Markets
AIG’s No. 2 Is Fighting to Turn Around the House That Hank Built
By- Zaffino brings a ‘strategic tenacity’ to AIG, reinsurer says
- Insurance giant is trying to move beyond its bumpy past
American International Group Inc.’s Peter Zaffino drew a clear line ahead of his jump to the insurer almost three years ago.
“I didn’t want any advice,” Zaffino, AIG’s president, said in a rare sit-down interview. “I needed to see things for myself,” he added. “You just have to get underneath, business review after business review.”
Several executives have tried to fix AIG in the past decade, and opinions abound over what’s needed to restore the vaunted status the insurer once boasted. Zaffino left a lucrative spot at Marsh & McLennan Cos. to join a longtime mentor, Chief Executive Officer Brian Duperreault, for one of the greatest -- and most closely watched -- challenges in the insurance market.
Zaffino, 53, has climbed AIG’s ranks and is now taking on its next big project -- a sweeping effort to modernize the firm -- just as it faces what insurance titans including Duperreault are calling the biggest catastrophe ever. Zaffino’s challenge of turning around AIG has taken on a stark new urgency.
“I feel really good about the work that’s been done and, quite frankly, if Covid-19 had happened a year ago, we wouldn’t be able to do what we’re doing today because we would not have had as much foundational work done,” Zaffino said in a video call last month.
AIG holds an unusual place in the insurance industry, known for taking big, unique risks under the formidable Maurice “Hank” Greenberg. That approach fueled AIG’s growth into the world’s largest insurer, and then ultimately to a $182.3 billion bailout in the financial crisis. Since then, the company has struggled to get back on its feet, hurt in part by the sale of some crown-jewel businesses to help repay taxpayers.
Icahn Pressure
More recently, the company was involved in a tumultuous dust-up with activist investor Carl Icahn. CEO Peter Hancock resigned in 2017, and the board hired Duperreault as his replacement, gaining a well-respected leader who helped ease the pressure from Icahn. Duperreault’s return to AIG, years after working under Greenberg, was tinged with emotion: “The heart said you have to,” he said in an interview.
He quickly brought on Zaffino as chief operating officer, a hire that stoked speculation that Zaffino was the heir apparent. In December, Zaffino was named AIG’s president, cementing his position as a potential successor for the 73-year-old Duperreault. Asked whether he expects to be named CEO at some point, Zaffino said he defers to the board and Duperreault. For now, he’s just focused on the job at hand, he said.
“That relationship where you’ve got the macro, calming influence of a Duperreault, and the tactical and strategic tenacity of Peter works well,” said Kevin O’Donnell, president and CEO of RenaissanceRe Holdings Ltd., which has worked with AIG. O’Donnell first crossed paths with Zaffino in the mid-1990s at New York University’s business school.
AIG Outsider
Zaffino was something of an outsider, having not previously worked at AIG. But his recruitment, months after Duperreault’s hire, was practically inevitable given the task at hand, according to industry insiders.
“I recognized in my heart of hearts that ultimately the notion of going to work for Brian in a turnaround situation in one of the bellwether companies in the industry was going to be pretty irresistible for Peter,” said Marsh & McLennan CEO Dan Glaser, Zaffino’s former boss.
The turnaround hasn’t been easy. AIG has missed analysts’ estimates eight times in the past 12 quarters. Duperreault said in an interview that, when he arrived, he found that the insurer, which boasts a sprawling operation that writes policies for corporations, was taking on too much risk.
Trying to quickly change course for an insurer with a $30 billion market capitalization is difficult. Some contracts take years to adjust, and a decision to cut risk or raise prices may mean the business loses a customer. Zaffino works well in such complex situations, said Timothy Gardner, a former colleague who’s now CEO of Lockton Global Re.
“If it’s a status-quo business where you might be polishing an already incredibly shiny marble, he’d be good at it, but he’s best when the situation presents a challenge,” Gardner said.
Through the Wringer
Zaffino and his boss inherited a workforce that’s been through the wringer. Years after the financial crisis, AIG was still cutting jobs under its last CEO. Duperreault is the company’s seventh CEO since 2005. And the firm has been going through waves of shrinking for over a decade, with headcount falling each of the last four years.
