AIG is under new leadership following Brian Duperreault’s appointment as president, CEO and director on May 14, 2017. Peter D. Hancock, who formerly held the positions, resigned concurrently. AIG panel counsel members will want to stay tuned to news from the global P&C insurer, as it continues to streamline operations and improve profitability.
Mr. Duperreault previously served as Chairman and Chief Executive Officer of Hamilton Insurance Group. His insurance career includes roles as CEO of ACE, leader of Marsh & McLennan Companies, one of AIG’s largest broker partners, and 21 years at AIG earlier in his employment history. While at Hamilton, he was known for applying data analytics to the insurer’s operations.
Hancock had been under pressure for over-promising and under-delivering performance improvements. The latest disappointment came in a fourth quarter 2016 loss of $3 billion, which included a $5.6 billion reserve set-aside for future losses.
AIG’s commercial property and casualty division was behind much of the problem, with a “loss ratio” (the share of premiums paid out in claims) that dropped six points over two years. Inaccurate assessments of both the initial loss ratio and subsequent shortfalls in goal achievement brought strong criticism from investor Carl Icahn and other stockholders.
Workers’ compensation, environmental liabilities, commercial auto, and guaranteed payments to accident victims—all areas very familiar to AIG panel counsel members—took hits with higher than expected costs under Hancock’s watch.
Duperreault will be AIG’s sixth CEO in 12 years. Reducing risk exposures and selling assets will remain key priorities. Streamlining operations has been a long-term imperative since the 2008 government bail-out totaling $182 billion (which has since been repaid in full). Under Hancock’s watch, assets were trimmed by $13 billion.
Strengthening the balance sheet is also a priority for AIG, which holds a “too big to fail” designation by the U.S. government (formally referred to as a systemically important financial institution, or SIFI). The SIFI label carriers a requirement for higher capital levels and stricter regulatory oversight.
AIG to Sell Arch Capital Shares
As part of its on-going restructuring efforts, AIG sold United Guaranty Corporation to Arch Capital Group Ltd. in 2016. AIG received 638,141 convertible preferred shares of Arch as part of the sale proceeds. AIG recently announced an underwritten public offering, in which it will sell the Arch converted common stock for an expected sale price of $590 million. The closing date is set for June 14, 2017, and the underwriters have an option to purchase additional common shares of Arch valued at $89 million. AIG’s remaining stake in Arch is subject to a lock-up that will expire on January 15, 2018.
AIG Panel Counsel Implications
Insurance defense law firms that are AIG panel counsel members should be thinking of client diversification if they are heavily reliant on AIG claims files. It takes a while to get a new insurance carrier client, and the time to start a business development effort is NOW (not when you are desperate).
Actions that are commonly taken by insurance carriers to improve claims performance include, but are not limited to the following:
- Reduce the elapsed time between opening and closing a claim
- Pursue prompt and thorough investigations
- Minimize the use of outside resources
- Build a larger team of internal claims professionals, including staff counsel
- Emphasize accuracy in reserve calculations
- Identify fraudulent claim activity
- Defend claims aggressively in litigation, as necessary
All of the performance enhancement techniques listed above rely on metrics to analyze progress. AIG panel counsel members (as well as members of other panels) that maintain some level of metrics for claims files will have a definite competitive advantage in retaining panel positions.
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