Martin J. Sullivan this month marked his second year as president and chief executive officer of American International Group Inc., a company that has a unique history: Founded by Cornelius Vander Starr, it began in 1919 as an insurance agency in Shanghai, China. Today, AIG is the world's largest insurer and one of the major foreign businesses operating in China. Last Monday, Mr. Sullivan received the Marco Polo Award in Beijing for promoting economic and cultural communication between the United States and China. He spoke recently with BI Editor Regis Coccia about the outlook for insurance and risk management in China.

Q: What are the major risks foreign businesses face when they set up in China, and how is AIG helping them?

A. I wouldn't necessarily call them risks but more opportunities. From our perspective, we have a number of operations in the country both on the life and nonlife side.

Up until January 2004, nonlife business was only allowed to distribute and sell products to foreign enterprises. That's been expanded since. But what we can bring is new product innovation to the marketplace, expanded distribution opportunities, and really respond to the needs of the Chinese consumer and commercial enterprise as the economy develops and grows. And, as more people have net disposable income, they're clearly looking to protect their assets and purchase savings and life products. It's like any startup operation. You want to have a new product development and a broad-based distribution platform.

Q: Western companies operating in China already are using insurance, but how do Chinese businesses view commercial insurance?

A: The trend we see is the initial focus is on asset protection, either bricks-and-mortar and business interruption-type exposures, but clearly when they're an exporting company and they see the risks that are being taken outside of China, in particular, we're seeing more demand for products liability coverage. And as companies go for IPOs and have external shareholders, there's a growing demand for D&O insurance. For aviation, accident and health, there's clearly a strong demand.

Other lines of business will emerge over time in China, there's no doubt about that. At the present moment, the key focus is on asset protection, products liability and marine.

Q: Nonlife business in China is much smaller than life business at the moment. How does AIG foresee commercial nonlife business developing there?

A: A key component of that was our ability to write Chinese companies post-January 2004. That allows us to pursue a broader customer base. We're developing that by bringing new products to that customer base. Obviously, a lot of focus is on insuring the assets in China and providing property insurance. But also, with the amount of exports leaving China, there's a continuing growing demand for products liability coverage.

As you're seeing some of the IPOs emerge, there's a growing demand for D&O insurance. There's clearly a demand for marine insurance. Over time, other coverages will be introduced. From our standpoint, it's (about) getting distribution, getting to the customer, and providing them with the products and services that they want. That's the challenge, not only in China, but elsewhere.

Q: How many times a year do you personally visit China?

A: Since I've taken office, I've been there five or six times. So I average three a year....When I'm there, not only do I want to meet with our regulators, I want to meet with our customers, with our employees, review our strategies. Every time I go to China, you can't help but be amazed at how much progress the country continues to make. Whether it's Beijing or Shanghai, every time I'm there I continue to see different things being constructed, improvements appearing, and the country continues to develop.