Iron man: AIG's CEO of Commercial, Robert Schimek

AIG's response has been one part strategy, one part partnership and one part promise. Part of AIG CEO Peter Hancock's two-year plan is to return $25 billion to shareholders through 2017; improved performance in its P&C division will be key to that goal (Q1 results will be released this month).

In February, AIG agreed to name Paulson and Samuel Merksamer (a representative from Icahn's firm) to its board. The following month, the carrier announced it had entered into a two-year reinsurance arrangement with Swiss Re under which a share of its new and renewal U.S. Casualty portfolio would be ceded to the reinsurer. The deal will help AIG be more capital efficient and improve its return on equity.

AIG's new performance goals are aggressive; chief among them is improving its commercial property/casualty accident year loss ratio by six points — and Schimek is resolute that goal will be met.

"We've made several promises," he says, ticking them off from his right fist. "We've promised a six-point improvement of our adjusted accident year loss ratio; we've promised an improvement in our return on equity; and we've promised an improvement in our pre-tax operating income.

"I'm absolutely confident that we will deliver," he says. "We've outlined a very clear plan that our board of directors and our senior leadership team believes in, and it's a clear plan that the team who has to execute it believes in."

AIG has been here before, with outside forces mandating improvement and its talent needing to rally and answer the call. The last time AIG was tested, when all was said and done the U.S. government came away with some $22 billion in interest — in a shorter time span than was forecast, thank you very much.

"You know, people love the hype and the drama of the AIG story, but the truth is, inside this organization on a day-to-day basis we're really just focused on winning," he states. "We really don't get disrupted by a lot of the noise that happens outside of this organization."

Leader & learner

If one were to wager again on whether AIG will make good on its promises, one might believe the smart money would be bet on Schimek.

"I'm a strong leader, and I think what is needed here is leadership for a really big team," he says, spreading his palms. "This commercial insurance team is more than 30,000 people. What they need is direction and leadership, so I think that's a trait that I've proven over my 11 years here."

Schimek's time at AIG has included roles as chief executive officer and president of the Americas, CFO of the P&C division and the regional head of Europe, the Middle East and Africa. Before joining AIG he was a partner at Deloitte & Touche LLP, where for 18 years he counseled a variety of financial institutions.

AIG President and CEO Peter Hancock — who holds no small stake in Commercial's fortunes — says Schimek "has demonstrated in each of the roles a quick learning curve and the ability to lead people from very diverse backgrounds, and in this new role we've created he has leadership responsibilities for underwriting, distribution, claims, operations, and the end-to-end customer experience, which we think is going to be critical for clients to view AIG as their most valued insurer.

"I have great confidence in his ability to make the important decisions to prioritize where we can add the most value to clients — and that will deliver the outcomes that we aim to have as a company, but most importantly, that focus our capital and our expertise where our clients value it most," adds Hancock.

Lest one get the incorrect impression that Schimek is all boast and no backing, he offers a disarming assessment of his skill: "I don't know all of the answers, but I'm a learner — and I think it's one of my better traits." He holds an Associate's Degree in Liberal Arts from Bucks County Community College; a B.S. in Accounting and a B.S. in Business Administration from Rider University (where he sits on its board of trustees); and earned his MBA from the Wharton School of Business at the University of Pennsylvania.

"I will say this," he says with a grin. "I'm not always known for my finesse, but I'm known for my pace. If you want someone who will execute with pace, you've got the right guy."

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The three-point plan

The vision for how AIG will improve its P&C results revolves around three things, Schimek explains. The first is the aforementioned use of reinsurance. For that element, "I would simply say it's a bit of 'back to the future' for AIG," he says. "We grew up using reinsurance in a very strategic, very thoughtful way. In more recent years we've significantly limited our use of reinsurance to excess of loss protection against catastrophic events.

"But the truth of the matter is, we have the ability to use reinsurance as an effective capital efficiency tool," he continues. "It can lock in a profit on day one, and I think the world will see that reinsurers absolutely have an appetite for our underwriting and they absolutely have confidence in the AIG plan, the AIG tools and the AIG leadership. So for the first element, my degree of confidence that we'll be able to achieve that is 100%."

