Online Extra: Greenberg on AIG's Asia Strategy
Despite the troubles roiling the waters for life and property insurers worldwide -- from the Iraq war to sluggish economies across Europe and the outbreak of SARS in Asia -- America International Group (AIG ) expects another banner year. It chalked up net profit of $5.5 billion last year on record sales of $67.5 billion, about a third of which came from Asia. The New York-based insurer, the world's most profitable, has been on the ground in Asia for the better part of 84 years since its founding in Shanghai in 1919.
Thanks to spadework by Maurice R. "Hank" Greenberg over his 35 years as AIG chairman, the outfit has become the largest foreign insurer in Asia, with lucrative business operations stretching from Bangkok to Tokyo. But it's the Chinese market that presents AIG with its biggest challenge -- and opportunity -- going forward. In 1992, after a hiatus of more than 40 years, AIG reentered the market, becoming the first licensed foreign insurer in China.
BusinessWeek International Finance Editor Chester Dawson and Senior Editor Michael Serrill sat down with Greenberg recently to discuss his strategy in China and the rest of Asia. Edited excerpts of their conversation follow:
Q: Where does Asia rank in AIG's global priorities? A:
Q: Where does Asia rank in AIG's global priorities?
A:I would expect it to be a very important part of our business. It always has been, from the very beginning. But it doesn't mean we neglect everything else. Some countries in Latin America are growing pretty rapidly -- Brazil and Argentina -- at the moment. Eastern Europe is growing quite well. Even our business in "Old Europe" is growing quite well because of the devastation done to the balance sheets of the European insurance companies.
So it's not that we're one-dimensional. But we happen to have a big business in Asia. And, of course, don't forget the U.S.
Q: What about China? How important is that market to AIG going forward? A:
Q: What about China? How important is that market to AIG going forward?
A:I've put a lot of time into China for many, many years. We opened the market for insurance. We have a pretty good stake in the market, and we expect to have strong growth. Right now, we're growing very strongly...over 40% [in China]. I expect that to accelerate.
Q: But the competition is heating up. A:
Q: But the competition is heating up.
A:I don't worry about competition. It's a huge market. We have competition every place in the world. That's not a problem. Having said that, the Chinese have learned a great deal from us. Down deep, they're entrepreneurs. They'll become formidable, long-run companies in 10, 20, 30 years, whenever it may be. It's a 5,000-year-old society, so what's 20, 30 years [to them.] But meantime, AIG will continue to have a strong business in China.
The strength of AIG is that we're very creative in product innovation. We're good at distribution. We're quite efficient. So we'll always have a market that other companies will have difficulty keeping up with, including foreign companies.
Q: Some rivals complain that under the terms of China's entry to the World Trade Organization, AIG unfairly won exclusive rights to own 100% of its life ventures. A:
Q: Some rivals complain that under the terms of China's entry to the World Trade Organization, AIG unfairly won exclusive rights to own 100% of its life ventures.
A:We're grandfathered going forward and going backward. The Europeans were jealous of AIG's position. It took me from 1975 to 1992 to get a first license. Who in the European insurance community went to China? If they did, they went as a tourist -- to see the Great Wall. They didn't even know China existed.
So we did an awful lot in China, in many forms. And so we earned the right to the first license. There's a benefit to being a pioneer. If not, why be a pioneer? We spent time and money doing that. I resent the Europeans having slipped a footnote into their [WTO] agreement suggesting they be entitled to the same thing AIG was entitled to.
Q: What's your strategy in Japan, the world's No. 2 market for insurance where in June you bought out the retail insurance operations of General Electric (GE
Q: What's your strategy in Japan, the world's No. 2 market for insurance where in June you bought out the retail insurance operations of General Electric (GE )?
A:In Japan right now, the market that's growing the fastest for us is in life insurance. Our nonlife business in insurance is outdistancing the growth of Japanese companies -- of course, they've been very flat. One reason is a flight to quality. We're a triple-A-rated company, and they're all struggling. We understand the people. We understand the culture. I could write a book out of it. [GE] didn't have a big insurance operation in Japan. They didn't have the critical mass.
Q: Does AIG need an acquisition to grow in Korea, where it has been unsuccessful in bidding for a local partner? A:
Q: Does AIG need an acquisition to grow in Korea, where it has been unsuccessful in bidding for a local partner?
A:No, we don't need to. We're growing quite well.
Q: What about fears involving North Korea and its nuclear program? A:
Q: What about fears involving North Korea and its nuclear program?
A:I have to believe that there will be a diplomatic solution to the North Korean problem. Maybe I'm just being optimistic. But I think that it's a regional problem, not just a U.S.-North Korea problem. Obviously, South Korea is in the eye of that storm. China has a very strong interest. So does Russia. I believe it's in everybody's interest to try to find a reasonable solution to it.
Q: What other countries in Asia are you most interested in? A:
Q: What other countries in Asia are you most interested in?
A:All of them. [India] is growing quite well. As is our business in Vietnam. Turn the clock back -- it's what a number of countries in Southeast Asia were [like] 25 years ago. We've also been big in Thailand and Malaysia. And the Philippines, Singapore, Indonesia.
Q: Can you catch up with European rivals Prudential and Allianz in India? A:
Q: Can you catch up with European rivals Prudential and Allianz in India?
A:In 10 years, we'll be the largest foreign insurer in India. We're very close to it now. It'd be nice if [the government] privatized some [of the state insurers.] Bureaucracy and the ability to increase our equity from 27% to 49% or higher [are the biggest bottlenecks.] The more equity we have, the more interested we are.