AIG Was King of Innovation During the Hank Greenberg Eras

Finite insurance is an insurance contract lasting several years in which the insured pays a premium into a fund managed by the insurer. If losses are low at the end of the term, the insured gets a refund. If losses exceed the limit, the insured pays an additional premium or the deal ends. In essence, it is a combination of self insurance and capped, limited risk transfer.

AIG wrote a finite risk policy for Phil Ritson, a well known South African golf professional, instructor, and course designer who had served as Golf Director at Walt Disney World. In the mid-1990s, Mr. Ritson set out to build what he envisioned as the most beautiful public golf course in the United States: Orange County National Golf Center and Lodge, a few miles west of Orlando, Florida.

The project was ambitious. Situated on 911 acres of leased land, it ultimately included two 18-hole golf courses, Panther Lake and Crooked Cat, a 9-hole course, practice green, a massive circular driving range (the size and depth of which were huge), clubhouse, and a teaching academy.

Ritson was a great developer and golf instructor, but not as strong in construction and cost management. 

He had negotiated favorable long-term lease terms with Orange County and the City of Orlando. He also secured valuable water rights and installed an irrigation system that drew water from the lagoons on the property, reclaiming water for irrigation at no cost.

In 1998, after completion of the first 18-hole Panther Lake course, Ritson ran out of financing to complete the project and called on AIG. We stepped in with financing in exchange for a majority ownership interest in the property. The project was fully built and opened in 1999.

AIG did not want to be in the golf course ownership and management business and hired CB Richard Ellis (“CBRE”) to market and sell the asset to Celebration Golf Management at a time when disposition of these kinds of assets was not easy, especially when the property was not owned but subject to a ground lease. Before the sale in 2012, the asset was transferred to and managed by our internal real estate group, who were quite talented.

When the original claim was made by Mr. Ritson, we had our internal claims and surety department go back through all the accounts to determine what remained unpaid, perform a cost-to-complete analysis, and oversee the completion of construction while confirming the ground lease and riparian rights agreement with the City and County.

This is an example of an insurance claim evolving into an asset recapitalization and acquisition, followed by approximately thirteen (13) years of asset management and the eventual disposition of an otherwise challenging asset to sell. 

It goes to show you the resources, creativity, and lightning-quick decision making of Hank Greenberg.

When Ritson called on us because he did not have the financing to complete the project, it was clear that we faced a serious underwriting problem. The risk had been written with no project master financial guarantees, investor guarantees, collateral, or a premium financing option if additional retrospective premium was owed under a finite configuration.

I knew when I told Hank about this matter he would be extremely upset about the underwriting due diligence–particularly the lack of investor financial guarantees and a premium financing option in the event of a claim. 

So, I told Hank that Ritson was a solvency risk and that the entire project was at risk. I also told him the positives: the courses were at a high elevation in Florida and adjacent to Lake Hancock, we had free access to reclaimed irrigation water from the City and County, and a long-term property lease over the 911 acres.

Finally, I told Hank we could walk away from the finite deal because Ritson had no money to pay the additional premium and would be unable to get premium financing because of his inability to pay back any financing obligation.

I instead proposed converting the finite coverage into a surety-type configuration, under which I could let Hank know how much was still owed on work completed, calculate the cost to finish the project, and decide whether there was enough value to justify stepping in.

I told Hank, “Let me go down there, meet Ritson and the city and county officials, see what the project looks like, and find out whether they are committed to it.”

Ritson was a very personable man, and the local officials embraced me with open arms. The property was surrounded by thousands of acres of orange groves with convenient access to the airport, and sat in an elevated area of Florida. The location had tremendous potential, as did the golf complex itself, much of which had already been completed.

Hank acted decisively and immediately, saying something like: 

Mike, we will not walk away from this project. Work with our internal real estate people, with the city and the county, and with Phil Ritson. We will convert this finite risk claim into a surety-type construction completion operation in exchange for ownership of the project. After it is built, our real estate department will run the golf operation.

The decision was especially unusual because, in 1999, there was no readily marketable valuation for a golf course investment of this type where the underlying land was leased rather than owned.

Mr. Ritson agreed to be an employee of the asset, preserving his legacy, while AIG became the owner and operator of what became one of the biggest and most impressive public golf course facilities in the world.

How many CEOs could look at a finite transaction gone bad, with insolvency written all over it, and then convert it from a claim workout to an asset ownership investment, turn it profitable, and ultimately sell it twelve (12) years later after it had become such an important part of Orange County and Orlando. 

Converting lemons into lemonade–and loss risk into opportunity–was a trademark of Hank.

When complex risks demand strategic foresight rather than standard playbooks, Mitrovic Consulting delivers. Reach out to Mitrovic Consulting today to explore how you can turn potential liabilities into high value opportunities.