Photo Credit: Mindy Georges || The umbrella belongs to Travelers
This is a bug in my bonnet, and I have written about this for at least 13 years, and maybe as long as 16 years, but insurance conglomerates don’t work well. After suggesting at least three times that AIG should break itself up, we are finally to the last stage of it doing so.
There is a saying in the industry “Life Insurance is sold, P&C Insurance is bought.” They are different markets, and there is no reason for shareholders to own a company that does both. But some companies diversify. Who does that benefit?
The main beneficiary is the management, as it gives them cover for underperformance. They can always blame transitory factors for underperformance of one division or another.
And much as Hank Greenberg blamed his successors for the failure of AIG, the main cause of longer-term underperformance stemmed from the purchases of SunAmerica and American General at high prices.
AIG was highly profitable in 1989 with its foreign and domestic P&C operations, and its foreign life operations. What should it have done with its profits?
It should have paid a higher dividend, bought back stock, and shrunk the company as many other successful insurers have done. Companies is mature industries should return capital to shareholders.
Big companies develop a culture, and it makes them less willing to change. That was true of AIG. Hank Greenberg should have eliminated all life companies early on, and run a domestic P&C company with high underwriting standards. Then maybe it would not have had to rely on Berkshire Hathaway to reinsure them.
Just as GE has suffered, so has AIG. Both CEOs were lionized, then despised. The main idea to take away from this is conglomerates where businesses have different sales models don’t work.
Amen on the GE history. What a bad joke that whole era was. It was caused by the CEO back then.
Insurance, specifically health/medical insurance, is being corrupted by the systems we have in place. I wish the medical profession(s) and the insurance profession(s) would come up with a plan to increase competitive incentives for medical care/insurance. The nationalizing of health care is a prescription for what we have been seeing. Spiraling prices with no incentives to improve.
Obviously the insurance companies and medical/health care insurance companies have a lot to lose if they “improve/reform” the system.
Thanks for the post.
Paying cash for most medical services, and offering catastrophic coverage only (with price caps) is the way to go. Cash prices work for elective procedures already.
National insurance is a stupid idea that does not work. Who wants the dmv in charge of more stuff, they can’t handle what is already on their plate. If you think Medicare is working now, you obviously have not used it.
And before you make a complete fool of yourself, national health systems in England and Canada both rely on MASSIVE subsidies and rationing of care. They don’t work. Please stop constantly lying about foreign systems. No, I will not waste time listening to tv personalities. I talk to Canadian citizens who are in the waiting room of my US hospital because their system stinks.
Reminiscent of AMPs (Australia’s pre eminent life insurer) purchase of the general (P&C) insurance business of the New South Wales’ State Government, GIO:
Disaster
Speaking of lionizing CEOs of financial companies, imagine being a male senior exec at JPM last fall when it was announced that the next CEO would be a female. Not the best person for the job (who might be male or female), no the decision would be made 1st on gender and only 2nd on merit. JPM even went a little further and narrowed their CEO search to just two women.
Regardless of one’s woke opinion, this predictably is causing a brain drain. All the male candidates who might have otherwise been in the running have left or will leave soon. They were excluded from consideration. Also predictable, other women who may have been in the running (or thought they were in the running). A deep bench of talent was told they were not under consideration.
And now the board went and gave Jamie Dimon an additional $40 million re-signing bonus, to stick around an additional five years. On top of his roughly $30 million per year regular pay. Dimon had a cancer scare a year ago, and he is no spring chicken. This just screams succession risk.
All the male candidates were ruled out a year ago, point blank, because of their gender. Most of the female candidates were all but ruled out (unless the two favored females dropped out)… Now the two female contenders are told to put their lives on hold another five years, or possibly more if Dimon sticks around, or possibly less if he has another cancer scare. The two remaining females are supposed to hold their breaths I suppose.
Dimon is also the guy who said the $6 billion spreadsheet screw up a few years back was (his words) “a tempest in a teapot”. Its not his $6 billion that he is causually dismissing, but never mind that.
Suppose you are a young banker with a billion dollar idea… let’s be honest, billion dollar ideas are very unusual to come up with, and even harder to actually execute. Dimon says your billion dollar idea is a tempest in a… oh wait, its merely 1/6th of a tempest in a tea pot.
If you have a billion dollar idea, take it somewhere else where it might make a difference.
JPM is so big that a billion dollar idea won’t move the needle. And the CEO is so entrenched that the board paid him $40 million, above his already generous regular pay, to stick around past his sell by date.
AIG was a bloated conglomerate with a cult CEO. GE was a bloated conglomerate with a cult CEO. What exactly is JPM?
Remember the “best banker of all time” at Travelers when they merged with Citi? I think after 20 years the stock was negative -80% and needed a boat load of billions of dollars to be bailed out in 2008.
So much for that.
I am basically libertarian, but some sensible regulation is needed in many if not most industries. Everybody lives with legal requirements every day. There can’t be chaotic anarchy everywhere all the time to be able to call a market free.
Tennis courts have lines and nets on them.
i agree. uk at least does it right. a public system plus a healthy private hospital system. Canada has no options. wholesale relatively mediocre healthcare with NO option and long waits. Big brother decides the price of the therapy you get. not always the best one. for this poor service, a Canadian has the duty to pay an outrageous 51% marginal income tax! not sure how they are not going under in such a welfare/socialist state. maybe they are all so poor they don’t know how much better it’s abroad.