Posted on 25 Nov 2009
Chartis, the company that will emerge from the reorganization of American International Group Inc. (AIG) on Dec. 1, will be a truly global group that will provide international lines of non-life cover from within a single holding company, according to Lex Baugh, chief executive officer of AIG UK.
Baugh spoke at a client conference in London hosted by broker Marsh. In the past, he said, AIG lacked a single global entity for any line of business. The new model will be built around "a common holding company, which will very shortly be wrapped within a special purpose vehicle," Baugh said.
AIG traditionally offered multinational clients access to its own "fairly convoluted" network, Baugh said. One portfolio of cover, he said, could involve different AIG operations in Australia, Japan, the United States, the United Kingdom and continental Europe. "And each of those had their own ownership structures," Baugh said. "It took a lot of work to actually understand that entire security chain."
Chartis will operate as a combined life and non-life company, Baugh said. "Everything comes under a common roof," he said.
Chartis will seek to lower cross shareholdings, Baugh said. AIG's holding in Transatlantic Reinsurance Co. in the United States, for instance, has been reduced to 13.9% via a public offering, he said. This is down from about 60% when the economic crisis hit, he said. Lowering the level of cross shareholder ownership will improve the group's focus, Baugh argued.
Chartis will strive to establish operational independence. This step, which will be important in order to access the debt markets, Baugh said, will involve the preparation of three years of detailed accounts.
AIG, Baugh suggested, was well placed to deal with the international financial crisis that erupted in September 2008. The group, he explained, benefited from a reorganization that took effect in December 2007 that had moved it from a branch-based structure to one built around subsidiaries.
"That actually was organized over a period of about three years," Baugh said of the change. "It was a major project for the organization, cost over 50 million pounds (55.3 million euros) and might have been avoided by some managements."
Baugh said the change, which began before his arrival, "made all the difference in terms of how we were able to respond to the crisis." AIG, he said, was able to deal more effectively with regulators, brokers and clients, Baugh said.
The insurance industry has found that regulators performed well during the financial crisis, Baugh said. "The regulatory environment on a global basis responded in a way that we would have hoped that they would respond," he said. "And that is to step in, not be overly intrusive but making sure that policyholders were protected and that assets were ring-fenced."
Baugh was heartened that there were no attempts in what he called the potentially unstable U.S. market to divert funds from insurers into other areas.
Baugh stressed the importance of effective communication during a crisis. AIG, he said, sent out simple messages and held meetings each morning on how it should deal with developing news, noting that communication is 80% internal and 20% external.
"A lot of [the communication] you have to make up as the crisis is unfolding," Baugh said.
The financial crisis did not hit AIG's nonlife insurance operation particularly badly, Baugh said. But he did point to a negative effects of exposure to municipal bonds in the United States.
"The financial market has certainly recovered," Baugh said, noting the positive effects of this movement on both Chartis and the wider economic arena.