Former AIG Boss Greenberg Building A New Empire

The 88-year-old hasn't been sightseeing. Eight years after his forced resignation from AIG -- which he turned from an obscure property-casualty player into a global financial powerhouse -- Mr. Greenberg is staging an improbable comeback. He's quietly building a fast-growing insurance conglomerate, called Starr Cos., that's collecting billions in premiums all over the globe.

Sipping herbal tea in his Park Avenue offices decorated with paintings, sculptures and photographs of him with world leaders, Mr. Greenberg said he has no thought of retiring. "I am doing what I do best," he said. "I like building things."

His reign at AIG famously ended amid a giant accounting scandal. And today his rebranding efforts are complicated by one final obstacle from the past: a trial on civil-fraud charges alleging he used accounting shenanigans to portray an unduly rosy picture of AIG's results.

Late last month, the New York Court of Appeals denied an effort by Mr. Greenberg's lawyer, prominent trial attorney David Boies, to win dismissal of the civil-fraud charges that stuck from the original suit brought byNew York's then- Attorney General Eliot Spitzer in 2005.

The ruling followed a federal judge's approval of a $115 million pact to settle class-action shareholders' litigation against Mr. Greenberg and other former AIG executives that covers the same accounting issues. In 2009, Mr. Greenberg agreed to pay $15 million to resolve Securities and Exchange Commission allegations related to AIG's accounting methods; he admitted no wrongdoing.

In the latest ruling, the state's highest court said the attorney general's office, which had abandoned its effort to seek monetary damages from Mr. Greenberg in the wake of the class-action settlement, could try the civil fraud matters and seek other relief such as a ban on serving as an officer of a public company.

Mr. Greenberg has long denied he did anything wrong, and maintains that Mr. Spitzer never should have brought the case because, among other things, AIG's earnings restatement from the affair shaved off just 3% of shareholders' equity, an amount he considers immaterial. The U.S. Chamber of Commerce filed a friend-of-the-court brief in the state case calling for its dismissal, and politicians who lent support include former governors Mario Cuomo and George Pataki, who co-wrote an opinion piece in The Wall Street Journal in May.

Meanwhile, Mr. Greenberg prevailed on a matter affecting Starr's sizable AIG holdings: A federal claims court judge ruled on June 26 that an entity he heads could proceed with a lawsuit against the U.S. government over alleged unconstitutional elements of AIG's bailout during the 2008 financial crisis. The government says it did nothing wrong. Starr was AIG's largest shareholder until the government takeover.

In identifying causes of the 2008 markets meltdown, the government's Financial Crisis Inquiry Commission cited " stunning instances of governance breakdowns and irresponsibility" that included "AIG senior management's ignorance of the terms and risks" of the company's huge exposure to mortgage bonds.

No one expected the feisty Mr. Greenberg to disappear when he left AIG. With a commanding presence, he had dominated the insurance industry for decades, and was one of the most powerful executives in the broader financial-services world. He was an often-brusque, hard-charging boss known for boundless energy -- and impatience with managers, analysts and others who didn't live up to his standards.

Of his reputation as a tough boss, Mr. Greenberg said: "I wouldn't ask anybody to do anything I wouldn't do."

Because Mr. Greenberg's new venture is privately held and has ample capital, the New York ruling is unlikely to have immediate consequences for the firm, insurance experts say. He doesn't intend to take his Starr public, so a potential ban on serving as a public officer would be moot.

No matter the legal outcome, the road ahead is likely to be tough. Competition is fierce and the property-casualty insurance industry faces headwinds, including ultralow interest rates that hurt insurers' investment income.

Mr. Boies said he believes the case will be dismissed by the lower courts and plans to argue that the evidence used by the state is inadmissible hearsay.

Last year, Starr's units took in about $2.7 billion in gross premiums from insuring businesses in the aviation, construction and marine industries, among others. The volume is a fraction of AIG's $45 billion in property-casualty premiums. But if it was public, Starr would be large enough to edge into the top 25 of property-casualty insurers traded on U.S. stock exchanges, as measured by gross premiums.

Many insurance brokers and their customers welcome Mr. Greenberg's return to the business. He has "a great track record of bringing some of the best talent in the industry to work with him," said Al Tobin, an executive with insurance brokerage Aon PLC. Mr. Greenberg has been warmly greeted as a speaker at various industry events over the past several years, Mr. Tobin and others note.

