AIG pulls out of CEE local business and much of Latin America: Remains committed to multinationals

AIG's CEO and board director of AIG Europe Ltd, Anthony Baldwin, promised readers of Commercial Risk Europe that there will be no reduction in risk appetite and capital for global programmes in the countries where his firm has sold operations to Fairfax. Under the network partnership there will be "no change in risk appetite and no change in capacity" for multinational clients of AIG, he told CRE. AIG said the divestiture in Europe and Latin America will allow it to invest more heavily in European countries where it believes it can add more value to clients, as well as the multinational space that looks to be a big priority.hideAIG will sell property and casualty (re)insurer Fairfax its operations in CEE and renewal rights for the portfolio of local business written by the firm's units in Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia. All of AIG's CEE operating assets and staff will move over to Fairfax. AIG will also sell its local commercial and consumer insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey to Fairfax. The US-based insurer will retain its operations in Mexico, Brazil, Ecuador and Puerto Rico. The combined deals will cost Fairfax approximately $240m. Each transaction is subject to regulatory approvals. As part of the deal AIG has entered into a strategic partnership with Fairfax. Fairfax will become the insurer's main multinational network partner in all of the countries in which businesses have been sold. Fairfax' on the ground operations will be fully backed by AIG's capital and expertise. The whole range of AIG's products will remain available for multinational clients in CEE and Latin America, with no loss of capacity, said Mr Baldwin. "The network partnership will deliver AIG's products and services through the network partner Fairfax. If one of those jurisdictions happens to be in a country where we have divested, that policy will be issued on behalf of AIG through Fairfax, but it will be the AIG product linked to the same multinational programme. AIG's capacity sits behind the cover and Fairfax is used to deliver the solution on the ground. So there should be no difference in the service and capabilities of AIG in these countries for multinational clients," he told Commercial Risk Europe. Mr Baldwin believes AIG's decision to sell its businesses and partner with Fairfax could actually see the range of products it offers expand for multinational clients. "Today we have the ability to issue a broad range of products in those countries. We will work with Fairfax to not only increase the number of network partners that we have, but also increase the number of products. So you could see our product range expand," he said. The sales are part of AIG's continued drive to streamline its global insurance operations. The firm has been under pressure for the past year to improve its performance following poor results. Activist investors Carl Icahn and John Paulson called for a breakup of the insurer to turn it into a more profitable business and avoid regulatory costs arising from its Systemically Important Financial Institution (SIFI) designation. AIG's president and CEO Peter Hancock did not play ball, but has committed the firm to a range of measures - such as divestitures, cost-cutting and share buybacks - to steady the ship. Mr Icahn and Mr Paulson have now forced their way onto AIG's board. Among other moves, AIG agreed to sell its mortgage-insurance unit for about $3.4bn to Arch Capital Group in August. The sales in CEE and Latin America are the latest step in AIG's plan to refocus its geographic footprint and investment towards major economies that "offer the greatest potential for profitable growth and the opportunity for AIG's commercial or consumer insurance divisions to achieve and maintain scale”, said the insurer. CEE and parts of Latin America appear not to have ticked the boxes for AIG's future growth plans. However, the insurer is keen to stress that multinational clients and those in the remaining 20 countries that now make up its European operation will be a priority, and recipients of more focused deployment of the firm's resources. "Transactions such as this one enables us to invest in the geographies where we remain. It also enables us to invest in multinational business - in people, technology and process - to create more value for these customers than maybe we would have done otherwise," said Mr Baldwin, who is also CEO of AIG's UK operations. "We are committed to growth in the UK and Europe. As we focus in on a number of geographies you should expect an even greater ambition of growth and expansion of our capabilities," he added. Mr Baldwin said the latest deal with Fairax is AIG pursuing the strategy it set out in January of this year. “In January we talked about becoming a leaner, more focused AIG and allocating resources to geographies and customers where we believe we can create the most amount of value. So this move is the execution of that strategy. The countries that remain part of Europe are those where we are focusing our efforts in terms of value generation," he continued. "We said we would focus on the customer segments that we think are most important to us. The large clients and multinational segments are where we believe we can create the most amount of value. The way we deliver service to those multinational clients is through a mixture of owned operations and network partners. Pre this announcement we were able to serve clients in 200 plus countries and that hasn't changed. The difference is the way we deliver to those multinational clients in the 12 countries involved in this transaction will be through our network partner Fairfax...So our capabilities to serve multinational clients remain the same, the focus doubles down in the geographies that remain and at the same time we deliver on our strategy to become a more focused insurer. This transaction allows us to reallocate resources and any capital towards other opportunities in the countries that we commit to," Mr Baldwin added. Although he did not rule out further divestiture in Europe, he sought to allay fears that AIG may exit local business in other European countries. "We continue to consider if there are opportunities for us to do things differently but you should not expect anything of substance in the near future," he said. "This is the meaningful move we wanted to make from a geographic perspective and multinational perspective. What we really need to do now is deliver additional value we have promised as far as our core countries are concerned." Mr Baldwin had a positive message for risk and insurance managers with operations in the CEE countries where AIG will no longer write local business. Fairfax' commitment to these markets, as highlighted by its purchase of AIG operations, is likely to be equal, or even greater, than AIG's previous appetite, he suggested. "Fairfax is investing in those countries. These were countries that were really important to us from a multinational perspective, but weren't countries where we were committed to growth. It is exactly the opposite for Fairfax. It is investing, wants to grow those portfolios and is dedicating resource, including upgrading capabilities. If I am a local customer of AIG today and I think about the fact that AIG has entered into this partnership with Fairfax that is investing in the geography, I would expect continuity and an even deeper commitment to the marketplace," he said. "The AIG people that have underwritten the business on the ground are also moving to Fairfax. So the people are moving with the portfolio. From a continuity of service it will continue with a partner that is going to invest in the future growth of its operations," he added. Mr Hancock said the partnership with Fairfax marks a "significant step forward" in achieving the strategic priorities of both groups. Chairman and CEO of Fairfax, Prem Watsa, said the purchased Latin American units will significantly boost the firm's footprint in the continent. The acquisitions in CEE follow Fairfax' recent expansion in eastern Europe through its previously announced QBE transaction, he added. The latest deal with AIG will "accelerate our plans for long-term growth in the region"," Mr Watsa added. Fairfax appears to be pursuing a strategy of buying the local operations of global insurers as they pull back from smaller markets. It bought QBE's Ukrainian division last year and this summer agreed to purchase Zurich's South African and Botswana operations.

AIG pulls out of CEE local business and much of Latin America: Remains committed to multinationals

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