Industry Lifestyle the October 2011 issue

Hank Greenberg Talks…and Ducks

About the AIG bailout, the economy and C. V. Starr, but not Eliot Spitzer.
By Ed Leefeldt
Q
Everybody knows everything about AIG and all the warts on it, but what about C. V. Starr? C. V. Starr took on a new life in 2005 when you devoted your full time to it.
A
We had general agencies that were operating in the U.S. It became global. We created several insurance companies. They are functioning quite well. Operating both here and in other countries. We have a venture in China. We’re expanding in other countries as well.
Q
What’s your vision for C. V. Starr?
A
It will have successful property-casualty companies and have investment operations in many countries.
Q
And a general agency?
A
It still has some general agency business. We represent insurance companies such as Chubb, Ironshore and others. We have been in the aviation business for many years. C. V. Starr is virtually a worldwide company, operating in Asia and Europe, Latin America and the U.S.
Q
Why the overseas emphasis?
A
We have a lot of global experience. So why wouldn’t we use that global experience? I spent almost 40 years running a global company. Not many people have that experience.
Q
What about Starr International? Is it still an investment vehicle?
A
It’s investment and insurance. It was not always insurance. After 2005, it changed.
Q
Why the difference in C. V. Starr and Starr International? Why not just put it all together?
A
C. V. Starr & Co. is domestic. Starr International is foreign.
Q
And you have a multitude of different companies under those two labels?
A
Correct. It’s principally due to regulatory issues.
Q
How do you compete with larger insurers? You’re obviously not the biggest.
A
We’re private, so you know very little about it. We’re not exactly that small. We’re rated by some of the rating agencies. We’re doing quite well. We have strong relationships with brokers worldwide.
Q
Can you give me any parameters on how well you’re doing?
A
The best example I can give you is we had roughly 300 people in 2005. Today we’re greater than 1,000 employees.
Q
It seems like there’s very little in the insurance business that you haven’t touched. You’re even competing with your old company, Lexington, in the surplus market.
A
Well, Lexington doesn’t write all the business in the U.S. There’s room for lots of others. There’s room for people who are creative, who can create new products, who have good ratings.
It was only after Eliot Spitzer went after several companies—not just me—that boards of directors caved. And the outcome has been what? Quite a disaster.
Q
How do you handle, evaluate and reward entrepreneurship in your company with relatively new employees? I mean new to you perhaps, not new to the business.
A
If we weren’t rewarding them properly, we wouldn’t be able to hire them, would we?
Q
That’s correct, but that’s not exactly answering the question.
A
Well, that’s too bad. We have no problem hiring people. In fact, if we had the need, we could hire five times as many.
Q
Admirers and detractors alike say that your 30 years at the helm of AIG were marked by the same sort of entrepreneurship. You’d start new businesses or variations of old ones…
A
That’s right. We were in 130 countries when I was at AIG.
Q
…with minimum costs, then send two guys to Malaysia, put them in an apartment, and somehow they turned it into a $1 million business at some point.
A
Your question is quite simplistic and shows a lack of knowledge of what AIG was.
Q
So is the culture you’re trying to build here the same as you built at AIG?
A
No, they’re different.
Q
How?
A
I’m not going to get into it. AIG is not the same company that it was.
Q
Critics would say it was unwieldy and uncontrollable.
A
Oh, that’s plain nonsense. I mean, when you think about that, the company didn’t have a problem for 40 years. Never had a qualified audit during my term. I think the results during my tenure speak for themselves. It was only after Eliot Spitzer went after several companies—not just me—that boards of directors caved. And the outcome has been what? Quite a disaster.
Q
And of course, it's even been a disaster for Mr. Spitzer, who was fired from CNN.
A
Well, you know…
Q
Jack Welch once said the most important thing a CEO can do is pick his successor…
A
I am not going to name my successor for you. I am not concerned about succession.
Q
Your son Scott works with you?
A
Scott is on the investment side.
Obamacare is a real disaster. It’s not going to reduce costs. You know, there’s a limit to what government can do.
Q
You’ve had two successful sons in the insurance business.
A
Yes.
Q
With your available cash, would there be any advantage to going public?
A
We will not go public. There are very good reasons. The political environment in this country destroyed a number of public companies. Why would I want to do that all over again?
Q
Do you sometimes wish you were running a private or a mutual company when Spitzer came along? Liberty Mutual’s CEO Ted Kelly was able to tell Spitzer to go to hell.