“Companies tend to not want to go through change and, even though AIG’s been through a lot, the company’s unbelievably good at adapting,” Zaffino said in the sit-down interview in New York in February, before the city went into coronavirus lockdown.
Among Duperreault and Zaffino’s first moves at AIG was the recruitment of outside leaders from firms such as Lloyd’s of London and Berkshire Hathaway Inc.’s specialty-insurance business. David McElroy, who’s distantly related to Zaffino by marriage, was hired by AIG in 2018 and was eventually named to lead the North American general insurance business after working at Arch Capital Group Ltd. Zaffino “can be persuasive,” McElroy said.
“The appointment of Brian really gave creditability to a strategy that people could buy into, and I think the hire of Peter Zaffino just reinforced the intent,” Lloyd’s of London CEO John Neal said.
Coronavirus Pandemic
Recently, AIG has been dealing with a coronavirus outbreak that has hit its results and its people -- several employees have tested positive. The company booked about $272 million in pandemic-related costs in the first quarter, tied to business lines including travel and workers’ compensation. Yet Zaffino detailed on an earnings call last month how the overwhelming majority of its business-interruption coverage, a key focus during the crisis, excludes losses from viruses, sending shares up that day.
The business-travel standstill has actually provided some help to Zaffino’s team working on the modernization effort, called AIG 200, with members able to meet more frequently, he said.
Zaffino’s been through tumultuous periods before, with one hitting particularly close to home. In early September 2001, he joined reinsurance brokerage Guy Carpenter, run by his father, and split his time between New York and Connecticut. On Sept. 11, he came early to the firm’s office at 2 World Trade Center, after a night of hosting clients. Then, the first plane hit the neighboring tower.
“Life changed immediately,” Zaffino said.
Zaffino and colleagues worked their way out of the building after the second plane hit it, and eventually got away from the site. He walked to 125th Street to make it back to Connecticut and his family. Marsh & McLennan -- Guy Carpenter’s parent company -- lost 295 employees and 63 consultants that day.
Memorial Services
The tragedy roiled insurance markets, including the one for workers’ compensation policies, requiring Zaffino and his colleagues to help clients get a handle on their exposures. For years after 9/11, Zaffino would make sure Marsh & McLennan employees around him never missed company memorial services, according to a former colleague who asked not to be named.
Zaffino’s career, which also included stints at Hartford Financial Services Group Inc. and a General Electric Co. venture called Core, has taken him to all corners of the industry, from reinsurance and brokerage work to insurance carriers. A former Boston College soccer player, he’s always had an determined focus on his work, former colleagues say.
That makes him thoughtful but unemotional when working on deals, and he doesn’t get rattled by outside noise around negotiations, according to Jimmy Dunne at Piper Sandler Cos. Zaffino has a reputation as an intense leader who requires employees to know an issue inside and out, and demands accountability daily, an ex-employee said. Former colleagues such as Gardner found the demands fair.
‘It’s Intense’
“I don’t know that you can ask much more than if your boss is working harder than you are, and yet asking a lot of you. That doesn’t seem like an unfair ask,” Gardner said. “It’s not easy and it’s intense, but it ends up pushing you to a point where he certainly makes you better.”
Insurance is a family affair for the Zaffinos. His father, Salvatore, who died earlier this year, ran reinsurance firms for decades. His brother Jonathan Zaffino joined insurance firm Ascot in April from Everest Re Group Ltd. David McElroy, who runs the North American portion of AIG’s property-casualty business, is married to Jonathan Zaffino’s wife’s sister.
Earlier in his career, Peter Zaffino was handed the job of running Guy Carpenter, following in his father’s footsteps. While Salvatore Zaffino was a “legend,” Peter brought a different approach to the business, said Charles Davis, CEO of Stone Point Capital LLC, a private equity firm that once was part of Marsh & McLennan.
“Things are different now than they were 25 years ago. Now the need for data analytics and real deep analysis is much greater than it was in Sal Zaffino’s day,” Davis said. “Peter’s more analytical and data-driven.”
