It its effort to recruit a CEO, AIG faces challenges due to lacklustre performance, industry volatility, and a dearth of well qualified executives.
CEO Peter Hancock announced that he will be stepping down, citing a lack of investor support. He will be the sixth CEO to leave the New York-based insurer since 2005. In this time, AIG has been mired in regulatory probes and lawsuits, federal bailouts and asset sales. In terms of performance, the company has missed targets and been unprofitable in four of the last six quarters. Further, its recent past has been marred by talent management snafus resulting in a series of top executives leaving the company.
The new Chief Executive Officer will have the job of restoring credibility as well as profitability. “I doubt you would be able to attract AIG’s next CEO from an already-top-performing property and casualty insurer or insurance broker”, wrote Barclays analyst Jay Gelb. “Why would they give up their current role and deal with a turnaround situation?” Other analysts, including John Heagerty of Atlantic Equities, said the job could involve breaking up the company. This course of action was previously advocated by activist investor Carl Icahn, who has clashed with Hancock.
“The job is incredibly demanding and possibly the most complicated within the property and casualty industry”, Heagerty wrote in a note to investors. “With a high level of expectation for any incoming CEO, there is a question as to whether any new CEO could truly succeed.” As part of the company’s CEO succession plan, Hancock will remain in place until his successor has been named.
AIG should expect tough negotiations once a successor is found. Heagerty pointed out that given the difficulty of the role and the limited number of well qualified executives, AIG should be prepared to pay top dollar for a new CEO. According to Bloomberg, Dan Glaser, President and CEO at Marsh & McLennan Companies, has been suggested, as has John Keogh, Chief Operating Officer at Chubb Ltd. Both are former AIG executives.
The lack of a designated successor suggests that there may not be consensus on the board about the best approach for the company’s next leader, wrote Gelb. “We believe not having a new CEO in place probably means the strategy and financial targets could be under review.”
The US insurance industry overall is facing turbulence. As detailed in Deloitte’s 2017 Insurance Outlook, “Insurers face a number of challenges that could undermine their ability to bolster market share, profitability, and innovation.” With regard to property and casualty specifically, the report notes that “excess capacity is undermining profitability, as seen by falling net income and return on average equity (ROAE).”