A
Yes.
Q
In interviews, you talked about the virtues of diversification as a tool to smooth out earnings.
A
Not smooth out earnings. It’s to better balance your earnings.
Q
The classic model of that is a conglomerate, but Wall Street has turned its back on that.
A
You know, you don’t run a company for what Wall Street thinks. You run a company if you believe in what you’re doing.
Q
Insurers like The Hartford—which focused on life and property and ran into trouble, particularly with annuities—what’s your thought on that? Did they get too far out of their comfort zone?
A
In the annuity field you are acting as a trustee and have to perform according to the promises you made or you are breaching your responsibility. If you hedge, you have to do it appropriately. Risk management is part of the job of a CEO. So you’ve got to be very thoughtful with what you’re writing long-tail coverages on. You’ve got to know what you’re doing. You’ve got to be priced right. Even with all of that, I would say it’s a tough class of business, so you’ve got to be very respectful of it.
Q
How do you do it? Is there any secret to it?
A
The secret is the thing I just said. You can’t have a bunch of novices writing long-tail business.
Q
Do you see anything out there that could be another asbestos?
A
Well, there are lots of things. You know, you have all kinds of environmental issues. There’s global warming. There are many things.
Q
Do you have any products to deal with global warming?
A
No, not right now.
We will not go public. There are very good reasons. The political environment in this country destroyed a number of public companies. Why would I want to do that all over again?
Q
What kind of advice would you give young people who want to get into business?
A
I think the best thing they could do is, first of all, have some education that will help them in their career. You’ve got to have an affinity for being in the industry. You’ve got to like it. You’ve got to feel that it is the career you want to follow. It’s not something that’s a temporary job. You’ve got to love what you do. You’ve got to have good work habits. It’s the price you pay for success. It doesn’t come very easily. You’ve got to work for it. If you pay attention and you listen and you work, in 10 years you might be a decent underwriter.
Q
Will the insurance industry be helped or hurt by the upcoming changes in health insurance?
A
Well, the healthcare system in the country, in my judgment anyway, needs overhaul. I think Obamacare is a real disaster. It’s not going to reduce costs. You know, there’s a limit to what government can do. The country wasn’t founded on the basis of large government. It was founded on the basis of a small federal government. States would have more power and not the federal government. And individuals would be entitled to provide for themselves, not have a government handout. Now, that doesn’t mean you shouldn’t have a heart and help those who can’t help themselves. Of course, you have some obligation there, but you don’t encourage people not to do anything.
Q
What do you think about the Dodd-Frank legislation? I see you grimace.
A
My problem with Dodd-Frank is they wrote the law before they knew what the problems were. I don’t know how you do that. They hadn’t finished all the Senate or House investigations of what happened, and they were writing the Dodd-Frank bill. You know, you don’t shoot, then aim. You aim, then shoot.
Q
What about the new Office of Insurance?
A
I hope it doesn’t expand to try to be a national regulator of insurance.
Q
What about surplus lines reform?
A
I think we need a surplus lines capability. So I don’t know what they’re going to change. You’ve got to make it easier, not tougher. Otherwise, what you do, you drive business offshore.
Q
This seems to be where you’re headed with a lot of your business opportunities…
A
Well, it’s very difficult to run a global insurance business entirely from the United States.
Q
What’s your opinion of the global reinsurance market? Do you see it rebounding?
A
They’ve been hurt pretty badly in the catastrophes that have occurred, but, you know, they’re surviving. There will be some consolidation, undoubtedly. But they’re pretty well capitalized.
Q
Will the market for property-casualty insurance ever tighten in this country?
A
It will tighten.
Q
What needs to happen to make that occur?
A
Well, it’s happening. You have plenty of losses. It’s tightening for some classes as we speak and for other classes not. It depends on not only the discipline of the insurance industry but individual companies. If you don’t have pricing discipline, I don’t care what happens, you’re not going to survive. Some companies think that just growth and volume is the answer to everything. It’s not.
Q
Some competitors have attacked your old company for underpricing.
A
That may be, but it wasn’t when I was there.
I am not going to name my successor for you. I am not concerned about succession.
Q
