American International Group, Inc. (AIG)

[TRUISM]

AIG's New CEO Looks to Data to Chart Insurer's Course
Peter Hancock, Taking Helm From Robert Benmosche, Seeks to Use Trove of Information in Quest to Boost Profits
By LESLIE SCISM Aug. 29, 2014 12:07 p.m. ET

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Peter Hancock in his Manhattan office. The new CEO of AIG aims "to manage down the cost of risk," by investing in computers and people to dive deeper into data. Keith Bedford for The Wall Street Journal



For clues about what direction Peter Hancock is taking American International Group Inc., AIG +0.59% check out his tennis racket.

"It's the coolest thing," said Mr. Hancock, the insurer's incoming CEO, of the $350 racket. "It tells you exactly how many forehands, backhands you hit, where on the strings you hit the ball, how many were top spins…" He called it "just one tiny example of the kinds of things [technology] can measure now."

Mr. Hancock, an active sportsman whose first day at the helm is Sept. 1, is betting that data crunching can improve more than just his serve: The 56-year-old is pushing AIG to wring greater efficiency—and profits—out of the vast reams of information it keeps about its customers, among other sources.

If the strategy works as he expects, the results will include new products, better identification of fraud and potentially lower premiums for certain customers.

"If we can do that, we become not the biggest insurance company, but the most valued in the eyes of those customers," he said.

The emphasis on analytics is one of the clearest signs of how Mr. Hancock hopes to address the main challenge now facing AIG: boosting profits.

Mr. Hancock is taking over from Robert Benmosche, the chief executive since 2009, who initially focused on morale and keeping AIG afloat after its financial-crisis bailout. Through a series of divestitures, Mr. Benmosche slimmed down AIG considerably; in 2012, the company repaid the last of the bailout money. AIG announced Mr. Hancock's promotion in June. Mr. Benmosche, 70, had indicated he would stay into early next year, but he advanced his retirement to allow the new CEO to move ahead with decisions and as he continues to be treated for a 2010 cancer diagnosis.

AIG is now built primarily around two large, valuable franchises: a world-wide property-casualty insurance business, which Mr. Hancock has run since 2011, and a U.S. life-insurance and retirement-services unit. Analysts say a key challenge for Mr. Hancock is to catch up to many of AIG's peers in profitability metrics such as return on equity.

Mr. Hancock wants AIG to use its expertise "to manage down the cost of risk" by investing heavily in computers and people to dive deeper into data, he said in an interview in his 30th-floor downtown Manhattan office, which features an ergonomic stand-up workstation.

Mr. Hancock said he was recruiting a chief information officer, who will report directly to him "to raise the profile of technology" at the company. Already, Mr. Hancock has a "chief science officer," a position he added in 2012 to the property-casualty unit as part of his effort to focus on science-driven decisions about strategy. The science team numbers about 130, many of them Ph.D.s.



Retiring CEO Robert Benmosche was focused on morale and keeping AIG afloat after its massive financial-crisis bailout. Associated Press




As an example of how the concepts he champions can work in practice, Mr. Hancock points to recent analysis by AIG, in conjunction with Johns Hopkins University, of about 23 million of its workers' compensation claims. The effort identified addiction and other problems stemming from overuse of opiates.

"It is a terrible cost to the industry, a terrible cost to employers, and it's a terrible cost to society," Mr. Hancock said. AIG now has teams of doctors and nurses who reach out to injured workers and their primary-care physicians early in treatment to suggest nonaddictive pain solutions, he said.

Mr. Hancock also has been tweaking the business mix, including reducing sales of certain types of workers' compensation accounts, such as those the company doesn't see as profitable enough. AIG is also boosting sales of property insurance and aiming to expand in many emerging markets.

But significant improvement in AIG's return on equity—a measure of profit relative to shareholders' investment in a company—may be a ways off. That figure stands in the single digits, in part because AIG sends a larger percentage than do many rivals of each dollar earned in premiums back out the door to pay claims and other expenses.

Some analysts have raised concerns about a deceleration of price increases for property-casualty insurers industrywide and whether a tougher pricing environment is slowing AIG's turnaround. In the company's second-quarter earnings call, Mr. Hancock said the company was "clearly experiencing some headwinds in the pricing" of certain business lines.

Mr. Hancock's data push also adds to costs at a time when the company is shaving expenses.

"His approach to the business is still a work in progress," said Janney Capital Markets analyst Larry Greenberg. For now, Mr. Greenberg believes shareholders care more about share buybacks—which AIG has under way as well—as a way to boost the stock price than they do about data analysis.

"Our businesses continue to demonstrate our discipline and resilience, underscoring our focus on improving the results of our core insurance businesses," an AIG spokesman said.

Other analysts are more bullish. Josh Stirling of Bernstein Research applauds the decision "to aggressively embrace data and analytics," and especially likes what he calls AIG's "hiring binge" of scientists and other talent.

Mr. Hancock arrived at AIG in 2010 with extensive risk-management experience. In the 1990s, he worked at J.P. Morgan, now part of J.P. Morgan Chase & Co., where he helped develop the market for products such as credit-default swaps. In those early years, banks and their corporate clients typically used the swaps to mitigate risk on debt exposure.

AIG went to the brink of collapse in 2008 after a now-defunct financial-products unit used credit-default swaps to essentially bet on the subprime-mortgage market. Mr. Hancock chafes at the suggestion he indirectly contributed to AIG's difficulties.

"That was certainly not something I anticipated the tool to be used for," said Mr. Hancock, who was hired to beef up the insurer's risk management and to help unwind the bad bets.

Mr. Hancock said he looked forward to the challenge of running AIG. A novice in the extreme sport of kitesurfing, he grew up in Hong Kong, where his father worked at a Canadian insurer and was involved in competitive sailing.

The family had sessions in which they ran through scenarios for what could go wrong in a race, and who would do what if it did.

"My dad taught me an important lesson," Mr. Hancock said. "If you rehearse every maneuver ahead of time, people don't panic when things get really intense."




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