AIG UK lImIted PerformAnce revIew 2008 managing risk in ... - JLT

More documents

Recommendations

Info

04 AIG UK Performance Review 2008A Conversation with the CEOcontinuedWhat differentiates your service?Our strategy is to create unparalleled value for ourcustomers and, as part of that, our transparent claims serviceis at the front of our business. What we promise is clearat the time the policy is written and we have a consistentand fair approach to paying claims. This is particularlyimportant in an economic downturn – people need tobe reimbursed quickly. Of course at times of recession,the levels of fraudulent claims can rise – so we are watchingclosely to manage trends that might emerge.How liquid is your investment portfolio?We don’t take risks with the assets on our balance sheet.When our clients buy insurance they expect us to investthe premiums safely so that we can pay their claims.Our portfolio consists of 97% investment-grade securities,and at the year end 18% was in time deposits and cash.The portfolio includes less than 1% of equities.How do you handle reinsurance?We run a market-leading process. We buy enoughreinsurance to minimise our exposure to an unanticipatedevent, but we’re big enough not to need it for ourday-to-day activity. Our rigorous reinsurer securityrequirements enable us to maintain an excellent recoveryrate on reinsurance purchases.How do you motivate staff?We offer our staff great opportunities and considerableempowerment. Our policy is to train and develop peopleand, wherever possible, to promote from within rather thanrecruiting from outside. Staff turnover is constant, and wecontinue to recruit at all levels, including university graduatesand, when necessary, experienced executives.What value does your management teamadd to the business?It is a group of people who understand our values and knowhow to get things done. Some have experience of working indifferent parts of the AIG network; many have been with AIGfor a good many years – average service is 14 years – and weaugment the team from time to time with fresh talent.What does AIG contribute to theLondon market?We’re a customer-focused organisation which has aconsistent approach. As a significant player in this marketfor more than 50 years, it is our entrepreneurial andinnovative approach that sets us apart: we change products,or bring out new ones, when there is a need. We have,for example, developed a product that responds to thenew EU Environmental Impairment Directive, which cameinto force on 1 March 2009.What is your strategy for the shortand medium term?In the short term, we will ensure that all our businesses areperforming well and that we maintain the level of service ourcustomers have come to expect. In the medium term, we arelooking to broaden our product and service offer, and willcontinue to look for ways to increase efficiency and to alignour businesses with customers’ needs.Are you optimistic about the future?More so than ever.£1.1bnRegulatory CapitalAlmost five times ourestimated FSA minimumcapital requirementAlexander Baugh Chief Executive Officer, AIG UK LimitedLex was appointed CEO in December 2008, having previously been CEO of AIG Europe SA – AIU’s operation incontinental Europe, and is also currently Regional President for AIU UK & Ireland. He joined AIG in 1983 in the US andspecialised in Financial Lines. He has held significant management positions in the UK, the US and continental Europe,spending a total of 17 years in either London or Paris.As a result of the positions he has held and his extensive underwriting experience in Financial Lines, Lex has detailedknowledge of corporate governance and regulatory issues in both the UK and continental Europe. He is a graduate ofthe University of Virginia and is a Chartered Property Casualty Underwriter.
AIG UK Performance Review 2008 05Looking Ahead£2.8bnof Invested Assets97% in InvestmentGrade SecuritiesAs businesses respond to uncertaineconomic conditions, the risks they facewill continue to change, and insurerswill need to reflect these changes inthe products and services they offer.These are our views on how the aviationand executive liability markets willmove, and an insight into the wayclaims service must change.AviationThe aviation market has grown significantly in recent years as aresult of the huge increase in budget carriers and the demandfor terrorism cover following 9/11. This growth is, however,unlikely to continue in the current economic conditions –flights are being cancelled, business and leisure traffic is falling,airlines are deferring or cancelling orders for new aircraft, andthe viability of some national carriers is under threat.We expect hull rates to remain stable until the end of the year,but the corporate jet and aerospace sectors will remain underpressure as rates are unlikely to increase in a market whichhas double the capacity needed. Continued competition willeventually result in some companies withdrawing from themarket as inadequate pricing and reduced reinsurance capacitytakes its toll. The future is, however, secure for those companieswhich have a good understanding of the aviation business, andof how to price risk to make an underwriting profit. It is whatAIG UK, with the ability to place significant lines, will continueto do to maintain its position as a leader in this market.Executive LiabilitySince AIG UK provided the first UK Directors and Officers(D&O) policy in the early 1970s changes in cover haveprincipally been driven by development in legislation.More recently we have begun to see further changes resultingfrom stakeholders demanding that managers be held moreresponsible for their actions.In a recession errors and fraud are more difficult to disguiseand claims will increase. This will will drive demand for theseproducts as organisations are increasingly challenged abouttheir decisions, and people seek redress for what are oftensubstantial financial losses. The impact is already being feltas reinsurers restrict capacity and rates begin to harden,particularly in the financial institutions sector. As claims growwe expect the market to respond by offering additional coverand focus on changes in legislation, as we did recently withthe introduction of cover for Approved Persons, CorporateManslaughter, Extradition and pre-regulatory investigation costs.ClaimsIn these extraordinary economic times, decisions made bycommercial and financial institutions, worldwide, are underscrutiny as never before. Amidst unprecedented financialscandals, many financial and commercial organisations,together with their senior executives, are being criticisedfor their investment decisions and actions. That criticismis inevitably leading stakeholders to seek compensation.Policy holders will increasingly expect confirmation of coverat the earliest possible stage, and to have advice and legalexpertise provided as well as financial support for legalrepresentation. To meet these standards, claims teams will haveto offer specialist knowledge and specific experience. AIG UK’sFinancial Lines claims team now numbers 25 specialists,including lawyers. This enables us to manage the claim for ourpolicyholders and only use law firms for technical advice. Wefocus on removing the individuals from the legal action, leavingthem to concentrate on their businesses without the fear ofpersonal damages. As product lines become ever more complex,only specialist claims teams – such as our Financial Lines andlong-standing Energy and Complex Liability departments – willhave the expert knowledge needed to answer claims quickly.
Page 1 and 2: AIG UK limitedPerformance Review 20
Page 3: AIG UK Performance Review 2008 03A
Page 7 and 8: AIG UK Performance Review 2008 07Ex

AIG UK lImIted PerformAnce revIew 2008 managing risk in ... - JLT

Create successful ePaper yourself

Delete template?

Save as template?