AIG – a Starr in the crown

AIG began life as the humble brainchild of Cornelius Vander Starr who in 1919 formed a simple two clerk insurance agency in Shanghai, China. He named his company the American Asiatic Underwriters.

Though the years the corporate name would evolve and eventually become American International Group or AIG. Starr’s company, from its inception, was unique because it was founded in China by a young (27 year old) American. The underwriters of the day were European with British firms as the dominate player.

When other American-owned companies began establishing a presence in China, Starr saw an opportunity in the propensity of companies to “follow the flag” of their native country in their selection of insurance.

Starr’s strengths were his boldness and keen insight into the changing social dynamics that would lead to less risky insurance products. For example, Starr formed the first foreign company to underwrite life insurance policies on Chinese citizens. He noticed most insurance companies used an actuarial based lifespan that was grossly inaccurate for Chinese citizens. He postulated that he could offer a relatively cheap insurance product which would be profitable if he developed his own actuarial figures for Chinese clients.

His chief business advantage was his observation that the lifespan of Chinese citizens was much longer than the standard actuarial tables indicated. Starr expanded his business dealings in China by associating with several US based companies that did not have access to the Chinese market and using his company to broker their products. Much later Starr purchased these same insurance companies outright and he felt much pride in this accomplishment. He also began the publication of a Chinese newspaper during this period.

During the mid 1920’s Starr began to expand his insurance empire outside the Chinese market and turned to New York City as a base of operations for the expansion. This provided him with an easier communication hub for his growing empire. He entered Latin American markets, again providing US companies with insurance for their expanding world presence.

Eventually, Starr would have to abandon the Chinese market as Japan invaded China seeking coal and oil for its domestic production. Starr moved his headquarters to his New York offices and began working with the Office of Strategic Services (OSS) helping them understand the intelligence role insurance companies in Germany and other Axis Nations were playing.
Starr offered his own company for information gathering purposes to support the war effort. This role of Starr was not publicly known until recently when WW2 war records of insurance companies were opened to aid in the recovery of fortunes stolen from Jewish families by the Axis during WW2.

Starr’s role as a patriot was established in these records and his support of the war effort assured the future international expansion of AIG as the United States won the war

With the Allied victory came an industrial expansion for the United States which helped Starr form insurance companies in Europe and eventually around the globe. A brief post-war return to China by Starr was terminated when China was taken over by its current communist leadership.

Company lore maintains that Starr still honored his Chinese life insurance policies even after the communist kicked his company out of China. This was done despite the inability of policyholders to pay premiums under communist rule. There is not a clear documentation of this possibility but it is intriguing to say the least.

Starr’s efforts were very successful but the company did not actually become the economic powerhouse it is today under Starr’s leadership. This transformation came when Hank Greenberg succeeded Starr in running the company.

Greenberg was a trusted protégé of Mr. Starr. Greenberg changed the business model from a corporate agency model to that of a provider of insurance products for independent agents. It was at this time that AIG developed its present day corporate form.

Greenberg took most of what was then CV Starr business entities (insurance name for the parent company of all of Starr’s insurance holdings) and created AIG out of the mix. CV Starr (insurance) was granted some 12-plus percent of the newly formed AIG to be used as a top executive incentive plan which was held by CV Starr (insurance). Before his death, Mr. Starr formed a charity which he named, of course, The Starr Foundation. Greenberg managed all three entities during this period.

The pivotal moment for the company came in 1969 when Greenberg took the AIG public. Under Greenberg’s leadership the company continued its expansion into other markets and the acquisition of competitors. Greenberg was able to lead a return of AIG to China and was the first businessperson from the US to enter China. He established AIG’s corporate presence in China in the exact building that Mr. Starr had run his Chinese insurance company. This was in many ways the crowning achievement of Mr. Greenberg’s career from an emotional perspective.

During Greenberg’s leadership of AIG he developed a vast network of social ties to major domestic and international business organizations which he used to leverage AIG’s place in the world economy. Greenberg maintained a close relationship with the United States Diplomatic Corps and with our country’s intelligence community.

These relationships were beneficial to AIG because knowledge of foreign political and economic dynamics was essential in running what was rapidly becoming a truly global insurance company.  As a result, AIG became a force to be reckoned with in domestic and international business. Today AIG has a presence in over 130 countries.

During the 1980’s Mr. Greenberg expanded AIG’s footprint into financial products. This expansion extended well into the 1990’s. He used AIG’s high credit rating (born out of high reserves of capital), his own political/business connections and the ability to recruit top talent as a means of creating a plethora of financial products for retail consumers and, more importantly, other companies.

Greenberg established key competitive advantages by helping other companies escape regulatory requirements and tax burdens. He used his dominate role in business and political circles to ensure that any regulatory bodies examining his deals would do so with a keen understanding of the power AIG wielded over their job security and future career path.

He was able to lobby legislative and regulatory bodies successfully thus ensuring the continuous development of new and innovative products aimed at achieving tax and regulatory advantages for his clients. Importantly, he was able to attract more business because customers knew associating with AIG on complex financial dealings would assure the most favorable of treatment from regulators.

Greenberg expanded the company’s holdings to include a private investigation group called Kroll investigations. Kroll is the largest PI firm in the US and specializes in corporate intelligence. Eventually Kroll was sold to Marsh and McLennan which was at the time headed by one of Greenberg’s sons.

The beginning of the new millennium found Hank Greenberg on top of the world. His two sons controlled other major insurance companies and the Greenberg family appeared to be heralding the dawn of a new insurance/financial dynasty the likes of which have not been seen since the Rothschild’s and Rockefeller’s ruled the banking world. Greenberg was on top of his game despite being well into his 70’s.

Then, what, at first, must have appeared to be a minor blip in the road for the Greenberg Dynasty, entered into the picture. It came in the form of Eliot Spitzer, the so-called Sheriff of Wall Street or, more formally, the Attorney General of New York. For his part Mr. Spitzer asserts AIG entered onto his radar screen in the form of two insistent “tips” that all may not be well in the insurance industry.

Greenberg, on the other hand, asserts he came on the radar of Spitzer because the politically ambitious Attorney General had his eyes on higher political offices and viewed Greenberg’s downfall as the ticket for future political advancement.

In the end, the tips proved right and Greenberg was summarily kicked out of what he viewed as his own company. Greenberg landed at the helm of C.V. Starr (insurance) which he is now reforming into a mini-me AIG. Greenberg will not be satisfied with running a mini-AIG and has recently acquired several key employees from AIG which may ensure the eventual expansion of C.V.Starr (insurance).

Greenberg’s dream of creating as his legacy the world’s greatest financial dynasty did not die with his departure from the helm of AIG. It is his life’s work.

© Steve Hass; April 4, 2009. All Rights Reserved.

2 thoughts on “AIG – a Starr in the crown”

  1. I try to follow Steve, but his brain confounds me.

    Steve is always right, but how can I spread his righteousness? I wish Steve did not eschew etoh+ because of that prom thing.

  2. Really AIG, Hank Greenberg, Starr insurance etc are all easy to figure out. Just think of the most selfish low down dirty things you could do if you were in their shoe’s and add a dash of 100 percent pure greed to mix and you will know their every move. They are bound by the need to ensure every dollare in the mix ends up in their pocket. All roads lead to Rome? All money leads to these fat cats.

Leave a Reply

Your email address will not be published. Required fields are marked *