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AIA's parent becomes No.1

AIA's United States parent company American International Group Inc has become the biggest financial company by market value, eclipsing Citigroup Inc.

Monday, December 11th 2000, 10:38PM

AIA's United States parent company American International Group Inc has become the biggest financial company by market value, eclipsing Citigroup Inc.

Recently the company passed Citigroup with a market capitalisation of US$ $214.6 billion.

While AIG's size makes it a plausible candidate to gobble up others amid an unprecedented wave of financial industry mergers, its 75-year-old chairman Maurice R. "Hank" Greenberg says he's not much interested in what's available.

"We're a disciplined buyer. We don't buy things for the sake of buying," Greenberg said at a recent seminar sponsored by Credit Suisse First Boston. "But we're in an environment where some of these things may come home pretty quick."

Instead, the 81-year-old company founded in Shanghai by Cornelius Starr wants to wring profits out of the rebound in insurance prices in the US -- training its underwriters how to raise rates without alienating customers. Most of its acquisitions will likely be in Asia, where it can snap up bargains in Japan, Taiwan, and Thailand, analysts say.

At the same time, succession is as big a question for the company. Greenberg's son Evan resigned abruptly in September, leaving no heir apparent.

"Clearly, there are concerns about who will replace senior management," Merrill Lynch Investment Management portfolio manager James Ellman says. "But AIG's management is considered quite deep."

Specialty Products

AIG's growth in recent years came as its rivals struggled to win a price war. AIG focuses on specialty products, which offer the highest profit margins and the most pricing power. These include insuring wealthy individuals' art and jewelry and insuring corporate executives against being kidnapped.

In the third quarter, its earnings rose 15% to US$1.41 billion while revenue rose 16% to US$11.1 billion.

The company's size and scale also keep its expense ratio -- the amount of every dollar from premiums spent on overhead -- at about half its nearest rivals. "AIG runs a 15% expense ratio when everybody else is at 30%," said A. Michael Frinquelli, a portfolio manager at Renaissance Fund Advisers.

AIG's shares trade at about 39 times earnings, more than double Citigroup's and three times Morgan Stanley Dean Witter & Co.'s.

AIG dwarfs all rivals. Its market value is almost 10 times that of Allstate Corp., the No. 2 auto and home insurer, and more than three times that of Axa SA, Europe's biggest insurer.

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