To his friends, Mr. Greenberg, a D-Day combatant who earned a Bronze Star in the Korean War, has always seemed indomitable.

Starr's U.S. unit, Starr Indemnity & Liability, has an "A," or "excellent," rating from insurance specialist A.M. Best, the same as AIG and many other insurers. Besides its U.S. offices, Starr operates in Argentina, Bermuda, Brazil, Hong Kong and London, among other places.

Starr's trajectory is something of a reprise for Mr. Greenberg. As the face and undisputed leader of AIG, Mr. Greenberg built it into a sprawling conglomerate with businesses in 130 countries, its market capitalization peaking at more than $200 billion in 2000.

In March 2005, under pressure from the board amid Mr. Spitzer's investigation, Mr. Greenberg stepped down. The break was traumatic. AIG "was our family," said his wife, Corinne. "It was dreadful. . . . This was what we had devoted ourselves to."

For his part, Mr. Spitzer, who resigned as governor in 2008 in the wake of a prostitution scandal, said in an interview earlier this year that he still believes in the case. He recently added that the court's decision to proceed " says precisely what I said for years about this case," which is that "there's evidence this conspiracy of illegal conduct began with Hank Greenberg. Only the acolytes of Hank Greenberg ever tried to refute that fact."

After leaving AIG, Mr. Greenberg still ran Starr International, an investment and charitable firm that primarily held AIG shares, including many Mr. Greenberg and other Starr executives had set aside for future use rather than distribute to themselves after they took AIG public in 1969. In 2005, Starr's AIG shares were worth more than $17 billion.

He also headed C.V. Starr & Co., which owned four specialty agencies that generated business for AIG. Mr. Greenberg offered the agencies to AIG, he said, but AIG offered significantly less than the roughly $1 billion he said his advisers estimated they were worth. He decided to keep them as part of a new insurance conglomerate.

"I know the world of insurance better than anything else," Mr. Greenberg said. "People were getting in touch with me, 'Could I come to work for you?' I just had to answer the phone and get any number of people I wanted."

He concluded the new company, while much smaller than AIG, could be a "significant force" in relatively short order.

Beginning in 2006, Starr International sold tens of millions of AIG shares to raise $4.3 billion. But the firm then got caught up in divorce-like proceedings as Mr. Greenberg and AIG separated their affairs. In claims in federal court in New York, AIG maintained Starr owed it the $4.3 billion as well as about 185 million AIG shares it still held.

Meanwhile, the unimaginable happened: AIG nearly collapsed, weighed down by bad bets on the U.S. housing markets, and sought government help. Starr's remaining AIG shares plummeted in value. At the trial in 2009 over the disputed assets, Mr. Greenberg was grilled by AIG's lawyer about old memos as the insurer tried to prove the shares had been put in a trust for AIG's benefit. Mr. Greenberg insisted the shares were for Starr's purposes.

"I had no reason to think we were going to lose," Mr. Greenberg said. "How can you lose something it was so clear we owned?"

He prevailed. In an interview, forewoman Karen Jaroneski said the jury saw Mr. Greenberg "as a brilliant businessman, a little bit cutthroat," and "I don't think any of us wanted to help him" retain the money. Nevertheless, jurors concluded AIG hadn't proved a legitimate claim to it.

When the Starr team heard the verdict, "you could hear the screams [of joy] all over this floor," said Edward Matthews, a former senior vice chairman of AIG who now works at Starr.

At AIG, Mr. Greenberg was legendary for placing phone calls to his managers at odd hours, sometimes as he exercised. That has continued at the new venture, despite his advanced age. He always has been "in the business 24/7," said Howard Smith, a former AIG chief financial officer who is a defendant in the civil fraud case and denies any wrongdoing. He is now a vice chairman at Starr.

Startup insurance companies aren't unusual in the property-casualty insurance industry. The island of Bermuda is dotted with them, many launched with funding from private-equity firms.

These startups often are focused on "reinsurance," which involves taking on some of the risk of the policies that insurers sell to businesses or individuals, because such insurance requires less staffing than, say, a car insurer selling to the public and handling thousands of small claims.