Reactions Editor Michael Loney obtained an exclusive with Hank Greenberg, the man who built AIG, and lost it. Read the interview in full here, courtesy of Reactions. Take a free trial to their website to access more content.
They didn't think he would just go away, did they?.
Disbelief consumed the insurance world when the board of American International Group (AIG) forced out Hank Greenberg in March 2005. Facing an accounting scandal, with accusations that AIG had boosted reserves through a sham reinsurance deal, and under pressure from then New York attorney general Eliot Spitzer, the board concluded that the then 79-year-old Greenberg had to go.
The industry was dumbfounded. Greenberg was a legend, and an AIG without him seemed almost inconceivable. Greenberg had run the company since 1968, building it to $180bn in market value from $300m.
It is no exaggeration that Greenberg was the closest thing to royalty in the insurance industry. No one else, with the possible exception of Warren Buffett, comes anywhere near to commanding the same level of awe and respect. But now Martin Sullivan is running the show at AIG and Greenberg is out.
It was unclear what would come next for Greenberg. But retiring quietly to see out his time was not an option. He is busier now than ever.
Greenberg's life is still irreconcilably intertwined with AIG. The three years since his departure have been full of squabbles and bitter animosity between Greenberg and his former firm, of which Greenberg remains the largest shareholder. A torrent of lawsuits and counter lawsuits has been thrown back and forth between the two over ownership of companies, shares, names and properties. All the while, Greenberg has been flying around the world busily building a new insurance company from a group of agencies that for decades were so associated with AIG that many assumed they belonged to it.
Most recently, Greenberg was taking aim at his former firm again following large losses at AIG.
Reactions spoke to Greenberg during a busy week for him. It was the week of AIG's annual shareholders meeting. Greenberg had caused a stir by going public with a letter to its board saying AIG was in crisis, and demanding the meeting be postponed. He had appeared on television and in national newspapers criticising the firm, and claiming it is in crisis.
We spoke the day after the AIG shareholder meeting. The next day Greenberg received a Wells notice informing him the Securities and Exchange Commission was considering taking civil action against him for his role in the finite reinsurance deals that led to his departure from AIG.
Greenberg's reputation as a tough operator is legendary. This was the second time Reactions had interviewed Greenberg, having spoken to him about tort for its November 2003 issue. Back then, we were granted 20 minutes with him, there was a heavy PR presence and questions were restricted only to the subject of tort with no questions about AIG allowed.
This time around we had been promised an hour alone with Greenberg, and no restrictions were placed on questions. It would be overstating the case to say Greenberg was friendly (when asked at the beginning of the interview whether I still had the full hour, "We'll see how it goes," was the brusque reply). Smiles were rare, laughter even more so.
But he was polite, answered all my questions and cordially paused to pose for photos after. There is no waffle with Greenberg. He does not descend into meaningless PR speak. Most of his answers are brief and to the point. He says what he wants and no more.
Some have painted Greenberg as a man on a revenge mission against his old company for betraying him. He counters that he is merely a concerned shareholder worried about the damage to the firm, which has seen its share price halve to $36 at the end of May this year from $72 in February 2005, before the firm felt the full force of the Spitzer treatment.
"I'm not looking for revenge. I'm looking for the company to do better than it is," says Greenberg. "It is painful to see this happening."
Is he bitter about what happened? "The circumstances of my departure were terrible," is all he says.
Revenge or not, it is clear Greenberg feels that an injustice was done against him. He spent decades building AIG only to have it snatched away from him. The aftermath of Greenberg's departure from AIG was reminiscent of a Shakespearian tragedy, with Greebnerg railing against the cruelty of his fate.
Now he is forced to stand on the sidelines while the company struggles, not to mention the effect on his own fortune as the value of his AIG shares slides. William Berkley, chairman and CEO of WR Berkley, recently commented that Greenberg "feels like they are hurting his child".
New start, old company
Greenberg has a new baby now. Except it is not really new – it is older than Greenberg himself. CV Starr dates back to 1919, 48 years before Greenberg contends AIG as it is now known was formed (this is another source of dispute between Greenberg and AIG), when Greenberg brought together all its operations under one holding company. CV Starr is named after AIG's founder Cornelius Starr, who put Greenberg in charge of AIG's ailing US operations in 1962 and then made Greenberg his successor in 1968.
