Current and former AIG employees frequently refer to Hank as a genius, and the reason they say this is because of his extraordinary foresight. When he took over as CEO in the late sixties, Hank realized that the insurance industry would allow him to accumulate a series of advantages—all of them perfectly fair and legal—that would make AIG lots and lots of money. Or, to put it differently, Hank realized that the system could be gamed.
As late as the seventies, AIG didn’t have the kind of capital it would have needed to undertake the rapid expansion Hank craved. So he began aggressively selling policies—known as “writing business” in the insurance vernacular—and then passing much of the risk off to reinsurers, which act as insurance companies to insurance companies. AIG would, for example, write a policy that obligated it to cover up to $100 million in property damage, and then turn around and purchase its own insurance policy to cover $70 or $80 million of that amount.
This accomplished two things: First, it allowed AIG to establish itself as the kind of insurer that would go into lines of business so risky no one else wanted to touch them—insuring against things like sexual-harassment suits and kidnappings. (“All you read about are the people who are kidnapped,” Hank once famously quipped. “There are an awful lot of people who aren’t kidnapped who buy insurance.”) In these risky areas, Hank enjoyed near-monopoly pricing power, which allowed him to charge high premiums. Second, since he was buying so much reinsurance, Hank was able to negotiate incredibly favorable terms with reinsurers. Hank had become so proficient at this that in 1979 one executive at Aetna complained to Institutional Investor magazine that “we’re in the primary insurance business, the business of assuming risk. Greenberg is in the money business.”
Hank accumulated advantages in other ways, too. He built up a brutally efficient claims division—the part of an insurance company that determines whether the company will pay up on a policy—which kept the number of claims paid out to an absolute minimum. In one famous episode, an AIG subsidiary (along with a handful of other companies) insured the producers of the Broadway musical Victor/Victoria against the event that the show’s star, Julie Andrews, would be unable to perform because of illness. According to the Wall Street Journal, the policy cost about $150,000 and promised up to $2 million for missed performances, and $8.5 million if Andrews had to drop out of the show altogether. But when Andrews missed a series of shows, costing the producers more than $1.5 million at the box office, the AIG-led consortium refused to pay, insisting that Andrews had provided two false answers in the health questionnaire she filled out when purchasing the policy.
Of course, as in the Julie Andrews case, many customers challenged AIG’s judgments in court. To deal with this, AIG has historically retained many of the major corporate-law firms in the country. Not only does this give the company the wherewithal to bog down claims in legal wars of attrition. It has the added effect of monopolizing legal talent that might otherwise represent AIG customers. “AIG probably controls more lawyers than anyone else,” says Lehman Brothers analyst Chris Winans, a longtime student of AIG. “I’m serious. They’re invested in law firms, they have contracts with law firms. It gives them access to the best lawyering for the least amount of money.”
“Not only was Evan not upset that Jeff had left AIG, he was triumphant about it. He made some comment like, ‘It’s going to make family dinners a little awkward.’ ”
Probably the best way to think of Hank is part casino owner, part poker shark. Like a casino owner, he has a knack for fixing the odds in his favor, and, if that doesn’t work, for refusing to let the customer walk away with his cash. Like a poker player, he bets big on good hands and quickly folds on bad ones.
The insurance industry is littered with executives who came up through the ranks at AIG—with Hank’s gambler ethos beaten into them—and then left to run their own companies, which they proceeded to run into the ground. In the past several years alone, onetime brand names like Kemper, Reliance, and Phico have all flamed out with former AIG officials at the helm, usually because they couldn’t resist the temptation to steal market share from their former employer. Professional poker players tend to use the term “dead money” to describe the amateurs who enter tournaments with big buy-ins and then promptly hemorrhage their chips. From Hank’s perspective, most of the scores of executives who’ve left AIG over the years to run other companies have amounted to little more than dead money.
To varying degrees, both Jeff and Evan Greenberg inherited Hank’s savvy, his brashness, and his bluster. But, outwardly at least, Jeff’s Ivy League bearing stood in contrast to his father’s and brother’s rougher edges. “Evan could be funny, but it was more straightforward,” says Mark Reagan. “Jeff was a little drier.”
For subordinates beleaguered by the old man’s intimidation tactics, Jeff’s relative calm was a welcome relief. “Jeff was in a category by himself. I thought the world of him then. I think the world of him now,” says one former AIG executive who reported to him. Evan, by contrast, seemed to have inherited Hank’s white-hot temper, lashing out at subordinates with warnings like “If you can’t fix this, I may need to clean house.” Underlings accustomed to this kind of abuse from Hank chafed when it came from Evan. “Greenberg Sr. entered the company when it was very small and went on to develop it into a hugely successful company,” says Tom Kaiser, who reported to Evan while at AIG. “If you haven’t gone through those years, and if you’re going to take the same level of authority, you’re doing it as someone else.”
Still, even critics concede that Evan shared many of Hank’s raw instincts for the business, some of which the more deliberative Jeff seemed to lack. Former colleagues recall Evan as the driving force behind AIG’s lucrative investments in the Internet and its e-business platform in the late nineties. “Evan sizes things up quickly, has a good eye for opportunity,” says Kaiser. “Jeff has to study it more.”
Jeff’s white-collar sensibility didn’t mean he refused to play hardball like Hank or Evan. It’s just that Jeff wasn’t as good at it. In 1992, for example, Jeff drafted a memo, dated the day Hurricane Andrew pounded South Florida, imploring AIG executives to treat the disaster as “an opportunity to get price increases now.” The memo quickly ended up in the hands of reporters, prompting multiple investigations and angry denunciations from the likes of Ralph Nader. The problem wasn’t so much the logic of the memo—which Hank fully endorsed. It’s that Jeff made the mistake of putting to paper a directive best issued more discreetly. The incident prompted some amount of “ranting and raving” from Hank, according to one former AIG executive.
Jeff resigned in 1995, after two things happened in rapid succession. First, Hank promoted Evan to the rank of executive vice-president, putting him on equal footing with his brother for the first time in their seventeen years together at AIG, a move that reportedly blindsided Jeff. Then, in late spring, Hank convened a dinner at the ‘21’ Club with executives of Jeff’s domestic-brokerage unit. Hank had traditionally scheduled off-site dinners to announce good news, like promotions, so most of the executives were looking forward to the evening. But when they arrived, they found Hank in a foul mood. “It was a general ass-kicking,” recalls Jeff’s de facto No. 2 at AIG, Bill Smith. “Jeff got in the middle of it, and Hank beat the hell out of him.” Several days later, according to Smith, Jeff told his subordinates he’d had enough, and tendered his resignation.