Would C. V. Starr ever insure a nuclear plant?
A
Yes.
Q
In May, Starr International bought 20% of Dazhong Insurance, which is backed by the city government of Shanghai. What prompted you to make this significant investment?
A
Well, it was a number of things. One, we wanted to have an operation in China. The mayor of Shanghai and I spoke, and Shanghai really controlled the company, so one thing led to another, and we pursued that.
Q
Is he a personal friend?
A
I know him quite well.
Q
What’s the strategy for moving overseas and not looking like the Ugly American? How do you deal with people in Asia and the Middle East?
A
I’ve been in the field of international insurance for quite some time. In fact, C. V. Starr & Co. started in China. So we have a history as a company. We have a culture. We attract people who want to be in the international insurance industry. It’s not something you can do overnight by just waving a wand. It takes a lot of skills, a lot of knowledge, a lot of patience, and understanding the customs of the countries. Not many Americans have those skills. How many successful American companies are there who are in the business globally? Not many.
Q
Do you have any advice for people who want to do it?
A
I can’t describe that in just a few words.
Q
What’s the best career decision you’ve ever made?
A
Joining Starr. I came back from Korea and joined Continental Casualty Company, became the youngest vice president in their history. And [company founder] Cornelius Vander Starr recruited me.
Q
Is there any decision that you look back on and wish you hadn’t made?
A
Probably dozens of them, though I can’t think of any.
Q
Do you feel like your conflict with Spitzer was avoidable?
A
I’m not going to get into that − now.
Q
What’s your feeling about raising the debt ceiling, and the budget crisis?
A
It’s really very simple. I have no problem raising the debt ceiling. At the same time, we should take steps to reduce our long-term debt. Just look at Europe. We’re on the same path. We have to reduce our debt.
Q
Is a government bailout for business ever necessary? I mean, you’ve always said the AIG bailout wasn’t necessary, right?
A
There were many ways that AIG could have been handled. It’s very difficult to understand why they chose the manner they did and why AIG was treated so punitively compared to anyone else.
There were many ways that AIG could have been handled. It’s very difficult to understand why they chose the manner they did and why AIG was treated so punitively compared to anyone else.
Q
Desperation?
A
I think part of it was desperation, part of it was panic. They had six months between Bear Stearns and Lehman Brothers. There was nothing done. Lehman was caused by the tremendous loss in confidence. And there was a withdrawal of funds from all the banks, so there was a crunch—you couldn’t borrow 10 cents from a bank. So they were all lining up to borrow money from the Fed. So what they could have done was what they did for several banks, have the Fed guarantee several hundred billion dollars of the assets—like they did for Citi and Bank of America. All they had to do was do the same thing for AIG. It would have been all over.
Q
As simple as that?
A
As simple as that.
Q
You turned 86. What do you want to do with the next 86 years? I can’t see you giving up.
A
I love what I do. I work hard. I travel very extensively. I’m very active. I play tennis. I ski. Doing everything I’ve always done. My health is pretty good. There’s chronological age and then there’s biological age.
Q
What do you remember most from Sept. 11, 2001?
A

I was on my way down to my office. Then the first plane struck, and I saw it hit. Then the second plane hit just as I got to my office. AIG’s office was only a few blocks away from the Twin Towers. Downtown turned black. We put our medical department down in the lobby to pull people off the street. We set up kind of a makeshift refuge for people who couldn’t get home and were choking on the street

We were back in operation within a few days. We had a contingency plan, and that went into effect. We operated from uptown. We didn’t miss a beat.

Several days later, President Bush asked several insurance executives to come down to the White House. He met with us. You may recall the airlines couldn’t get insurance. We put it together within 20 hours. I left the White House, got on my cell phone and started the ball rolling. We had it done almost overnight.

Q
Do you feel terrorism reinsurance is an important part of the industry today?
A
It is. We insure many companies that are exposed to potential terrorism.
If you don’t have pricing discipline, I don’t care what happens, you’re not going to survive. Some companies think that just growth and volume is the answer to everything. It’s not.
Q
Anything else you’d like to say?
A
I think it’s a great industry. You can’t have an economy function without it. The job of the insurance industry is to meet the needs of our economy. That’s what we try to do.

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