When Greenberg left AIG in 2005 he controversially took CV Starr & Co and Starr International with him. This led to bitter animosity between AIG and Greenberg and a blaze of litigation that is still raging.
CV Starr & Co ran four agencies that produced business for AIG – American International Marine Agency of New York (now Starr Marine), American International Aviation Agency (now Starr Aviation), Starr Tech and CV Starr Co (which CV Starr refers to as Starr California).
Starr International was a private company run by AIG management that acted as a compensation vehicle for AIG employees. After AIG's initial public offering in 1969, $110m-worth of AIG shares were given to Starr International, a private holding company incorporated in Panama in 1943. By the time of Greenberg's departure from AIG, Starr International controlled about $20bn-worth of AIG shares.
Because AIG management rather than AIG owned CV Starr and Starr International, Greenberg was able to keep hold of them. "They are separate companies," he says. "You can't take something that doesn't belong to you."
AIG disagrees with Greenberg's assessment. A recent lawsuit from AIG claims Greenberg and six other former AIG executives misappropriated $20bn-worth of AIG shares entrusted to Starr International, and accused then of violations of fiduciary duty, vindictive breaches of loyalty and bad faith conduct.
"The acquired stock that had been held in trust for three decades for the sole benefit of AIG, has been converted into a private 'investment vehicle' for the benefit of Greenberg and the other defendants," the suit claimed.
The lawsuit is in addition to a federal court action launched by AIG in September 2005 as a counterclaim to a suit brought against AIG by Starr International. In July 2005, Starr International claimed that AIG had property belonging to the insurer. AIG responded by suing Greenberg for control of 12% of outstanding AIG common stock owned by Starr International.
When asked his response to AIG's claims that Greenberg misappropriated $20bn-worth of shares, Greenberg smiles and says: "It's almost laughable. It was a separate company. It belonged to Starr International. The shareholder of Starr International is a private foundation, and to believe AIG had any ownership rights there...if they did it never appeared on their balance sheet."
The Starrs align
In the immediate aftermath of Greenberg's departure, AIG discussed buying the managing agencies from CV Starr. But these discussions came to nothing, with reports suggesting AIG's offer was about $600m too low.
"There were discussions, not to buy CV Starr but to buy some of the Starr agencies," says Greenberg. "But the bid asked was very far apart [from that offered]. There was a wide margin. We were offered more by a third party but we decided not to sell the agencies."
AIG and CV Starr continued to squabble over ownership rights to the CV Starr name and AIG tried to block CV Starr from working with other insurers. AIG's attempts did not work. CV Starr kept the name, agreed not to use the American International brand, and has built new relationships with insurers.
The firm has built a number of partnerships to sell insurance policies on behalf of Ace (run by Greenberg's son Evan), Allied World Assurance, Berkshire Hathaway, Chubb, Everest Re & Lloyd's.
Greenberg has been very busy building the agencies, and adding to them. The agencies previously only did business in the US. They have been broadened geographically and new product lines have been introduced. In addition, a new managing agency Starr Global Accident & Health was set up.
Greenberg says CV Starr was able to keep the relationships it had when it was a managing agent for AIG, as well as the staff.
"The agencies wanted their independence," he says. "The people in the general agencies represented AIG, but they didn't want to be part of the big insurance company."
Would Greenberg consider selling AIG policies in the future? "I don't think that is possible right now. It may be one day in the future," he says.
In addition to producing business on behalf of others, CV Starr acquired a firm with a charter to write property/casualty business. This echoes Greenberg's actions at AIG, where he shifted the focus away from producing business for others to having pricing power on writing its own business.
"We acquired a US property/casualty charter that ironically has the same date of birth as CV Starr," he says. "That was purely accidental. It came out of Berkshire Hathaway. We are starting to build that."
The firm has gone global. Offices have been set up in London, Singapore and Hong Kong. A Lloyd's syndicate was added in 2006 to write marine, aviation and energy business. Syndicate 1919 was set up with £50m ($100m) of underwriting capacity, and was managed by Marlborough Underwriting Agency, a Berkshire Hathaway subsidiary.
This was followed by CV Starr forming Syndicate 2243 with capacity of £30m for this year to write energy business. The syndicate is part of Sideris Re, a five-year partnership between CV Starr and First Reserve.
CV Starr's syndicates have a combined capacity of £210m and both are now managed by Starr Managing Agents. CV Starr was also one of the first Lloyd's players to operate out of Lloyd's China.