The second element of the plan: "We're sharpening our focus with respect to our client base, sharpening our focus with respect to the products that we're offering, and sharpening our focus with respect to the geographies that we serve," says Schimek.

"With that said, we don't need to be all things to all clients," he adds. "In many jurisdictions, we're serving consumers, we're serving corporate clients serving their local corporate risks, and we're serving multinational clients." The most important target for AIG's renewed focus, he notes, is the latter.

"In many cases, we're better off narrowing our focus. We're better off not trying to underwrite indigenous risks in a country or jurisdiction where we really don't have the underwriting strength that we might have elsewhere."

Schimek notes that 82% of the policies that AIG writes in the U.S. casualty space are written to clients who have one or two policies with the insurer. "That's a minority of the premium that we write," he says. "Eighty percent of the clients give us 20% of the premium, but 20% of the clients where we have deep four or five or more product relationships might be where we write about 80% of our premium.

"So we can narrow the focus to serving fewer clients better than we currently do today," he adds. "Our vision is to be our clients' most valued insurer, and I would say with respect to clients where we're only selling one policy or two policies — especially where it's one or two policies and we are not having financial success — we're probably not on the path to being their most valued insurer, and they're probably not on the path to becoming AIG's most valued insurance clients."

In order to achieve this, Schimek envisions a harder look at those it serves. "I'm happy to serve clients where we only serve one policy or two policies, but only if that relationship is a successful two-way street where we think we're offering to them a valuable service or product and where we think we're getting compensated for the risks that we're taking.

"Currently there's business that we're writing where there's just one or two policies and we're not making any money," he says, frankly. "As a matter of fact, we're losing money, and I have to ask myself, why would I continue to do that? That's what I mean about narrowing focus with respect to clients."

Strategic withdrawal

The third element of the plan is narrowing AIG's focus with respect to product — namely, exiting lines in which profit margins simply aren't keeping pace with accelerating claims. "We've announced that we will exit a very specific and very narrow set of products," says Schimek. He offers as one example its Pollution Legal Liability product in the U.S. and Canada. "It's very important to say it's only in the U.S. and Canada, because we offer these products outside of the U.S. and Canada," he stresses.

"My view on Pollution Legal Liability is we helped create this market. We are one of the pioneers in this market and we think we do it better than almost anyone in the business," he says. "However, it's become a crowded field, and we believe that in general, our value proposition was not as valued by the marketplace as we think it should have been. Because of that, if we're just one of many commoditized players on the playing field, we don't think that's consistent with the AIG vision of what it is that would get us awards for being the best insurer.

"We'd be far better off putting our resources to work in other places where we can help solve problems for our clients and for our brokers in a way that will enable us to earn returns that are fair for our shareholders," he adds.

Schimek knows that P&C insurance is a relationship business, and exiting lines is a maneuver that must be handled with care. "It's really important for people to understand we're very sensitive," he says. "We don't want to disrupt valued broker and client relationships. We want to be a long-term sustainable player in the marketplace, but we also believe that there's great value to being open and transparent when we see that we're not going to have success in a line. We'd rather be honest and clear so that people don't have to wonder what our intentions are."

It's ironic how many P&C insurers become criticized for exiting a line that is no longer profitable. Schimek is no stranger to this counterintuitive logic.

"What often happens is people will say, 'Well, back in the day, AIG would have done this, this, or this.' I say to those people frequently, 'You've got to remember that times change and it's not just AIG that has changed. The macroeconomic environment has changed.'

"If we want to write our business today to a 10% return on equity, we need to have a combined ratio that's in the mid-90s," he says, starting the math lesson. "If we wanted to write our business 10 years ago to a 10% return on equity, we could have had a combined ratio overall above 100. If we wanted to write business 20 years ago, to a 10% return on equity, our combined ratio could have been above 110. Welcome to the true facts of life, that the shape of the yield curve and the macroeconomic environment that we face are a really important part of the economic equation that we have to work our way through.

