that the firm could be obsessively risk managed from the corporate centre with clever risk and capital models, with little need for frontline underwriting talent.
In many ways, the company was simply run by a board, management, and regulator who wanted to run it like a systemically important bank rather than an insurance company.
This appears to be changing.
And I personally think the changes to the firm’s board should be seen as an important reason to have confidence the company will stay the course and continue to execute on its strategy.
Turnarounds tend to be successful when you focus on the art of the possible, not the perfect, and both Porrino and Motamed have the background and experience to hold management to this standard.
AIG is still in the very early stages of its latest attempt to fix itself. But with every passing month, it’s becoming harder to think that it hasn’t accumulated the right team to put it on the path to being a normal company again.
For everyone in this sector, a well-managed and rational competitor in AIG may be just about the most important structural change happening the in this industry right now. It should be welcome news to everyone