Greenberg approves of the changes Lloyd's has made since its flirtation with extinction in the mid-1990s. The market went through a painful reformation period and now has a franchise performance board in place to monitor syndicates' underwriting. Greenberg believes the market is much better placed to cope with this soft market than the previous one.
"The rates are a little bit soft now, but that's a typical cycle we are going through," he says. "You need to have discipline during a soft market, and you have got to be creative and have product innovation. Lloyd's has far more discipline today than it had previously. It has very good management and I do not believe Lloyd's will suffer anything like it did in previous times. I think it will remain profitable."
Greenberg says CV Starr is open minded on acquiring further agencies, and expects further purchases. Other insurance operations will also be added. For example, CV Starr has set up a reinsurance company in Asia that will get started by the end of year, and the firm is looking at a number of other initiatives.
The rapid expansion is reminiscent of the pace at which Greenberg built AIG. The Starr agencies wrote $1.2bn of premium last year and expect to write $1.9bn this year. They employ about 600 people globally.
But Greenberg says he is not trying to build another AIG.
"This will be very much more specialised in insurance and having very significant investments," he says. "We will take advantage of opportunities as they arise. We are able to take decisions very quickly. We don't have a lot of committees contemplating their navels. So if we see an opportunity, we can pull the trigger."
CV Starr is heavily involved on the investment side. Starr International has been turned in to an investment company, with more than $20bn of assets worldwide. Its investments are made through direct investments, publicly traded securities and private equity funds with a focus on financial services, real estate, health care and energy businesses.
It has been very active in real estate in emerging economies such as China, Russia and India. Two recent deals include a partnership with The Letterstone Group to acquire E500m ($780m) of real estate in eastern Europe, and a $900m sales agreement for four office building in Moscow, Russia.
Greenberg is bullish about CV Starr's overall growth prospects.
"Our investment side is going to have very dynamic growth, and so will our agencies," he says. "They are very disciplined and will do quite well. We are going into new things all the time, and will be adding products." He says, for example, that CV Starr has just got into writing political risk insurance out of London.
On the attack
While building his new venture, Greenberg has all the while been keeping close tabs on his old firm – and he is not impressed.
AIG reported a record net loss of $7.8bn for the first quarter, following a $5.3bn net loss in the fourth quarter of last year. It is the first time in the company's history that it has reported two consecutive quarters of losses.
The figures for the first quarter included a $9.1bn loss related to AIG Financial Products' credit default swap portfolio, as well as $6.1bn of pre-tax net realised capital losses related to AIG's investment portfolio.
In May, Greenberg wrote a letter to AIG's board of directors asking for its annual shareholders' meeting to be postponed. He called AIG a company in crisis and spoke in highly critical terms of the losses and management's response to those losses.
Greenberg says shareholders should have been warned earlier about how bad AIG's first-quarter results were going to be, and needed time to reflect on the news. The meeting went ahead on May 14 despite this, but Greenberg did not attend. "They just said it was too late and too expensive to postpone the meeting," Greenberg says. "It wasn't relevant for me to attend the meeting."
Greenberg believes the troubles AIG is facing now would not have occurred under his watch. He says most of the business that has caused AIG problems was not written while he was CEO.
"I left the company very early in 2005 and they put most of this on later on. We did some credit default swaps [while Greenberg was CEO] but only through banks, because for regulatory purposes banks needed some relief," he says. "We actually put some of that same business in Starr International, and we didn't lose a dollar. In my recollection, we didn't do any individual corporations."
He adds that management should have been more proactive in any case. "You have to manage a portfolio. Look at what Goldman Sachs did – they hedged their way out of all of that. You don't just have that business, put it in a safe and lock a key. You don't sit on it. Management has a job to do. You have got to be managing. You're not on a holiday. If you don't understand the business, get out of it or get some people who do understand it."
More worrying for Greenberg is that he believes AIG's core business is also deteriorating.
"I am concerned about the core business, of course," he says. "There have been 24,000 people added to the company since I retired from it. That's equal to two army divisions. That's a lot of people on top of a base of 92,000 when I left, with no good explanation for it. They made a couple of minor acquisitions, but that hardly accounts for it," he says.
In response to Greenberg's comments about headcount, an AIG spokesman told Reactions: "From 2004 through 2007, AIG increased its overall headcvount by 23,244, for a cumulative average growth rate of 7.8%, which compares favorably to adjusted revenue growth over the same period of 8.1%. Less than 1,000 of these added positions over those years were for cost-center employees, driven primarily by the need to strengthen the control environment in the wake of our accounting issues in 2005."
