Greenberg's Lawsuit: Sign of Trouble?
Is Hank Greenberg's private insurance empire in trouble? On Aug. 7, the embattled former American International Group (AIG) chairman sued three AIG employees—and up to 100 co-conspirators—alleging that they have tried to "systematically destroy" the four insurance companies he now runs under C.V. Starr & Co.
Among other things, Greenberg's team charges that the AIG staffers misappropriated confidential information, poached employees, unfairly competed, and tried to discredit the Starr agencies. AIG allegedly even posted job flyers in shared bathrooms of the two rivals and set up phony hotlines to woo Starr employees.
On the surface, this is just another bloody battle in the ongoing war between AIG and Greenberg (see BusinessWeek.com, 3/27/06, "Hank at War"). The insurance titan, now 81, was ousted from AIG last year during an accounting scandal. (AIG has logged its own complaints against Starr, over things like how the agencies are named.) Greenberg is still fighting civil suits related to his activities at AIG, maintaining that he has done nothing wrong, while the $109 billion insurer reached a $1.6 billion settlement with regulators earlier this year.
BUSINESS STILL BRIGHT…
But the Aug. 7 lawsuit is bound to raise questions about how Greenberg's businesses are actually faring in the marketplace. The so-called Starr agencies, which include Starr Tech, Starr Aviation, C.V. Starr & Co., and American International Marine Agency, handle highly specialized insurance as managing general agents. They were world leaders in their areas and offered a level of sophistication that outsiders said would be difficult for AIG itself to replicate.
During the 38 years that Greenberg was at the helm of AIG, those agencies were intricately linked with AIG. In fact, the insurer underwrote literally all of the policies for Starr clients, giving Starr hundreds of millions in compensation for the tailored policies. The fact that the publicly traded AIG had such a cozy relationship with a private company headed by Greenberg and other AIG executives was also a source of controversy with some regulators and investors.
That relationship was severed when Greenberg walked away with the companies and with more than $21 billion of AIG shares controlled through the privately owned Starr International, which is also the subject of lawsuits (see BusinessWeek.com, 4/11/05, "AIG: What Went Wrong"). Greenberg says he was willing to sell the four Starr agencies to AIG but the offer was $600 million short. At the time, the agencies were handling about $2 billion in gross premiums annually and employed about 400 people.
OR FALLING STARR?
Starr spokesman Howard Opinsky says the company is doing the same level of business, now underwritten by a mix of other insurers. As Opinsky puts it: "AIG has damaged Starr to a degree, but has it mortally wounded the agencies? Not at all." In his opinion, the lawsuit demonstrates that AIG is the desperate one. "They can't figure out a way to compete in an open playing field. They continue to harass Mr. Greenberg by trying to steal his people and his business." A spokesman for AIG said the company doesn't comment on ongoing litigation.
Still, it's clear that Starr faces challenges. For one thing, a July 19 Merrill Lynch report concluded that the severed links between AIG and Starr had "minimal impact to AIG." As analyst Jay A. Cohen stated: "AIG's year-to-date premiums in these lines are even or above the year-ago level." Unless the market for these highly specialized lines of business has vastly expanded, that has led some to suspect that Starr is suffering from the divorce.
The latest lawsuit points to numerous irritants to the Greenberg camp. Specifically, Starr alleges that two former employees and a former vice-chairman violated its code of conduct and "proceeded to steal the Starr Agencies' expertise, customer relationships, confidential information and, ultimately, their customers." The defendants apparently helped AIG "lure key Starr Aviation" employees to AIG, including 31 employees at Starr Aviation U.K. They allegedly offered $2,000 rewards to AIG staffers who poached Starr talent, ordered Starr signage removed, and even stopped Starr employees from entering their offices.
With the lack of love between Greenberg and his former employer these days, it's easy to believe that both sides are trying to annihilate each other in the marketplace. Only a court can decide whether AIG staffers went too far in reaching for the lucrative insurance business. But a suit about AIG's actions in hampering Starr's business is sure to make some people wonder if Greenberg's new empire is struggling to forge an identity away from its potent former partner.