Tenure of AIG's 5th CEO Since Hank Greenberg Derailed By Reserving Woes

A company known through most of its nearly century-long history for continuity of leadership continues to search for stability.

Nearly 12 years to the day since M.R. "Hank" Greenberg was pushed out after nearly four decades as CEO of American International Group Inc. under a regulatory cloud associated with an investigation launched by then-New York Attorney General Eliot Spitzer, the company announced that current President and CEO Peter Hancock would step aside, citing a lack of "wholehearted shareholder support" for his continued leadership.

Hancock succeeded the late Robert Benmosche as AIG's CEO, effective Sept. 1, 2014. Benmosche, who previously had been best known for his role in leading the demutualization of Metropolitan Life Insurance Co. and concurrent initial public offering of MetLife Inc., was widely credited for righting the ship after AIG's tumultuous bailout-era period. But the positive external view of his leadership has proven the exception, not the rule, in the post-Greenberg era, and recent press reports had foreshadowed the announcement the company made March 9.

Martin Sullivan, Robert Willumstad, Edward Liddy and Hancock all came under fire during their respective tenures as AIG's CEO, including in the cases of Sullivan, Willumstad and Liddy from Greenberg himself, for a variety of reasons. That AIG will name its sixth CEO since the start of 2005 is remarkable considering that the company had been steered by only two individuals, Greenberg and founder Cornelius Vander Starr, in its previous eight-plus decades of existence.

Hancock's tenure may ultimately be defined by the massive reserve charges the company took in the fourth quarters of 2015 and 2016, which had the cumulative effect of raising credibility concerns among some on Wall Street, rather than the decisive January 2016 release of strategic actions to maximize shareholder value and what he had pitched as a "redefining" adverse development cover AIG entered with Berkshire Hathaway Inc.'s National Indemnity Co.

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Even while the AIG board said in announcing Hancock's eventual departure that it "strongly" believes the January 2016 roadmap remains "the right plan" for the company, current management had been unable to fully allay the market's concerns about reserving risk following adverse prior-accident-year reserve development totaling $9.90 billion on a consolidated basis during the past two calendar years and to refocus the narrative on the end game of the creation of a "leaner, more profitable and focused insurer."

The National Indemnity agreement, through which AIG ceded 80% of its reserve risk on long-tail U.S. commercial lines exposures in excess of $25 billion of net paid losses up to a $25 billion limit, had "the power ... to provide greater certainty around the historical accident years," Hancock said during an appearance at an investor conference in February.

That a significant portion of the unfavorable development in 2016 pertained to the most recent accident year provided particular reason for concern on Wall Street as Bank of America Merrill Lynch analyst Jay Cohen pointed out in a question to Hancock during that event.

Within the $4.36 billion of prior-year reserve development reported by the 13 U.S.-domiciled property and casualty units of AIG for which 2016 statutory data was available as of March 8, according to S&P Global Market Intelligence, just more than $1 billion pertained to accident year 2015. The other liability-occurrence and claims made lines accounted for $749.6 million of the development attributable to accident year 2015; commercial auto liability was responsible for nearly $202 million. The second-highest amount of unfavorable development in the other liability lines from 2007 onward was the $409.1 million attributable to accident year 2014. Hancock served as CEO through all of 2015, and prior to succeeding Benmosche in the third quarter of 2014, he had been named CEO of AIG Property Casualty in March 2011.

"It means that we were taking very early action on very green accident years," Hancock said in response to Cohen.

"We see emerging trends that are worrisome," he added, "and I think ... industrywide, others may not be recognizing them as promptly."

Greenberg and current New York Attorney General Eric Schneiderman in February finally settled securities fraud litigation brought against the former AIG executive in May 2005. Success or failure for Hancock's successor may be defined by his or her ability to bring closure to a period of upheaval that predated the filing of Spitzer's complaint.

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