Greenberg also says the US life operation is stagnant, that the company has lost its leading market positions in China and Japan and that the position of the life business in Asia has been eroded. In addition, Greenberg contends that AIG increased capital at its Taiwan subsidiary Nan Shan Life by $1bn with no good explanation.
Greenberg is pained to see AIG's position slipping in Asia, which he spent decades slowly building. In 1992, AIG became the first foreign insurer licensed in China, after Greenberg had visited the country frequently since 1975. "Asia was the crown jewel of AIG," he says.
Greenberg is also critical of AIG's response to its losses. It raised about $20bn in total. Yet despite the losses and the capital increases, AIG increased its dividend by 10%.
"It was stunning," Greenberg says. "Just a few weeks before, management said in an open meeting that they had plenty of capital, excess capital. When I left the company there was excess capital, and that was repeated publicly. So how much confidence can you have in who knows what is going on there?"
When asked about the job Sullivan is doing, Greenberg says: "The results speak for themselves." Greenberg would not confirm whether he had picked Sullivan as his successor. Greenberg also would not comment on whether he thought Sullivan should stand aside.
In response to Greenberg's criticism, the AIG spokesman told Reactions: "We feel Greenberg's criticism is not only misplaced but self-serving, considering his status as an AIG competitor and as a defendant in New York state court over allegations of defrauding investors and in an AIG shareholder derivative action to recover billions from Greenberg for his alleged role in our costly financial restatement in 2005. Remember that even before these developments, AIG's board forced him to retire because of our outside auditors' refusal to accept his certifications to the accuracy of our financial statements and his refusal to abide by his own corporate pledge to cooperate with regulatory inquiries. These facts suggest he's something other than an altruistic shareholder."
The Spitzer effect
The day after the interview, Greenberg received a Wells notice from the Securities and Exchange Commission saying the commission may pursue civil action against him for his role in finite reinsurance deals American International Group (AIG) did with General Re.
Greenberg, who received the notice on May 16, maintained his innocence when asked about the deals that led to his departure from AIG when speaking to Reactions on May 15. "I did nothing improper, that's all I can tell you," he says. "In fact, the man who brought all that about has discredited himself, hasn't he?"
He is, of course, talking about Spitzer, who as New York attorney general pressured AIG's board to ditch Greenberg or face criminal charges. This followed Spitzer forcing the departure of Greenberg's son Jeffrey as CEO of Marsh & McLennan Companies in late 2004, after revealing evidence of bid rigging at the firm.
Just as the bitter, personal disputes with AIG have lingered over Greenberg the past three years, so too has the shadow of Spitzer's accusations. Spitzer alleged AIG concocted a sham reinsurance deal with General Re to boost reserves by $500m but transfer no risk. In a television interview in April 2005, Spitzer accused Greenberg of fraud. But he never followed up on that personal attack with criminal charges.
And most of Spitzer's civil charges against him were dropped, although Andrew Cuomo, the present New York attorney general, is still pursuing some of them. "There are only a few things left with the AG that I am aware of," says Greenberg.
Although Greenberg has escaped charges so far, others have been prosecuted. In February this year, four former General Re executives and AIG's former head of reinsurance were found guilty of fraudulently manipulating AIG's financial statements through the deals with General Re.
There was much publicity around the trial, but no evidence emerged that suggested Greenberg knew the deal was fraudulent. Greenberg set the deal in motion with an October 2000 phone call to Ronald Ferguson, then CEO of General Re. But nothing during the trial suggested the deal was not legitimate at that stage.
Spitzer went on to become New York governor in 2006, before resigning this March amid a sex scandal. Spitzer was caught on a wiretap arranging a meeting with a high-end prostitute, a humiliating comedown for a man who painted himself as a moral crusader.
The Greenbergs have more cause than most to feel Schadenfreude about Spitzer's fall from grace, but the elder Greenberg does not take advantage of the chance to gloat. Referring to how he felt when he heard the news, Greenberg says: "I felt sorry for his family."
And the man?
"Not at all."
The furore may have brought the Greenberg family closer together. His sons Jeffrey and Evan, who at different times were next in line to lead AIG, both had famous fallings outs with their father that led them to quit AIG. Stories abound of Greenberg's tough treatment of his sons at the firm, and Greenberg admitted in 2004 that he saw his sons only rarely after they left.
