2014 Power Broker

Chemicals & Refining

A Gifted Juggler

William Barnett Managing Director Marsh, Philadelphia

William Barnett
Managing Director
Marsh, Philadelphia

It was a tough year in the process-industries sector, with at least one major underwriter sharply reducing its participation — and that had insureds, brokers and other underwriters dealing with the fallout. William Barnett had that to face, along with a pair of major acquisitions for one client at renewal time.

“So we had side-by-side due diligence for the two big deals, along with our regular renewal, while trying to replace the one carrier that was proposing some structures that were highly unfavorable to us,” said the risk manager for the chemical firm. “He handled our renewal while helping with the due diligence for the acquisitions. That means that we were able to integrate each acquisition into our existing program once those deals closed, which they did within a few months of each other.”

For another client, a major commodity chemical producer with global operations, Barnett was asked to reduce premium payments while at the same time accommodating a large increase in the insured’s inventory value. Using an unbundling approach that has been brought to bear by several Power Brokers this year across different industries, the client said Barnett was able to subdivide property coverage based on the importance of the facilities to the company.

For a third client, one with a large number of older, legacy facilities, Barnett helped them meet the challenge of implementing a comprehensive risk-analysis system that would be able to accommodate widely differing plants and operations.

Managing Private Equity’s Impact

Larissa Gallagher Property Broker Aon, Southfield, Mich.

Larissa Gallagher
Property Broker
Aon, Southfield, Mich.

With the rise of private-equity investing in the power sector, there has been a flurry of assets changing hands. One senior director of risk management recalled that when his company was sold from one PE firm to another, he had to start all over with his program.

“We were no longer able to stay on the group property insurance program of the previous owner and ultimately had about 30 days to market and negotiate a stand-alone program for our company,” said the director.

“Larissa managed the entire process and we were able to bind our property insurance successfully and also to maintain the same premium and conditions as under the previous program. That was no small feat.”

He detailed the game plan: “She started the process walking us through her marketing plan and timeline. She stuck to the timeline, providing weekly updates on responses and inquiries she was receiving from underwriters. We were able to bind our property insurance well ahead of schedule with a very smooth ride along the way. In 10 years of handling insurance for various organizations, our 2013 property insurance renewal was easily the smoothest and most efficient I have experienced. I attribute the success to Larissa’s efforts.”

For a generating equipment maker, Gallagher was able to increase policy limit by 25 percent to $1 billion, and was able to add a half dozen different elements to the program, including improvements in deductibles and indemnities, as well as coverage of off-site assets. All that was done at a reduction in premium of almost half a million dollars.

Creating New Options

Jared McElroy Senior Broker Aon, Cincinnati

Jared McElroy
Senior Broker
Aon, Cincinnati

As noted in a famous TV commercial, the old-fashioned way to make money is to earn it. McElroy was presented with several opportunities to do just that, clients said, when they brought their programs to him and told him if he could take them to market successfully, he would win the business.

“We recently marketed our property program and the results were tremendous,” said one risk and insurance manager. “Jared was patient and thorough throughout the entire process and it paid off. He brought new options to our attention and completely understood the coverage we were looking for. I truly believe his knowledge of the market and his willingness to go the extra mile allows him to achieve success.”

In another instance, the insured had suffered several large losses, none of which were part of a pattern but coming all in the same year presented a very difficult renewal prospect. Some of the losses were operational, but others were weather-related. McElroy and the client each credit the other with buckling down and working through both the internal and external challenges. Those included process changes within the company, but also breaking down the loss history and working with carriers to convince them that the exposures were manageable.

One other, often-overlooked aspect of risk management that earns McElroy credit is his incorporation of supply-chain into risk management. In the process industries, liabilities extend beyond the fence line, and clients appreciate when McElroy can communicate their efforts in logistics to their carriers.

Playing Big

Duncan Plaskett Senior Vice President Marsh, Houston

Duncan Plaskett
Senior Vice President
Marsh, Houston

By some accounts, there were signs, at least hints, that some underwriters were becoming jittery about their level of participation in the process industries. “We had some thorny issues with our carrier even before the big changes in 2013,” said one director of financial analysis. “Duncan was very diligent about all the details, and got the carrier comfortable with amending their policies to include the prior period coverage that we sought.”

Another client is a multinational organization with small group offices in many countries. The head of one of those regional offices said, “We were able to use Duncan and his office as an extension of our office. They allowed us to play big and gain access to markets we would not otherwise be able to tap, and that enabled us to secure a very big contract from a very big customer.”

That access to international carriers and additional capacity enabled the client to create a new joint-venture with that customer, which was established as a stand-alone operation. “The timing was very tricky,” said the regional head. “It was very large and very complex, and Duncan was instrumental in making it all happen.”

In a separate case, a client chose to break with a long-standing carrier that wanted to make major changes, including higher premiums and claims basis. “I said no way,” the risk manager said. “With Duncan’s help, we were able to keep our program just as it was. I know it was tough for him to have to bring in new markets on short notice.”

Risk Opportunity

David Robinson Managing Director Aon, Houston

David Robinson
Managing Director
Aon, Houston

For many energy companies, risk isn’t just something they’re trying to mitigate or transfer — it’s something they seek as commodity traders. For the brokers of those clients, risk can take on a house of mirrors complexity as they seek to provide coverage for both physical and financial exposures. “Our parent company is always looking for opportunities out of the ordinary. One in 2013 involved moving refined fuels from one region to another” to take advantage of an arbitrage window, said one risk manager.

“Those can be very unusual, very technical placements that extend to the value of the commodities, vessel chartering, transfer and handling. There are lots of parties, each with their own physical and financial requirements, not to mention different regulations in different states. David handled it all. He worked hard to understand all the requirements and all the details. This is not just boilerplate coverage.”

In another case a client was eager to get into the booming business of moving crude oil by railcar from Canada to the United States.

“David took the lead in arranging the coverage for the shipments,” said the risk manager. “For some of the shipments we had to lease tank cars, for others we did not, but still had legal title to the contents, and all those liabilities.”

Other clients include international firms with refining and chemical plants in the United States. Robinson was able to use the size of the parent firms to gain more economical coverage for their subsidiaries.

Negotiating Carrier Changes

Stephen Stoicovy, ARM Assistant Vice President Aon, Houston

Stephen Stoicovy, ARM
Assistant Vice President
Aon, Houston

With all the acquisition and divestiture that takes place in the fast-growing energy field, several Power Brokers have won their laurels getting complex issues sorted for their clients. “As a result of several acquisitions, we had separate casualty programs for our different divisions, all with very different retention structures,” explained one director of risk management. “We also had a restructuring that dropped some of our assets into a partnership.”

That client asked Stoicovy to streamline their whole program, including the asset transfer. And just to make it interesting, the client asked for two possible outcomes. “We have an operating group and a retail group, and we preferred to keep them together on the same program, but we were willing to have them separated if we could get a significant advantage from it. So we asked him for two possible placements, one unified and one bifurcated.”

Pulling that off would be impressive under any circumstances, but the past year was a tough one in the downstream process industries. At least one big name significantly reduced its presence in the market, and others reacted by reevaluating their participation. In some cases, attachment points were put significantly higher, and competition on some accounts diminished.

For one client, Stoicovy was able to offset the expense of replacing a lead underwriter and the resulting changes to the program by inserting small buffer layers between primary and excess carriers.

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]