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AIG's Buffer Against Buffett

Imagine you're one of the leading insurance providers in the world, back on track after some troubled times. Everything seems to be going great until WHAM -- four of your top guys head elsewhere to start another business that will compete with yours. That's exactly what happened earlier this year to American International Group (NYSE: AIG  ) , leaving many investors and analysts wondering if the poaching would send the insurer back into the abyss. But not to worry, AIG is still going strong and has taken full advantage of its "deep bench" of workforce talent.

Back in April, AIG felt the sting when four property and casualty executives exited stage left to start a new division for Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) . Since then, the total number of employees making the switch has risen to 20, prompting AIG to seek a settlement under which Berkshire would not poach any more of its employees for at least a year. The agreement also included a provision that prohibited either company from disparaging the other in the media.

The first four who began the exodus were:

  • Peter Eastwood, head of AIG's U.S. property-casualty operations.
  • David Bresnahan, president of Lexington Insurance, the excess and surplus insurance division of AIG.
  • Sanjay Godhwani, president for Latin America and the Caribbean for AIG's property-casualty operations.
  • David Fields, another top property-casualty executive.

Berkshire's aim was to create a new commercial P&C division, with a focus on excess and surplus policies. These are generally special insurance lines for large liability exposures that standard insurance providers will not cover. Before the poaching, Berkshire held about 1.6% of the $25-billion market share in the U.S., compared to nearly 20% held by AIG. In fact, Lexington Insurance is one of the company's most profitable operations.

Deep benches
It's got to be tough when some of your top talent leaves en masse, but AIG was confident in its workforce and took little time replacing those who left.

  • Robert Schimek replaced Peter Eastwood as top dog in the U.S. P&C operations. Schimek held the same role for the European markets before this appointment.
  • Jeremy Johnson takes David Bresnahan's former role as president of Lexington Insurance. A 13-year veteran at AIG, Johnson's previous roles included president of the catastrophic excess and surplus liability lines with Lexington and a specialty products line executive with AIG property and casualty.
  • Jim Dwane has replaced Sanjay Godhwani as president for AIG's Latin American/Caribbean P&C division. Dwane was formerly the Southeast U.S. regional division president for AIG P&C operations

More importantly, all of these newly minted executives will report to Peter Hancock, the company's CEO of P&C operations. Under Hancock, the business has flourished while the overall rebuild has progressed. AIG is ranked fifth in overall market share for its P&C operations, with a 4.52% holding -- Berkshire is seventh with 3.88%. And according to the National Association of Insurance Commissioners' 2012 ranking of insurance companies based on premiums written, the only division of property and casualty insurance in which Berkshire outranks AIG (where both companies participate) is medical professional liability.

Catch up
Berkshire is one of the best capitalized companies in the world, and it makes sense for the company to expand its reach into commercial P&C insurance, but it's got a long way to go before it becomes a big threat to AIG's established rule in the market. While poaching top employees makes for some big headlines, there is really no threat to AIG's business or value to investors.

Remarkable knowledge
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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2013, at 9:33 AM, AlexCho wrote:

    "In fact, Lexington Insurance is one of the company's most profitable operations." And which company does Lexington belong to? In the aforementioned sentence you had both AIG and Berkshire Hathaway. So, your noun (company's) is defining either of the two subjects in your previous sentence.

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9/26/2016 4:01 PM
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