AIG’s Bench Strength Tested As Execs Depart

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February 9, 2009 Monday 09:21 AM EST

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AIG's Bench Strength Tested As Execs Depart

Alyn Ackermann

NEW YORK

American International Group Inc.'s depth of talent has allowed it to weather the departure of a number of senior executives since its financial crisis began last September, but an increase of defections in recent weeks is clouding its future, said people in the insurance industry who work with AIG and industry observers.

The loss of top managers may raise enough questions among clients that it could threaten the health of its core commercial operations, around which Chairman and Chief Executive Officer Edward Liddy intends to reorganize the company, said Stewart Johnson, of the insurance merger and acquisitions advisory firm PhiloSmith.

"Usually, with businesses like this, there's a key guy," Johnson said. "The key is not only knowledge of the business, but the relationships. Without the key guy, it gets much more difficult. Yeah, other people worked with him, and those other people remain at AIG, but when you take out the first-string quarterback, that doesn't make it easier to win."

AIG's Commercial Group has seen the leadership of key assets decapitated as chief executives suddenly depart, in some cases trailing other key executives.

In December, Kevin Kelley, long-time chairman and chief executive of AIG powerhouse Lexington Insurance Co., suddenly left to become chief executive at Ironshore Inc., taking with him Shaun Kelly, Lexington's president and chief operating officer, to head Ironshore's U.S operations. Within weeks they were joined by six other top executives from AIG commercial businesses (BestWire, Jan. 22, 2009).

"There is no question that there is a level of departures, and that level has been increasing... Yes, they are bleeding, but the level of blood flow is hard to assess," said A.M. Best analyst Joyce Sharaf.

Sharaf said AIG may not suffer a crippling business loss even if it continues to lose key executives.

"It's a little too early to be able to make a connection between a loss of business and employee departures," she said.

However, AIG's corporate culture could allow it to ride out the wave of defections, said Ernst Csiszar, former head of the Property Casualty Insurers Association of America and former South Carolina insurance commissioner who is insurance director for consultant Bridge Strategy Group and a University of South Carolina faculty member.

"I think they've got a pretty good bench," Csiszar said. "I've seen AIG people with clients. When they bring a team in, yes, of course, there is a star, there is the relationship buy, if you will, but they are pretty deep in terms of their people understanding the account."

AIG (NYSE: AIG) was saved from bankruptcy in September by a federal rescue plan that has since grown to more than $150 billion, and is trying to sell assets to repay federal loans. It is using "retention payment" programs to hold onto key executives during its reorganization, and for which the company has been severely criticized (BestWire, Dec. 17, 2008).

John Doyle, president and chief executive of AIG Commercial Insurance, said that AIG's depth of talent - and its insurance know-how -- has prevented executive losses from hurting its commercial business. He said he has not heard negative feedback from clients about the departures.

"While we've lost a few good people, as we do normally, turnover is not a problem," he said. "Our clients are known well throughout our organization. Client relationships here are not managed by any one or a few individual people."

At AIG, he said, client relationships are more than just personal contacts.

"A part of those relationships is directly related to the capacity we provide to our clients, the products we provide to our clients, and the services we provide to our clients," he said. "When we lose folks to other people, in most cases those people don't have the capacity we have, they don't have the products we have, they don't have the depth of services that we have."

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

(By Alyn Ackermann, senior associate editor, BestWeek: [email protected])

February 10, 2009