AIG Needs A New Tiger In Asia
Few chief executives could match the string-pulling prowess that ousted American International Group (AIG ) Chairman Maurice R. "Hank" Greenberg enjoyed in Asia. Sure, the company that would become AIG gained certain entitlements because it was founded in Shanghai in 1919, and was insurer to the U.S. military in occupied Japan. But it was Greenberg's tireless networking with Tokyo bigwigs, lobbying crusades to gain China's entry into the World Trade Organization and retrieve stolen cultural artifacts, and dealmaking instincts over several decades that turned AIG into a power in Asia. It is now the top foreign insurer in both China and Japan, a market leader in Southeast Asia, and an important new player in India. "Hank was a dominant force for AIG's presence in Asia," says Farrokh Kavarana, chairman of two AIG-Tata life insurance joint ventures in India.
Asia is critical to the performance of the financial-services behemoth, which is known in the region as American International Assurance, or AIA. Greenberg cited growth in AIA's Asian underwriting business as a big driver of the 11% jump in the company's $3 billion fourth-quarter net income. And the region kicks in roughly 30%, or about $30 billion, of the insurance giant's $99 billion in revenues. Operating profit margins for all foreign life insurance operations have been stellar, jumping from 11.7% in 1996 to 17.6% in 2003. Indeed, AIG's Asian performance has been so stupendous that Deutsche Bank Securities (DB ) analyst Alain Karaoglan thinks AIG needs to prove the numbers are real in light of the U.S. company's admitted accounting shenanigans. "We are all in the dark now," he says. "There will be more doubts going forward."
Without Hank Greenberg greasing the wheels, can AIG keep it up? It won't be easy. Working those Asia connections now falls to new CEO Martin J. Sullivan. He has some experienced Asian hands on his bench, such as Senior Vice-Chairman Edmund S. W. Tse, who oversees global life insurance operations from New York and used to run them in Asia. Executive Vice-Chairman and Chief Operating Officer Donald P. Kanak, 52, is another. A fluent Japanese speaker who ran AIG's operations in Japan and Korea for much of the last decade, Kanak negotiated the purchase of Japan's failed Chiyoda Mutual Life Insurance in 2001 and General Electric Co.'s (GE ) Japanese life insurance business, GE Edison, two years later. But whatever clout the two might wield, analysts say that Greenberg's special status in Asia will be sorely missed.
What happens in Japan is crucial, since it is AIG's biggest foreign market. Will Japanese regulators, who last fall forced Citigroup (C ) to shut down its private banking operations for engaging in unauthorized transactions, now take a close look at AIG's books? There is no indication yet that they will -- or have any reason to. But if the company were to get in trouble in Japan, it has a lot to lose. Last year AIG saw a 31% jump in life, health, and group insurance policies in its Japan operations.
In China's more relaxed regulatory environment, AIG can rest easier. Most policyholders in China are in the dark about the uproar stateside. Good thing: AIG grabbed 57% of the insurance premiums generated by foreign insurers in 2004, and owns 10% of giant PICC Property & Casualty Co., which distributes its accident and health insurance products. Still, AIG will miss Greenberg's heft in Beijing, where guanxi, or personal connections, reign. Because of the insurance company's long history in China, back in 2001 Greenberg cinched a sweetheart deal as the only foreign insurer allowed to operate wholly owned subsidiaries in mainland markets.
Rival foreign insurers screamed, and the loophole closed in December. "The period of giving special treatment to AIG has already ended with China's entry into the WTO," says Tuo Guozhu, deputy director of the Financial & Business School at Capital University of Economics and Business in Beijing. Another era has ended, too. AIG is no longer run by the man whose forceful salesmanship and charisma pried open so many Asian doors. That will be tough to replace.
By Brian Bremner in Tokyo, with Dexter Roberts in Beijing, Diane Brady in New York, and Manjeet Kripalani in Bombay