"In this respect, we are not unique," he adds. "Those macroeconomic factors affect everyone in a very similar manner. For us, they've been greater because we've tended to write longer-tailed tougher risks — and longer-tailed tougher risks are more impacted by those macroeconomic factors than shorter-tail risks."

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The road ahead

Looking forward, Schimek believes AIG is poised for long-term sustainable success in financial lines, broadly speaking, in more recent offerings such as Cyber and M&A transaction risks and in the international space. "We have excellent prospects for growth in our [Europe, the Middle East and Africa] Casualty business, even while I would expect us to shrink in our U.S. Casualty business by contrast."

Multinational is a space in which the carrier will continue to grow significantly, he adds, and Schimek is especially proud of what his team has done in Property. In the past four years, he notes, AIG's Property team has added nearly 500 engineers, bringing its total number to 700. "Today we have more engineers on our team than we do Property underwriters in the U.S.," he says.

"The truth of the matter is, there are many capital providers," says Schimek. "We're building a very differentiated service offering through risk engineering and mitigation to help lower our clients' cost of risk."

AIG continues to make investments in those mitigation capabilities, including its partnership with Clemson University — an initial $4 million investment to develop a risk-engineering and analytics center and to establish the Robert Benmosche Endowed Professorship in Risk Engineering and Systems Analytics, in honor of the company's former president and chief executive officer. The center, to be based on Clemson's South Carolina campus, will expand the carrier's engineering capabilities.

Likewise, Schimek points to AIG's investments in investigative consultancy K2 Intelligence (with which it will co-develop products and services that support AIG's efforts to help clients mitigate and manage their cyber risk, and to explore opportunities in other key industry segments) and Human Condition Safety Systems, a technology start-up company developing wearable devices, analytics and systems to improve worker safety.

Meanwhile, communicating the value of AIG's service is critical, Schimek says, in keeping its talent — as well as its broker partners and clients — focused on doing what it does best: "We have to work hard to make sure we stay focused on our own mission, and our mission can't get confused with any of the things that happen in the news outside of us."

"I learned as a youngster that the really important thing in life is you've got to work harder than the other people if you want to succeed. There's no substitute for hard work," he says. "People sometimes ask me, 'What's the shortcut to success?' and the answer is, there is no elevator to success. You have to take the stairs."

It is a puzzle, he says, to which there's no one-size-fits-all answer — "but it comes down to three things: Communication, communication and communication to our clients, to our brokers, and to our own team. If we do those things, we'll be successful.

"We recognize that we're a market leader, and we know that people chase us and we tend to be the target," he adds. "I believe that gives us the incentive to want to keep running faster than the pack that's trying to chase us all the time.

"The very first thing you should know is if you want this team to perform, put us on the center stage, put the lights on us and make us the underdog. You do those three things and I'll tell you, you can expect that we will absolutely show people what we're made of."

Tough as nails

The head of AIG's commercial division pauses between forkfuls of salad to recount the last time his success or failure depended upon his ability to focus solely on the goal at hand and nothing else.

In November 2014, Schimek competed in his first World's Toughest Mudder competition, held in the Las Vegas desert. Tough Mudder is a military-style series of 20 to 25 obstacle events over 10 to 16 miles that encourage — and in some cases, require — group participation and teamwork in order to surpass many formidable obstacles that involve fire, electricity, water, heights, and — you guessed it — mud. They are designed to test the physical and mental limits of the strongest men and women. The "Toughest Mudder" event is a 24-hour endurance challenge for only the hardest competitors.

While fighting his way through the course, Schimek suffered a stress fracture in his left leg. Yet for him, quitting on his four-man team wasn't an option; he tells of how he had to "block out the pain" while getting up enough speed to scale a wall to keep pace with his teammates. By the time he completed the course, Schimek also had two meniscus tears. Through determination and endurance — and quite a bit of rehab, following surgery — he completed his first Ironman triathlon 11 months later.

Although he doesn't mention it, a search reveals that Schimek is a member of the World's Toughest Mudder Hall of Fame.

"It took a team to complete that race," says Schimek. "A competition like that gives you confidence in the power of a team, and in how determination and endurance can get things done when others may say, 'you just can't do it.' I translate that into my approach to business."

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