Early last Tuesday morning, John Noel, CEO of Travel Guard, flew to New York from Stevens Point, Wis., a small college town where he had founded his travel insurance company 23 years ago. He sold Travel Guard to AIG in May 2006 but continues to run it, and he was heading to Manhattan to brief his bosses about activity during the eight days that followed AIG's well-publicized meltdown.
He agreed to meet me immediately afterward, and as he approached, I saw that, contrary to my expectation, there was a bounce in his step and a smile on his face.
In the spirit of full disclosure, I will note that John and I have known each other for more than 20 years, and I regard him as a friend as well as a colleague. We had spoken by phone the week before, and there was no bounce in his voice then. He was, he said at the time, having a very bad week.
Stories about AIG's potential collapse had begun appearing on Friday, Sept. 12, and on the following Monday, he said, he began to see a decline in business as well as a clear campaign by competitors to create uncertainty about the financial stability of Travel Guard.
"We started getting calls from consortium partners, who had been getting questions from their agencies," Noel said. "We tried to stress that we were totally walled off from the parent company. AIG is a holding company, and the unit that got it into trouble is separate from the insurance brands.
"The insurance industry is more regulated than even banks," he continued. "Every company is required to have adequate reserve levels set aside that can satisfy all expected claims. In addition, our underwriter has surplus cash, and insurance regulators like to see that amount as high as possible."
Noel opened a sample of a brochure he said was headed to the printer. A pie chart showed that Travel Guard's underwriter, National Union Fire Insurance Co. (another AIG company), had more than $12.1 billion in surplus cash, about $11 billion more than that of the underwriter of Travel Guard's nearest competitor, according to the Ohio Department of Insurance's 2007 annual statement.
The brochure asserted that Travel Guard and its underwriter have four times the surplus of all other major travel insurance companies combined.
But because Travel Guard is the largest travel insurer, I would expect his underwriter to have the largest surplus. I asked if there were any other indicators that took scale into account and that showed proportionate strength in surplus rather than just raw dollars.
"There is something that looks at exactly that," he said, "called a surplus-to-premium ratio. The higher the number of that ratio, the better. For 2007, our ratio was 2.23. Our nearest competitor was at 1.35. The rest are all below 1.0."
Despite being in what he believes to be a strong financial position, Noel saw his business "seriously affected" last week. "We realized on Thursday that there was going to be a significant hit to our revenue line."
Noel saw agents switching to competitors' products. "Frankly, I didn't blame them," he said. "At that point, AIG's name was in every news program, news magazine and newspaper. Agents and tour operators need to be good stewards for their customers, and I respect that."
He launched a campaign to "demonstrate the financial strength of our underwriter compared with that of our competitors. That's the issue on the table."
Noel admitted he was caught flatfooted by his competitors' attacks: "I wasn't prepared for war. But I learned my lesson. They have not heard the last from me."
Noel pointed to a quote in the brochure from Eric Dinallo, the insurance superintendent of New York, where AIG is headquartered: "If someone tells you to replace any policy because an AIG insurance company is in trouble and may not be able to pay your claims, that is not only untrue, it is against the law."
I asked if that meant he intended to pursue legal action against competitors.
"That's a decision AIG and I have to make," he said. "But we are referring examples of truth-twisting and untruths to insurance commissioners throughout the country."
Noel said that business was returning to Travel Guard at a rate he was pleased with.
"Some of our largest accounts had to sort things out between Tuesday and Thursday of last week," he said. "Their CFOs had to review the financial strength of our underwriters. It was the prudent thing to do. At the end of the day, 100% of them decided to stay with us. We lost no large accounts."
There was one thing I noticed about the brochure that Noel had not pointed out: The letters "AIG" had been removed from the Travel Guard logo (the name of the company was changed to AIG Travel Guard after it was bought).
"Do you regret selling your company to AIG?" I asked.
"I have no regrets in selling Travel Guard," he said. "Listen, I have been at the helm since it was founded and intend to stay at the helm."
"Would you buy it back?"
"Travel Guard is not for sale. But would I buy it back? Of course I would. It's the best company out there."
Under the terms of the government's loans to AIG, the company will be required to sell some assets. Is it possible that, at some point, Travel Guard might be one of those companies sold?
"I cannot comment on what assets are for sale or will be sold," he said.
After the conversation, I felt I had a better understanding of the bounce in Noel's step, but I also gathered that, at the end of the day, his company had taken a hit.
Putting my personal sympathy for John aside for a moment, I find this ongoing chain of events to be a fascinating case study of brand strength. One test of the Travel Guard brand will be in the battle played out between it and its competitors. But just as fascinating will be the battle between the perceived positives of the Travel Guard brand and the perceived negatives of AIG. It might be that an intramural test, rather than external competition, will determine Travel Guard's future.
Email Arnie Weissmann at [email protected].