How did AIG combine the use of its location-bound FSAs and nonlocation-

bound FSAs in China? Case 14.1 AIG: filling the institutional voids in China In 1992, US-based American International Group (AIG), one of the world’s largest insurance companies, was given the first license issued to any foreign company to operate in China’s insurance market. Although other foreign companies started to receive licenses in 1995, by 2001 AIG still held 8 out of the 12 licenses granted to non-Chinese firms in the Chinese insurance industry.

Moreover, the other foreign insurers had to set up joint ventures with local Chinese firms and were limited to either life or general insurance. In contrast, AIG was permitted to run wholly owned subsidiaries selling both life and general policies in Shanghai and Guangzhou.27 How did AIG gain this unique position? Why did AIG decide to enter China when the market was still small and highly regulated? How did AIG fill the institutional voids? And how should AIG address the new challenges in the new millennium?