SCHIFFS

1 AIG is an inherently complex cor-poration. Because of its unusualrelationships with three affiliatedentities StarrInternationalCompany, Inc. (SICO), Starr & Co.,Inc. (Starr), and the Starr Foundation itis all the more complex. Each Starr entityis a significant shareholder of AIG stock(collectively, they own 412,409,172 sharesworth approximately $ billion), andeach is majority-owned or controlled byretired AIG officers, with HankGreenberg serving as chairman, president,or director. AIG does not own any of theStarr decades, AIG s directors have notobjected to AIG s transactions and rela-tionships with the Starr entities. The exis-tence of the three Starr entities has neverbeen a secret, but much of what they dohas not been disclosed to the public, norhave many intercompany conflicts of in-terest been disclosed to AIG s sharehold-ers.

2 Although the conflicts of interest areimportant, one cannot make a sweepingstatement that allof them are detrimentalto AIG and its shareholders. But they areproblematic for a variety of reasons (whichwe will get to eventually). Here s an out-line of the flow of money or business be-tween AIG and the Starr entities:SICO, which owns of AIG, is aPanamanian company with headquarters inBermuda. It is apparently used as a de-ferred-compensation program for about 700of AIG s current and former s board of directors does not decidehow SICO compensates AIG s oversees SICO and is a directorof the company . SICO has also acted as asecret finite reinsurer of AIG , which owns of AIG, is anunderwriting manager that specializes inexcess casualty, primarily for AIG s insur-ance companies.

3 Starr is located in AIG soffices and shares employees with 2003, it received $173 million (forty-seven percent of its revenues) from is owned by AIG s most senior cur-rent and former employees. AIG s boardof directors does not decide how Starrcompensates AIG employees. Greenbergis Starr s president and Starr Foundation, which of AIG, was created by Starr,who founded what is now is chairman of the president, Florence Davis, was previ-ously AIG s general counsel. All of thefoundation s directors were once officersof AIG. The foundation makes about$220 million of charitable grants per year,including scholarships to children ofAIG s employees throughout the world.

4 Ithas also made significant grants to organi-zations run by AIG directors. (In 2003, schiff spublished an expos about $ in grants that the foundation gaveto the American Museum of NaturalHistory shortly after the museum s presi-dent, Ellen Futter, joined AIG s board ofdirectors. AIG never disclosed thatGreenberg, through the Starr Foundation,was one of Futter s major benefactors.)The Starr entities are, to some extent,a legacy of AIG s predecessor companies,and their relationships with AIG date backto 1967, when AIG was incorporated. Thefact that practices are longstanding, how-ever, does not make them right for the pre-sent time. Since corporate America has fi-nally entered the Age of Transparency, it sreasonable to assume that AIG s relation-ships with the Starr entities will change probably soon.

5 On the following pages we will exam-ine AIG s relationships with the threeStarr entities and provide some of the his-tory behind the relationships, as well assome history of AIG. In 1919, Cornelius Vander Starr, an ad-venturous twenty-seven-year-old fromFort Bragg, California, formed an in-surance agency in Shanghai calledAmerican Asiatic Underwriters. The busi-ness grew rapidly as a foreign underwritingmanager for a pool of American andEuropean insurance companies. Starrformed a life-insurance company in Chinaand eventually expanded into LatinAmerica and Europe, and, after World WarII, into Japan and the Philippines, creatinga loosely-knit amalgam of internationallife-insurance, reinsurance, underwriting,and brokerage operations under the aegisof Starr & Co.

6 And AmericanInternational Underwriters (AIU).In 1952, Starr and his associates soldcontrol of Life to ContinentalCasualty for about four million dollars. Afew months later, Starr s Bermuda-basedAmerican International ReinsuranceCompany (AIRCO) bought control of theGlobe & Rutgers Fire InsuranceCompany, which was merged into its sub-sidiary, American Home AssuranceCompany, three years was a hard worker who had agreat grasp of his organization s details. Heinspired loyalty in his employees, andmade many of them partners in his busi-nesses. He was also a world-traveling schiff SSCHIFF S INSURANCE OBSERVER 300 CENTRAL PARK WEST, NEW YORK, NY 10024 (212) 724-2000 30, 2005 Volume 17 Number 8 INSURANCE OBSERVERThe world s most dangerous insurance publicationSMConflicts of InterestAIG s Relationship with Three Starr EntitiesStarr International company , S INSURANCE OBSERVER ~ (212) 724-2000 MARCH 30, 20052bon vivant who did things in grand started an English-language newspa-per in China, built up a ski resort inVermont (Stowe)

7 , sent American skiers tothe Olympics, put on a production ofMadame Butterflyat the MetropolitanOpera, created a golf course by his housein Brewster, and paid for the college tu-ition of some of his employees his death, his estate went to the 1960, when he was sixty-eight, Starrhired thirty-five-year-old HankGreenberg as vice president of Starr& Co. Although Starr s companies werefilled with many long-tenured executives,Greenberg, who was younger than theothers, quickly moved toward the top. In 1967, AIRCO formed AIG as aholding company for its interests in theAmerican Home and New Hampshire in-surance companies, both of which weremembers of the AIU pool that Starr wrotebusiness for.

8 The following year, AIRCO transferred American Life InsuranceCompany (ALICO) to AIG. AIG also ac-quired a controlling interest in NationalUnion (which was a member of the AIUpool). During 1967 and 1968 there was a skir-mish for control within Starr s organiza-tion. At that time the organization s keypeople included Houghton Freeman,Greenberg, Edwin Manton, FrancisMulderig, John Roberts, Ernest Stempel,K. K. Tse, Gordon Tweedy, and WilliamYoungman. One faction wanted to sell out,and the other, led by Greenberg, wantedto expand. Starr, who was quite sick andwould die at the end of 1968, is said tohave chosen Greenberg as his successor,although there are those who say thatGreenberg ultimately edged Starr out ofthe August 19, 1968, four months be-fore Starr died, The New York Timescarriedan article, Starr & Co.

9 ElectsLeaders. Below the headline were twophotographs: one of Gordon B. Tweedyand the other of Greenberg. Starr &Co., Inc., international insurance man-agers, announced over the weekend theelection of Gordon B. Tweedy as chair-man and Maurice R. Greenberg as presi-dent, the article stated. Mr. Tweedysucceeds Cornelius V. Starr, who startedin the insurance business in China andwhose subsidiaries are still active in 130countries. Mr. Starr is retiring but will re-REGISTER NOWD avid schiff ,editor ofSchiff s Insurance Observer,will tell you whathe s riled up about these days. Throughout the conference he will, as always,interrogate the speakers and force them to answer brazen June 1994, schiff swrote an admiring profile ofChristopher Davis, portfoliomanager of the Davis Funds,which had $300 million under management.

10 (Chrisis the only money manager we ve ever profiled.) We picked a winner. The DavisFunds now manage $40 billion, and the firm s primary fund has outperformed theS&P 500 during every meaningful period since its inception in 1969. Chris will tellus about the Davis s sixty-year history of investing in the insurance business, andshare his thoughts on the mutual-fund industry, shareholder activism, and years after receiving his in economics from Harvard, 27-year-oldJames Stonebecame the youngest insurance commissioner ( Massachusetts)in history. Four years later, in 1979, Jimmy Carter appointed him as chairmanof the Commodity Futures Trading Commission.