Stacks of Data
At Marsh & McLennan, Zaffino could be seen striding around the office with stacks of oversize pages printed with financial figures and key data, former colleagues said. Zaffino says he relished all the data he had on those sheets, which helped him decide whether to accelerate the business or slow things down.
“I miss those statements dearly,” he said. “The information was very good and it gave me unbelievable insight.”
At AIG, Duperreault and Zaffino first aimed to tweak the use of reinsurance to temper volatility, then sought to fix underwriting so the company wouldn’t be burned later on. Now, Zaffino is embarking on AIG 200, which entails even more operational changes, including building out a commercial-underwriting platform, boosting digital efforts in Japan and reworking the company’s real estate strategy.
When he’s not working, Zaffino spends time with his family, plays golf and listens to music -- he’s a Led Zeppelin fan and has gone to Bob Seger concerts with his kids. He and his wife, Kirsten, are travel aficionados and have been ardent supporters of the hockey and lacrosse teams their children have played on. Like Peter, Kirsten was a college athlete -- a swimmer, in her case.
Deputies Groomed
While it remains to be seen whether Zaffino becomes AIG’s CEO, Duperreault has been known to groom key deputies to eventually take over. At Ace Ltd., now called Chubb Ltd., Duperreault was succeeded by key lieutenant Evan Greenberg, who still runs the firm. Years later, Marsh & McLennan named Glaser, who was group president and chief operating officer, to replace Duperreault.
For now, AIG’s benefiting from the partnership of Duperreault and Zaffino, according to Pat Ryan, who leads brokerage Ryan Specialty Group and founded Aon Plc.
“Whenever you can have two senior executives that work in harmony and are moving that huge ship forward, you want those two to do it as long as possible,” Ryan said.
There are signs of a turnaround taking hold. AIG notched an annual underwriting profit at its property-casualty business in 2019, a rarity for the insurer in recent years. Industry leaders, including Aon CEO Greg Case, say the company’s starting to get its swagger back. But on that February day in Manhattan, Zaffino acknowledged how quickly everything can transform.
“There are so many things that are going to be coming our way in the future that we’re not even contemplating that could mean enormous changes to the world,” he said.
Politics & Policy
2020 Is Not 1968. It May Be Worse.
Social unrest helped doom Lyndon Johnson's presidency. It may end up saving Trump's.
The American death toll is rising. An unpopular president fears for his re-election chances. The U.S. sends men into space. Down on Earth, the economy is in trouble. Racial tensions boil over into rallies, looting and violent confrontations with police in cities across the nation, intensifying political polarization and widening the generational divide. The president considers invoking the 1807 Insurrection Act, which empowers a president to deploy the armed forces and National Guard in any state.
Yes, as writers across the political spectrum such as David Frum, James Fallows, Max Boot, Julian Zelizer and Zachary Karabell have pointed out, 2020 is looking a lot like 1968. For Vietnam, read Covid-19. For Lyndon B. Johnson, read Donald J. Trump. For Apollo 8’s successful orbit of the moon, read the docking of SpaceX’s Crew Dragon with the Space Station. And for Washington, Chicago and many other cities in 1968, read Minneapolis, Atlanta and many other cities in the last few weeks.
Ah yes, interjected Boston Globe columnist Michael Cohen, but today we are dealing with a pandemic. Actually, they had one in 1968 as well: the Hong Kong flu, caused by the influenza virus A/H3N2, which was ultimately responsible for more than 100,000 excess deaths in the U.S. and a million around the world. It’s easy to forget that Woodstock, the following year, was a super-spreader event.
True, since Derek Chauvin killed George Floyd in the street outside Cup Foods in Minneapolis on the night of Monday May 25, there have been protests and riots in dozens of American cities. More curfews have been imposed than in any year since, you guessed it, 1968. But is this the correct analogy? Or is the baby-boomers’ obsession with their own exciting teenage years leading us, not for the first time, to think too much about the late 20th century and not enough about other, more relevant periods?
Like the over-used Weimar analogy, allusions to 1968 are a kind of shorthand — just a superior way of saying, “This is really bad.” I’m betting that most of the people bandying these analogies about haven’t ever pored over documents from 1968 or 1933.
