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Next AIG CEO Peter Hancock needs to boost profitability


Peter Hancock will face profitability and other challenges when he becomes CEO of American International Group Inc. in September, but will benefit from Robert Benmosche's turnaround efforts following the insurer's near-collapse six years ago during the financial crisis.

AIG's board earlier this month chose Mr. Hancock — executive vice president of AIG and CEO of AIG Property Casualty — to succeed the retiring Mr. Benmosche. He restored AIG, which received a $180 billion federal bailout in 2008, to sound financial footing since becoming its leader in August 2009.

But work remains to be done, analysts say. This includes improving the profitability of its property/casualty operations, retaining key executives and coping with heightened regulation by the Federal Reserve, as the result of AIG being designated as a systemically important financial institution by the Financial Stability Oversight Council.

The announcement of Mr. Hancock as Mr. Benmosche's successor came during a week marked by management changes at other major insurers.

Mr. Benmosche, 70, “did a lot to get the company back on a sound footing,” said James Auden, managing director at Fitch Ratings Inc. in Chicago. “The company's a lot different today than it was in 2009.”

Mr. Hancock, 56, was the “natural heir apparent” because of his experience in the broader financial services field, particularly his 20-year stint at JPMorgan Chase & Co., said Gloria Vogel, senior vice president at Drexel Hamilton L.L.C. in New York. Although “some have criticized him for not having enough insurance experience,” Mr. Hancock has run AIG's property/casualty operation since early 2011, the year after he joined the company, she said.

“I think he's inheriting a company that's no longer in crisis, but he's also inheriting a company with a lot of things that need to be fixed and improved,” said Paul Newsome, managing director at investment banking firm Sandler O'Neill & Partners L.P. in Chicago. “Expenses are too high in the property/casualty business.”

AIG's property/casualty side had “some issues on underwriting and they've focused the book quite a bit, and they've shrunk the book,” Mr. Auden said. But AIG's combined ratio was above 100% last year, “so they're still lagging peers in underwriting profitability,” he said.

The big focus for AIG “is to increase the profitability on the property/casualty side and to build on what they've done on the life (insurance) side already,” he said.

With softening rates and perhaps a slowing of the global economy, making the property/casualty business profitable will be a challenge, Ms. Vogel said.

However, Mr. Hancock has invested in new technology and science to write the business more efficiently, Ms. Vogel said. “Part of the reason the combined ratio is so high is that the expense ratio has been high. At some point, those investments have to pay off.”

Retaining talent also may be a challenge for Mr. Hancock.

Ms. Vogel said the other contender to succeed Mr. Benmosche was Jay Wintrob, who heads AIG's life insurance operation, which has been growing.

“Jay's been with the company a lot longer,” she said. “Anytime there are several people in contention to succeed the CEO and one gets chosen, often the other contenders leave. One of the challenges is making sure Mr. Wintrob doesn't leave and, if he does, making sure that operation stays intact.”

But another analyst played down the issue.

“CEO successions always imply some risk of additional senior management turnover, but Mr. Hancock's experience with the current team, the apparently prevalent expectation of his eventual appointment and Mr. Benmosche's previously announced retirement plans should minimize disruption risk,” Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore, said in an analysis.

Mr. Newsome said AIG's strategy in repaying the federal assistance was to sell off noncore units, a strategy that continued even after the repayment was completed. Units sold include AIG's personal lines automobile insurance business, its Japanese life insurance subsidiaries and its aircraft leasing company.

“Broadly speaking, they still have business in both property/casualty and life they need to run off,” Mr. Newsome said. “There are a lot of pieces that need to be run off.”

Mr. Newsome also cited future regulation as a challenge for Mr. Hancock. AIG declined to make Mr. Hancock available to be interviewed for this story.

“There's uncertainty about how AIG will be regulated. We just don't know what will happen,” Mr. Newsome said.

“They are still a SIFI regulated by the Fed, and there's still a lot of uncertainty about what that ultimately means and what sort of capital standards that they'll have to manage to,” Mr. Auden said.

Managing AIG under whatever regulations are forthcoming will be a challenge, Ms. Vogel said, because SIFI rules “aren't yet written and the Fed doesn't have much bench strength in insurance.”