Less than two years after Brian Duperreault took the helm at American International Group, his first big accomplishment has become clear: The carrier’s P/C business is on track to produce an underwriting profit for all of 2019. AIG 200 appears to be next on the list.
Duperreault spoke about the initiative during AIG’s Q2 2019 investor call on Aug. 8 in broad, dramatic strokes, asserting it will involve investments to transform core processes, technology infrastructure and services through at least 2021. The main goal: to reduce the expense ratio and general operating expenses. With this in mind, Duperreault and other executives were candid about the need to modernize and reduce long-tolerated technology shortfalls, but AIG’s initial presentation lacked specific details about investment amounts, possible job cuts or realignments required to get there. Duperreault said progress updates will come on future earnings calls, but some analysts wanted more details up front.
“I would have liked more specifics,” said Meyer Shields, an equity analyst at Keefe, Bruyette & Woods Inc.
Brett Horn, an equity analyst at Morningstar, said that AIG 200 isn’t a new idea for the insurer.
“This is something they have been talking about for a while, in terms of trying to get the expense ratio down and reduce general operating expenses,” Horn said. “What is new is they put a name on it.”
Horn said that streamlining processes and systems is a discussion that’s gone on at AIG long before Duperreault arrived with great fanfare in mid-2017.
“It’s not a stretch to say that AIG has historically been an inefficient operation,” Horn said.
The idea may have been forwarded a long time ago, but Horn said it makes sense that it is taking shape under Duperreault’s leadership. He pointed out that Duperreault has long been a proponent of the greater use of technology, particularly during his time running and shaping Hamilton Insurance.
Shields argued that the broader insurance industry is “pretty far behind where it should be from a technology standpoint” with expenses that are too high. From that perspective, Duperreault’s push ahead with AIG 200 is a good thing, he said.
“By introducing or expanding the use of technology to replace some unnecessary manual efforts, things will be both more efficient and less error prone,” Shields said.
Shields added that the discussion of AIG 200 during the Q2 2019 earnings call suggests that AIG’s initial “existential challenges” regarding General Insurance (property-casualty) underwriting losses at Dupereault’s arrival have now been addressed.
Hints of What’s to Come
Duperreault and two other AIG executives during the company’s Q2 2019 earnings call indicating AIG 200’s focus would be on improving core processes and infrastructure. Duperreault used lofty words to describe the concept, stating in his prepared remarks during that call that the insurer, to become a top-performing company “must make transformative and sustainable improvements that will require investment.” This effort, he said, “will lead to a reduced expense base and an improved experience for our clients, policyholders and colleagues.”
Kevin Hogan, executive vice president and CEO, AIG Life & Retirement, elaborated a bit further on AIG 200, a name that reflects a focus on the insurer’s next 100 years after its centennial in 2019.
In terms of how the program will apply to the insurer’s life and retirement arm, Hogan said in his prepared remarks that the focus will be “on investments that will accelerate our efforts to enhance the customer and distributor experience across our business.” AIG will also work, in part, to ready for “future product and distribution channel expansion, while improving overall efficiency.”
Peter Zaffino, AIG’s global chief operating officer, will be leading AIG 200. In his prepared remarks, he spoke about the need to “invest to modernize and digitize our digital workflows,” and said that the insurer is in the process of “filling critical roles and adding a number of seasoned executives to the corporate center with proven track records of achieving excellent results during transformations.”
Duperreault, during the Q&A portion of the call, acknowledged that AIG has “never been noted for its operational excellence” and is hampered by legacy processes and “too many manual interventions.” He said that existing processes drag on the company’s performance, and asserted that its current expense ratio is at least 500 basis points too high. He described the program as a “three-plus-year” program but said a focus on constant improvement “should never end.”
While AIG executives haven’t said yet whether there will be job cuts, Shields said they are likely coming, but he doubted whether plans are developed enough “to have that level of certainty” in terms of investments and job realignments.
“I don’t think it will be frenzied, but I think change is coming,” Shields said. He added that while it is unfortunate for people to lose their jobs, that it is impossible on the other side “to avoid the efficiencies that technology can generate” as AIG begins to invest in its technological future.