For millennia, historians have noted that pandemics can destabilize the societies they strike. Of the Athenian plague of 430 BC, Thucydides wrote: “The catastrophe was so overwhelming that men, not knowing what would happen next to them, became indifferent to every rule of religion or law.” Defeat at the hands of Sparta in the Peloponnesian War was followed by a period of political instability, culminating in a temporary breakdown of Athenian democracy in 411 BC.
The two great plagues that struck the Roman Empire — the Antonine Plague (165-180 AD), probably a smallpox pandemic, and the Plague of Justinian (542 AD), which was a bubonic plague — also weakened the structures of Roman rule, allowing barbarian invaders to make significant inroads.
Recent scholarship on England after the Black Death of the 1340s shows that efforts by the landowning class to offset the effects of chronic labor shortages led to escalating tensions that ultimately erupted in the Peasants’ Revolt of 1381.
Across Europe, the Black Death prompted a wave of millenarian movements, notably the flagellant orders, groups of men who roamed from town to town whipping themselves in the belief that acts of penance might ward off the Last Judgment. These religious cults often had a revolutionary undertone and came into conflict with local temporal and spiritual hierarchies.
The devastation caused by waves of bubonic and pneumonic plagues — which killed more than a third of the population in many parts of Europe — also led to widespread violence, particularly outbreaks of anti-Semitism. In 1349, for example, the Jewish communities in Cologne, Frankfurt and Mainz were wiped out. Conspiracy theories circulated widely that the Jews had caused the Black Death by poisoning the water supply. The Jews of Strasbourg were offered a choice between conversion and death. Those who refused to convert were burned alive in the Jewish cemetery.
The recurrence of bubonic plague in the 1890s led to conflicts between British rulers and their subjects from South Africa to India. In Honolulu and San Francisco, it led to measures that discriminated against the local Asian population. Such ethnic scapegoating often occurred in situations where a disease seemed to take an outsized toll on a specific community. The 1907 and 1916 polio epidemics hit wealthy, white New York especially hard. (In poorer populations, infants were routinely exposed because of bad sanitation, and therefore were more likely to have antibodies.) Southern European immigrants, particularly Italians, were blamed for the outbreak.
In short, history shows that pandemics all too often exacerbate existing social tensions between classes and ethnic groups. It also provides numerous examples of quarantines and public social restrictions intensifying citizens’ mistrust of the state. In 19th-century Europe, cholera riots were frequent, from St. Petersburg in 1831 to Donetsk in 1892. In North America, smallpox quarantines led mobs to burn down hospitals and police stations. The residents of Marblehead, near Boston, twice rioted against smallpox inoculation, in 1730 and 1773.
The spread of Covid-19 from China to the rest of the world, and the generally inept responses of the U.S. authorities to the pandemic, have combined to create perfect conditions for urban unrest. The disease has disproportionately hurt minority communities, especially African-Americans. In the U.S., as in the U.K., people of color are more likely than whites to work in contagion-exposed, low-skilled, “essential” occupations; to live in crowded conditions; and to have co-morbidities such as obesity and diabetes. The economic consequences of lockdowns have also hit African-Americans harder than white Americans. You really don’t need 1968 to explain 2020.
As a white, middle-aged, upper-middle-class immigrant, I’m hardly the person to speak to the politics of race in America. So I turned to an African-American friend, the economist Roland Fryer, whom I’ve known since we were colleagues at Harvard. 1
In 2016, he published a brilliant but controversial paper which argued that the police did not disproportionately use lethal violence against black people, though they were more likely to use non-lethal force against them. (A paper published last year in the Proceedings of the National Academy of Sciences lent strong support to Fryer’s thesis.)
He has a new, unpublished paper that looks at a perverse effect of investigations into police shootings. I asked Fryer to walk me through the argument.
“If you have a police shooting that goes viral online but isn’t investigated,” he explained, “then nothing changes — levels of police activity and crime are about the same. But if you have a viral shooting that is investigated, then police activity plummets, and crime goes up dramatically.” In just five cities – Baltimore; Chicago; Cincinnati; Ferguson, Missouri; and Riverside, California -- this led to excess homicides of almost 900 people in the subsequent 24 months, 80% them black, with an average age of 28.