But Greenberg says he talks a lot with Jeffrey and Evan these days. "We are in contact all the time," he says. "We talk about many things. We talk sports, we talk business, we talk about our lives, our families."
A new era
The Wells notice means Greenberg still cannot put the spectre of the deals that led to his departure from AIG behind him yet. But he is confident the Securities and Exchange Commission does not have a case.
Robert Morvillo, Greenberg's attorney, said in a statement about the notice: "This is a step in the process. The issues have been narrowed down to a small number of issues. We remain confident of our position on the merits, and we believe that none of the remaining issues are material to AIG's financial statements. When the commission has had the opportunity to consider all the facts, we believe that they will agree."
Wells notices have normally meant trouble for insurance executives in recent history. But one thing in Greenberg's favour is that he is now running a private company so will not come under pressure to resign. He says it is a delight to be running a private company.
"In this era, it is terrific. The regulatory environment has to be re-examined. Of course you need regulation. But you need enlightened regulation, not regulation that is out of whack with what the country is all about," he says.
Greenberg says the stifling regulatory environment means it would not be possible for someone to replicate his achievements at AIG.
"You couldn't build an AIG today. The regulatory environment is such that you couldn't do it," he says.
There is another reason Greenberg says his achievements could not be copied. AIG was able to take advantage of the increasing globalisation of business, and break down barriers.
"AIG operated in 130 countries, many of which I opened," he says. "They are open. You have got to find another planet that hasn't been occupied yet. When you are the trail blazer, others come in behind you."
Greenberg is concerned about the environment where changes can be foisted on an industry without it having a chance to have a say. An example is Spitzer forcing big brokers to give up contingent commissions.
"Look, there is always change needed in whatever industry as it evolves and changes come about. But changes have got to be consistent with good common sense. You can't suddenly change an industry that is going in one direction, because historically and through custom people have done things in one way, and suddenly say: 'That's all wrong, we're going to go in another direction.' It doesn't make any sense."
The post-Spitzer environment is one where attorneys generals and other prosecutors take an attitude of accuse first, follow up later, if at all. Greenberg is puzzled that prosecutors wield so much power and yet have no oversight, unlike, for example, US judges, where there is a commission that oversees judges and ensures nothing improper is going on.
"What troubles me is the question of who oversees prosecutors," he says. "Who determines whether a prosecutor is exceeding or abusing his authority? The press generally co-opts. There are leaks to the press, which is really against the principles of ethics, the bar associations stay silent, the law schools stay silent. So who speaks out to ensure that justice is being done properly? It is very concerning."
Does the industry do enough to defend itself? "Too many will just fold up and say it is easier to give in than to fight. And that's wrong," he says.
A rehabilitation
At the time of his departure from AIG, it seemed like Greenberg may have been a man out of time, whose tough, dictatorial management style would not be allowed in the modern day.
But it seems that Greenberg is determined that his departure from AIG will not be the event that defines him. AIG's recent troubles have sparked something of a rehabilitation of Greenberg's reputation. Shareholders at AIG's annual meeting questioned whether such a mess could have happened while Greenberg was running the show, and The Wall Street Journal ran a piece sympathetic to Greenberg in May.
All the while, Greenberg works as hard as he ever has. At the time of the interview Greenberg said he had been to China three times this year, as well as several trips to Russia and Korea.
"CV Starr is a differently-sized company but I am involved on a daily basis," he says. "I'm working and travelling as much as I did before. We are building. It's a hectic schedule."
Some may question why the 83-year-old Greenberg is bothering. He certainly does not need the money, and by his own admission he cannot equal his achievements at AIG. Most people his age would have retired long ago. When asked why he has not, he says: "I'm doing what I love to do. You know, there are two types of age, my friend. There is biological and chronological. I am doing everything I've always done. I ski. I play tennis. I don't feel any different to how I did 20 years ago."
The thought of retiring to see out his days playing golf is abhorrent to Greenberg. It seems he is the only person in the industry that hates golf. "I just haven't got the patience for it. It takes too long. It's not exercise. It's not even a good walk – you ride a cart."
When I mention that most other insurers like it, he looks me dead in the eye. "I'm not like most people."
Greenberg on the insurance industry
"It's the same as it has always been"
"Timing is everything"
Greenberg's letter to AIG's board
"AIG is in crisis"
CV Starr's companies: How the company is structured