This May marks the second year since the appointment of Mr Duperreault as president and CEO of AIG. The appointment was a homecoming for the industry veteran, who started his career as an actuarial trainee at AIG in 1973 and went on to work there for the next 21 years before leaving in 1994.
His broad strategy, announced a few days after he became CEO, was to increase investment, apply new technology and improve underwriting results. In particular, he has made a number of changes in the senior management team as he attempted to move the underwriting culture in a positive direction and turn the company’s lagging performance around.
After two years at the helm, Mr Duperreault said, “My top priorities have not changed, which is for AIG to be the leading insurance company in the world. I want AIG to be known for its underwriting excellence and global footprint. That means being a company of specialised experts who have the best tools and technology to make intelligent decisions.”
He added, “One of the highlights of my time as CEO is seeing how compelling our strategy is for our employees and the talent we have attracted. It’s gratifying to see how much has been achieved thanks to their belief in our direction. Together, we’re balancing and enhancing the company by growing where we perform well, and adding capabilities and access that we didn’t have before.
“We’re also strengthening the company from the ground up, so that we’re growing from a sound base. Like any new underwriting approach, it takes time for these changes to shift profitability, which is a challenge. But when your employees continue to push in the same direction, and you hear that your clients, brokers and reinsurance partners are taking notice, that’s a positive sign.”
Strong 1Q results
Mr Duperreault’s efforts were reflected in the first quarter of 2019 when AIG’s adjusted pre-tax income from its flagship general insurance division surged by 149% to $1.3bn, which included underwriting income of $179m and net investment income of $1.1bn. GWP grew by 11% to $10.2bn.
In addition to general insurance, AIG also operates in these two segments: life and retirement and a technology subsidiary called Blackboard Insurance.
The general insurance business’ underwriting profit in the first quarter this year was a huge swing from the same period of 2018’s loss of $251m, marking the first time the unit has achieved profitability since the financial crisis.
The impressive first-quarter results are a strong testament of Mr Duperreault’s relentless efforts to overhaul AIG’s underwriting culture, which previously focused on chasing revenue growth without appropriately weighing risks.
He said the strong performance in the first quarter, particularly in general insurance, reflected significant foundational work throughout 2018 to position AIG for sustainable, profitable growth. “General insurance achieved an underwriting profit driven by underwriting and expense discipline, improved business mix and reinsurance actions. Life and retirement delivered solid performance, benefiting from diversification of product and distribution channels.”
Tackling threats
With operations in more than 80 countries and jurisdictions, AIG has one of the widest geographic reaches, which gives it an advantage in garnering business from global firms, as well as an extensive overview of the global insurance industry.
Mr Duperreault said the company sees broad changes in the market linked to increased recognition and discipline around pricing to account for emerging risks, “like those related to areas such as AI and data protection”.
Things are tightening, as evidenced by what’s happening at Lloyd’s and within AIG’s own business, he said, adding that “we need to keep pace with these rapidly emerging risks – as a company that is a trusted custodian of data, and to fulfil our role to help our clients and society as a whole deal with these risks”.
“When you consider the nature of what we do, factors such as the rapidly changing geopolitical tensions, global trade, socio-economic challenges and societal expectations lead to new and emerging risks that need to be properly priced and placed to lessen their impact on individuals, businesses and society,” Mr Duperreault said.
AIG is constantly looking at what these changes mean for its businesses, and whether the company can scale its offerings, increase the utilisation of data and technology or increase the talent base to help its clients better address the risks they face, he added.
Tapping on tech
On the use of technology, Mr Duperreault said it is playing a critical and an ever-expanding role in AIG operations. “First, it is a major concern for our clients, so bringing our risk expertise to the table – from cyber security to the sharing economy – is a matter of course. Operationally, not only is technology helping us increase efficiency while reducing costs, it also allows us to improve customer experience, reach new markets, and do things differently. This is another way that it becomes a competitive advantage.
“I believe insurance remains an industry that is ripe for technological innovation in the way we leverage our use of data and analytics. We’re looking at how technology can help us better assess and underwrite risks, and which risks could be evaluated almost entirely using technology versus complex risks that will always need a human touch,” he said.
The MEA strategy
As a global provider of insurance products and services, AIG’s general insurance consists of two operating segments: North America and international.
Its international business, which includes operations in Europe, the Asia/Pacific region, Latin America including Puerto Rico, and the Middle East and Africa (MEA) made a $68m profit in commercial lines, compared to a $14m loss for the first quarter of 2018. The combined operating ratio improved from 100.9% to 96%. International personal lines’ profits went up 34% from $91m to $122m, equating to a combined operating ratio of 93.5%, compared to 96% in the first three months of 2018.
“We continue to strengthen our international business by improving core underwriting performance, managing volatility through reinsurance, increasing the efficiency of our operations, and developing and empowering our teams. We’re also looking at how we differentiate our customer and distribution offerings, based on their insights, particularly in how we deliver front-end digital solutions,” Mr Duperreault said.
MEA is a newly established region, and “our strategy here reflects our international growth strategy and AIG’s overall global strategy”, he said. AIG is now focused on expanding its distribution across the region – particularly in Africa – through diverse partnerships, such as with brokers, agents, banks, telcos and local insurers, he added.
The company sees opportunities in several areas in the MEA region, he said. They include personal insurance, with an emphasis on A&H and travel, and in SMEs, which is a fast-growing segment. “Also, in the corporate space, we continue to participate in traditional P&C lines where you’d expect to see AIG, while also providing specialised solutions in areas like cyber, M&A and DBA. Across our offerings, we’re utilising data, analytics and technology to enhance the differentiation and efficiency of what we do,” he said.
Asia prospects
In terms of prospects in the Asia insurance industry, he said the Chinese insurance market continues to present strong growth opportunities, and “we see tremendous potential for AIG in China”.
Founded in Shanghai in 1919, AIG is one of the very few US companies that can trace its roots back to China. Since then, AIG has grown to become one of the world’s leading insurance and financial conglomerates. It withdrew from the Chinese market in the 1950s, but returned to its ‘home territory’ in 1992 to tap the enormous business opportunities arising from China’s breath-taking development.
“We have welcomed the Chinese leadership’s continued focus and efforts on liberalising the country’s financial services sector – including in insurance – and good progress is being made. The new foreign investment law was recently passed, and Beijing announced last year that it was increasing the equity cap for foreign life insurers to 51% and committed to lifting that cap altogether in three years. It’s clear that further reform in this sector is a top priority for Beijing and we look forward to continuing to work with our partners there to provide our input and support,” Mr Duperreault said.
The journey continues
As AIG marks its centennial anniversary this year, Mr Duperreault is confident the company’s best days are ahead.
He said, “We still follow the principles that have always guided us – excellence at understanding risk, commitment to keeping our promises and dedication to exemplary corporate citizenship. We do this as we build on the talent, structure and strategies we’ve put in place to make AIG the leading insurance company in the world.
“As someone who began his career at AIG 45 years ago, the company is a very special place for me. I look forward to continuing to be a part of its journey.” M