It's a dangerous Catch-22: You're damned if you don't investigate “viral” incidents, and in even worse shape if you do.
How does Fryer interpret the current protests? “People are fed up,” he told me. “They are frustrated by the disparities they see in educational outcomes. Frustrated by the disparities they see in criminal justice. Frustrated by racial disparities in life expectancy. We are all to blame — this happened on our watch.” And when you add to that the fact that Covid-19 disproportionately affected the black community: “Folks have had enough. People are very much on edge.”
Such conversations, as much as any article or book, change the way I look at an issue. For years, I have confidently said that 1968 was much worse than the present. But could it be the other way around — not in terms of standards of living or rates of violence, but in terms of politics and the perceptions that shape it? That was a question put to me by Coleman Hughes, another African-American friend, whose recent essays on race in America have been essential reading.
In calling himself the “president of law and order” in the White House Rose Garden last Monday, Trump (or more likely his speechwriter) was echoing a mantra of Richard Nixon’s successful 1968 campaign. But Trump is the incumbent, unlike Nixon in 1968. The pandemic and the recession have hit Americans on his watch, just as surely as the Vietnam War escalated on Lyndon Johnson’s. A pandemic at home is very different from a distant war which, in mid-1968, more than a third of Americans still supported. The devastating economic consequences of the lockdowns make the early signs of inflation in 1968 seem trivial. The electorate is radically different from that of 1968: older, but also more ethnically diverse because of immigration and variations in birth rates. Traditional news media did not cover violent protest sympathetically in 1968. In all these respects, Trump’s chances of re-election should look worse than Johnson’s.
Yet on March 31, 1968, Johnson announced that he would not seek a second term because, as he put it on prime-time television, “There is division in the American house now.” Do not expect any such capitulation from Donald Trump. Division in the American house is precisely what gives him a shot at four more years.
Unlike in 1968, in other words, urban unrest with a racial dimension might actually save a beleaguered incumbent. The current wave of protests is in many ways a repeat of more recent events — Ferguson 2014, Charlottesville 2017 — and its main significance may be to shift the American political conversation away from the Trump administration’s incompetent handling of the Covid-19 pandemic, back to the terrain of the culture war, where Trump is an experienced combatant.
Even in 1968, merely using the phrase “law and order” was to invite accusations of racism. In the case of a president who last week fantasized about a MAGA mob joining the fray outside the White House, the charge of insincerity seems well-founded. Trump is indifferent to the law by nature; he thrives on disorder. And he understands much better than his opponent how to spread his message through the complex networks of online “influencers” — many of whom promote conspiracy theories — through which more and more Americans receive their news.
Finally, and perhaps crucially, unlike 52 years ago, November’s election seems very likely be a two-horse race. There is no George Wallace, the segregationist candidate who took millions of former Democratic votes in 1968, ensuring Nixon’s triumph. Any last-minute third-party candidate -- Green, Libertarian or otherwise -- is unlikely to garner anything like Wallace’s 13.5% of the popular vote.
The result of 2020’s election will look very different from 1968’s. The nightmare is a result like that of 2000: too close to call and decided in the courts.
History strongly suggests that pandemics tend to widen class and ethnic divisions. Covid-19 is no exception. Small wonder a hideous incident of police brutality ignited a wave of outrage: harder hit by the disease, harder hit by the lockdown and the recession, African-American communities were ready to boil over. Scenes of mayhem in nearly every major city in America ought not to bode well for an incumbent on whose watch excess mortality has already surged by 26%, and who is now presiding over an unemployment rate three and a half times higher than in 1968.
Yet the return of the culture war might just prove to be the deus ex machina that extricates Trump from the quagmire of Covid-19. If so, Trump’s many detractors in the commentariat - who have long hoped that he is Richard Nixon without the second term - may come to rue the day they drew the wrong historical analogy.
- Last year Harvard placed Roland on administrative leave for two years following allegations of "unwelcome sexual conduct."I believe this was unjust and that Harvard will eventually acknowledge its error. Even if it does not, the case has no bearing on the subject of this article.
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