AIG's Asian Connection
American International Group Inc. (AIG ) has no shortage of clout in Asia. Founded in Shanghai in 1919 and a constant presence in Tokyo since 1946, the $67.5 billion life-and-property colossus is now the top foreign insurer both in China, the world's fastest-growing market, and Japan, the world's second-largest after the U.S. AIG, or one of its many subsidiaries, are household names throughout much of the region, from Korea to Thailand. For the past 35 years, Chairman Maurice R. "Hank" Greenberg has nurtured the business by hobnobbing with regional leaders, offering advice on everything from pension reform in Hong Kong to China's entry into the World Trade Organization.
The financial-services behemoth earned about a third of its record revenue last year from Asia and a significant -- but undisclosed -- chunk of its $5.5 billion profit. Sales in Asia last year were double what AIG earned in the region just five years ago (table). But Greenberg isn't content to sit back and collect premiums. Instead, AIG is setting up shop in growth markets such as India and taking over rivals in more mature markets like Japan. The biggest prize by far, however, is China, where Greenberg boasts: "We're growing very strongly."
The catch? The world's most profitable insurer remains a bit player in Asia's most promising foreign markets. To grow, AIG must outwit rivals and win over regulators who often cast a wary eye at foreigners. In China, where AIG reopened its doors in 1992, it faces big local players. "The [Chinese] market is incredibly competitive, and foreign companies can't penetrate as much as expected," says Connie Wong, an analyst at Standard & Poor's in Hong Kong.
AIG, however, has a huge lead over other foreign insurers. And while the outbreak of SARS had a short-term impact on insurance- contract sales in April and May, AIG expects severe acute respiratory syndrome to actually increase life-insurance sales, longer-term. AIG's Chinese operations have cranked out 28% sales growth during the first half and, Greenberg thinks, are on track for a 40% gain by yearend. It's currently the fifth-largest insurer in China in terms of premium income, with eight branches each for its life and nonlife insurance business. Last year, AIG became "the first foreign life insurer to do business in the populous and prosperous cities of Beijing, Suzhou, Dongguan, and Jiangmen," Senior Vice-Chairman and co-COO Edmund Tse boasted to shareholders in May.
Still, AIG must win business away from local giants such as state-controlled China Life Insurance Co., which underwrites more than half of all policies in the country. China Life is expected to raise $3 billion in an initial public offering this year and likely will be the dominant life insurer for years to come. No. 2 Ping An Insurance Co. is about half the size of China Life but dwarfs AIG's China branch, which operates under the name American International Assurance (AIA). Whether AIG can be more than a niche player is an open question.
Skepticism doesn't bother Greenberg. The feisty exec insists AIG can out-hustle local rivals with an innovative array of financial products such as SARS-related insurance, stricter cost controls on overhead, and top-notch ratings from credit agencies -- a major selling point in a region fraught with wobbly insurers. "We opened [China's] market for insurance," says the 78-year-old.
Other foreign insurers operating in China can't quibble with that. But they whisper that AIG has a sweetheart deal as the only foreign insurer allowed to operate wholly owned subsidiaries. Others must settle for minority joint ventures. But Greenberg calls it just desserts, noting AIG worked 17 years to get an insurance license. "Who in the European insurance industry went to China?" he says. "If they did, they went as a tourist."
While China is a long-term play, AIG's short-term prospects look better in Japan. There, the chief concern is a sluggish Japanese economy. To keep up the pace of growth, Greenberg is turning to acquisitions. AIG took over ailing Japanese insurer Chiyoda Mutual Life Insurance Co. in 2001. Last year, it bought a 22% stake in Fuji Fire & Marine Insurance Co. Then in June, AIG shelled out $2.1 billion for General Electric Co.'s Japanese life-insurance business, known as GE Edison Life Insurance Co., and the company's U.S. auto and home-insurance businesses. GE wanted out, and AIG was happy to help. "They didn't have a big insurance operation in Japan. They didn't have critical mass," Greenberg says.
AIG faces an uphill battle in India, where it's a latecomer, and rivals such as Prudential (PRU ) and Germany's Allianz have big leads. Since partnering with Tata Group two years ago, AIG and Tata have pumped $75 million worth of capital into a jointly owned insurance company. While premium growth has been impressive, the venture is up against state-owned giants Life Insurance Corp. and General Insurance Corp., a property-and-casualty outfit. AIG's 12,000 agents are competing against 80,000 at LIC. But Faroukh Kavarana, who heads Tata-AIG, says the company is there for the long term: "We hope to be profitable in 4 to 5 years for general-insurance products and 8 to 10 years in life."
Greenberg says he wants to be the largest foreign insurer in India in 10 years, underscoring his reputation as a demanding boss. That drive explains why AIG last year was the most profitable multiline insurance company in the world. Asia has been very good to AIG. And Hank Greenberg aims to make sure it stays that way.
By Brian Bremner in Tokyo, with Manjeet Kripalani in Bombay