AIG's history traces the development of an organization that has become a world
leader in insurance and financial services with a global network and business franchise
second to none.
But the AIG story is more than just the history of an international commercial enterprise.
It's a record of how people with vision and determination built a worldwide business
organization based on the talents and skills of local people. The entrepreneurial
spirit still pervades AIG today.
The year was 1919. The place, Shanghai, a bustling international crossroads and
the commercial center of China and East Asia. There a young American entrepreneur,
C.V. Starr, opened a small insurance agency called American Asiatic Underwriters
(AAU). Initially AAU represented a number of American insurance companies in Shanghai,
offering fire and marine coverages.
Not long thereafter, Starr identified another opportunity and entered the life insurance
market in a way no other Western company had done. He set up Asia Life Insurance
Company to market life insurance to the indigenous Chinese population. Although
both Asia Life and AAU operated with few precedents and very little knowledge of
loss experience, the business nonetheless prospered. Within ten years, they had
established offices and agencies across China and in Hong Kong, Indochina, Jakarta,
Kuala Lumpur and the Philippines. This growth was fueled in part by Starr's focus
on hiring, training and promoting local people to managerial positions, a practice
that remains a hallmark of the AIG culture.
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It was 1926 when Starr first opened an office on American soil, setting up American
International Underwriters (AIU) in New York to write insurance on American risks
outside the United States, again as general agent for U.S. insurers. This "home
foreign" business was modest at first, but provided the Starr enterprises with
their first important diversification of business risk.
An even more significant diversification move came in the 1930's, as Starr turned
his attention to Latin America, long the province of European insurers. In 1940,
as the war in Europe forced these companies to curtail their Western Hemisphere
operations, AIU established a regional headquarters in Havana and set out to fill
the void. Offices in half a dozen Latin American countries followed in rapid succession,
and by 1945, AIU's premium income in Latin America had surpassed that in Asia.
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As political unrest spread in China and East Asia, Starr moved his companies' headquarters
to New York in 1939. Two years later virtually the entire Far Eastern operation
was brought to a halt by the Pacific war. At war's end, Starr set as his first priority
the re-establishment of the Far Eastern business, and both the Shanghai and Manila
offices reopened even before the Japanese surrender. American International was,
in fact, the first foreign company to resume business in Shanghai, where operations
continued until 1950 when the office was closed. The regional headquarters had been
transferred to Hong Kong a year earlier.
While the operation in China did not regain its prewar status and importance, the
rest of the Far Eastern business recovered extremely well. In 1946, AIU first entered
Japan by invitation of the American military, initially to insure property of U.S.
troops. By 1951, the ban on foreign companies underwriting general insurance was
lifted and AIU in Japan began a period of significant growth. Today, Japan is AIG's
largest overseas property- casualty market.
AIU began in Germany in 1946 in much the same way, to serve American troops. Before
the war, AIU's European operations had been confined to small agencies in Belgium,
France and the Netherlands. But World War II transformed the market in ways favorable
to AIU's expansion. The tight financial conditions of the large European insurers
left them short of capacity and, at the same time, American overseas business expansion
created enormous opportunities for AIU's home foreign business. During the 1950's,
AIU expanded across Western Europe, and also established operations in the Middle
East, North Africa and Australia.
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Simultaneously a life insurance network spread through many of the same countries.
First was the Philippines, an old Asia Life territory. In 1947 Starr incorporated
Philippine American Life Insurance Company. Philamlife's growth in the early years
was extraordinary, and within ten years the company had 60 offices throughout the
country. In the 1950's, Philamlife received international attention for developing
middle income housing during a period of acute housing shortages. Philamlife's endowment
policies mobilized savings from the local population and provided funds to promote
national development. Today, Philamlife is the largest life insurance company in
the Philippines and a household name.
A similar strategy brought success in Southeast Asia. American International Assurance
Company, Ltd. (AIA), began in 1931. Through a program of postwar expansion from
its Hong Kong base, life operations were extended to Malaysia, Singapore and Thailand,
marking the beginning of more than 40 years of growth. Today, AIA stands as the
number one life insurer in Southeast Asia.
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Asia Life, Starr's oldest life company, in 1951 changed its name to American Life
Insurance Company (ALICO) and turned its sights on the Middle East and Africa, offering
life insurance to local nationals, again as a novel business strategy. In 1972,
ALICO was granted a license in Japan, where it broke new ground as the first foreign
life insurer admitted to the market. Today, ALICO has life operations in approximately
50 countries.
In 1952, the American International organization took an important step into the
U.S. domestic insurance market by acquiring a majority interest in the Globe &
Rutgers Fire Insurance Company and its subsidiaries, including American Home Assurance
Company. Two years later Globe & Rutgers merged with American Home and took
its name.
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By the 1960's, it was clear that American Home needed a new management direction.
Its expensive and unwieldy traditional agency system was not working, so in 1962,
under its new President, M.R. Greenberg, American Home's agency business was sold
and the company restructured into a commercial insurer selling through brokers.
Greenberg also developed substantial reinsurance facilities, enabling American Home
to write large shares of major risks and thus control the pricing. Other aspects
of the plan included innovations in product and services, such as difference in
conditions coverage for non-traditional perils, and emphasizing deductibles rather
than first-dollar coverage. He also introduced personal accident insurance through
American Home. The bottom line for Greenberg was insisting on underwriting profits
and installing an underwriting and management team that could accomplish this goal.
As a result of the Greenberg strategy, American Home gained credibility in the marketplace
with brokers and their large corporate customers. American International was now
positioned for the next phase of its domestic growth.
Greenberg's formula worked. Within two years, American Home's results improved dramatically.
As American Home's reputation as an aggressive and profitable company grew, Greenberg
moved to acquire other domestic companies. During the 1960's, American International's
acquisitions included most of the companies that now make up AIG's Domestic Brokerage
Group. First to join was New Hampshire Insurance Company, followed by National Union
Fire Insurance Company of Pittsburgh, Pa., its subsidiary Lexington Insurance Company,
and Commerce and Industry Insurance Company. Transatlantic Reinsurance Company was
also acquired during this period. Greenberg's strategy was to identify troubled
companies or ones facing unwanted takeover threats, then buy controlling interests
and integrate them into the American International family. By the late 1960's, when
Starr died and Greenberg was elected President, the structure of the domestic property-casualty
network was in place. But its years of strong profit growth and expansion under
Greenberg's leadership still lay ahead.
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American International Group, Inc. was formed in 1967 to hold the shares of the
domestic companies. Two years later, shortly after Starr's death, AIG went public
with Greenberg as Chief Executive Officer. AIU and most of its affiliated agencies
and companies became AIG subsidiaries in 1970. At that point, the modern structure
of AIG was established, and in 1984 AIG shares were listed on the New York Stock
Exchange, where today AIG has the largest market capitalization of any listed insurance
and financial services organization.
Under Greenberg's leadership, the decades of the 1970's and 1980's marked a period
of exceptional growth for AIG. The company was transformed into a leading global
insurance organization. AIG's capital base and strong brokerage community relationships
enabled the domestic operating companies to underwrite more significant risks and
become major players in new markets requiring high capacity and specialized underwriting
expertise. Management emphasized tailoring products and services to specific market
segments and stressed deep technical expertise in underwriting, engineering, risk
management and other services.
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Reflecting this strategy, AIG was among the first companies to
establish risk management services for large companies, providing another source
of significant growth. A number of specialized units were also organized or acquired
in the 1970's and 1980's to respond to the changing needs of corporate America.
These included companies focused on aviation insurance, mortgage guaranty insurance,
claims management, vocational and rehabilitation services, and managed health care.
Innovation and market leadership continued to characterize AIG Internationally.
In 1979, AIG was the first Western insurance organization to establish joint ventures
with Hungary, Poland and Romania. In 1980, a joint venture with the People's Insurance
Company of China marked another first and precursor of our return to China a decade
later.
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Targeted diversification into specialized financial services was another catalyst
for AIG's recent growth. The formation of AIG Financial Products Corp. and AIG Trading
Corporation, and the acquisition in 1990 of International Lease Finance Corporation
were the key elements of this strategy. AIG's Financial Services Group, which also
includes international asset management and financial advisory services, now contributes
approximately 15 percent of total pretax operating income.
But China is only part of the story. AIG's new companies in Poland, Hungary, the
Czech Republic and Romania are footholds in emerging market economies of Central
and Eastern Europe. On the horizon are Russia, India and Vietnam. This expanding
global franchise, combined with our stong position in the U.S. Commercial insurance
market, our growing and profitable financial services businesses, and a domestic
life insurance business that holds considerable promise, give us confidence that
AIG's best years lie ahead.
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