Interview with Evan Greenberg

ACE: A company with global drive and capabilities

Interview with Evan Greenberg
With over 25 years in business, ACE concentrates half of its operations in the United States and North America, but its ambition is to reach down into South America and East toward Southeast Asia even as it continues to eye opportunities across Europe.

Chairman and CEO Evan Greenberg defines ACE as an optimistic organization which is uniquely positioned to make the most of growth opportunities.

Commitment and passion for work, technical excellence and a flat structure which entails freedom and accountability for its workers; these are but a few trumps that give ACE a definite edge, Greenberg declares.

A strong balance sheet, a sophisticated offer of more than 200 products and services, a local presence in over 50 countries (employing more than 16,000 people) and a fully-integrated corporate network, supported by the most innovative technological tools, put ACE at the top of the list of all the companies that answer their global calling with a matching capability.

ACE marked 25 years of Insuring Progress in 2010-2011. What do you consider are the company's main achievements over this quarter of a century of trading?
ACE started in 1985 – just over 25 years ago – as a result of a liability crisis in the U.S. Approximately 34 U.S. corporations that needed excess liability insurance got together and agreed to form an insurance company quickly.
To do that, they decided to go offshore; so they incorporated the firm in the Cayman Islands and, for risk management purposes, they domiciled the head office and principal operations in Bermuda.
Back then, ACE was a single-product, single-location company. In the subsequent 25+ years we have grown to be one of the largest multi-line global insurers operating today. Half of our business is transacted in United States and North America, and the other half is in over 50 other countries and territories around the world. We operate in all of the important and principal markets in Latin America, in Asia, and in Europe. I think that’s quite an achievement out of nowhere, in just over a 25-year period.

ACE 's operations in Latin America have realized significant growth. What are your plans and aspirations to sustain success in the region?
While Brazil, in terms of the size of opportunity, represents the greatest opportunity today in the region, and certainly casts a big shadow, clearly we see and are very optimistic about the opportunities in many other countries in the region, including Chile and the Andean countries of Peru and Colombia. Argentina is also doing very well for us. Turning to Mexico, it is also a significant insurance market for ACE and its economy is strong.
However, Mexico doesn’t enjoy the same economic and regulatory environment that has propelled Brazil, and that will weigh on the country’s growth for a period of time.
We are heavily invested in the region, and are positioned to take advantage of the themes that we know are propelling growth: a rising middle class, fast developing economies which require infrastructure and energy to continue to propel their growth, and also to a degree, smaller government - that is, getting out of the way to support the growth of private sector business, from small businesses to large multinationals.
There is a lot of talent and a lot of capability in the region, particularly in a country like Brazil, which frankly is almost a continent unto itself. Its size, its scale, its diversity of people, customs, and culture among the regions of the country are extraordinary, and we have a very strong focus on Brazil and a very good sense in our minds of how to develop and participate as good local corporate citizens and support the growth of the country and the economy.
No economy develops without a strong insurance industry and we’re participating in that. We are well placed throughout the country, as we are throughout the region. I am very optimistic about the prospects – in Brazil, in Mexico, but, as I say, in Latin America generally.

Brazil, having finally wound down the IRB (Reinsurance Institute of Brazil ) is, however, still involved in the private sector insurance industry. Do you see this as a hindrance to ACE 's long-term success in Brazil?
I think it’s a step backwards for the country - it’s regressionary. I don’t worry about it for ACE.
But I don’t think it’s in the country’s interest to disadvantage the private sector in support of a government-sponsored cartel, or a local cartel-controlled company, which is fundamentally what the IRB is. I think they are gaming it for their own interests, and what it will do is inhibit the growth of the industry because it will inhibit the access to global capital, which means that you’re inhibiting access to global insurance capacity.
If you look at the infrastructure requirements of the country, whether it’s driven by the World Cup, or the Olympics, or the pre-salt energy development projects, or ports, or communications or roads, the need for capacity is enormous.
There is also the need for access to insurance in an efficient manner, and that means the more efficient the capital access, the cheaper the price. I think this intervention by the government to unduly support and protect the interest of a local company at the expense of market efficiency will hurt Brazilian business, and I think that is misguided and sends the wrong signal.
Brazil also requires free and open markets around the world to export their products as their companies become more competitive. And even a free and open market that will accept the IRB, which wants to now do business off-shore – well, no one is going to react favourably to all of that if Brazil practices protectionism. I might add that Brazil is not alone – most countries around the world, particularly in this environment, are behaving on the margin in protectionist ways, and I think that is misguided and against their own interests and the global trading system.

What other parts of the world represent opportunities for ACE ?
We are a very optimistic organization and by nature I am an optimistic individual. I see tremendous opportunity for our company in many places – in both Asia and Latin America because of the demographics and the economic trends, the financial and political evolution that those regions have gone through, that set the business environment over the long term.
And while there may be some volatility, there is tremendous growth from a rising middle class and a vibrant business community, and economies generally.
So, throughout Southeast Asia, throughout North Asia, we see significant opportunity. And there are significant opportunities throughout Latin America and the Middle East as well. While the Middle East is going through a period of uncertainty, we see and are capitalizing on opportunities in the region.
And, I might add, in the United States, as well as in Europe, we see opportunities for expansion for our company.
So, we’re well-placed around the world to take advantage of these growth opportunities, and we are taking advantage of strengths, but we also see opportunities for growth by taking advantage of weakness and stress. While on one hand that creates risk, on the other hand that creates opportunity.

How do you see the relationship between ACE and the major brokers evolving over the next five years?
ACE is a brokerage company. Brokerage is one of our principal means of distribution. We rely on, and are supportive of, a strong brokerage industry. Marsh, Aon, and Willis are the three largest brokers, and we support and encourage their growth, and are pleased when we see them going from strength to strength.
But at the same time, we support a diverse distribution industry, as it requires more than three brokers. So, as the brokerage community is our chosen means of distribution, we support the continued growth of the brokerage industry in general, on a global basis.

Regarding the many broker networks, do you see value in working with them strategically, or on a broker-by-broker basis in each country where they operate?
No, it’s both. They are and they have been very important. What these networks do is allow smaller, local brokers to compete against larger brokers, particularly when it comes to transnational business.
Whether these networks are multi-national or regional, they need to follow their customers. As the world economy globalizes there is no putting that back in the bottle – this is a trend that will continue, though not without its trouble spots.
Brokers have to be able to serve their clients, and to serve your clients you have to be able to follow them across borders, and we see most businesses, small or large, have their fortunes tied to being able to do business outside their home country.
Because they’re going to go where opportunity is, broker networks are an answer to that for smaller brokers and we encourage and support that development.

The scale and complexity of many multinational programs is something that concerns many global corporations. How is ACE responding to the needs of this strategic market segment?
Well, we’re one of the few global property and casualty insurers operating in the world today. We are on the ground in 53 countries with local operations and we can serve the needs of customers whether they're local or multinational.
We have the balance sheet, the services, the risk appetite, the sophistication – and more importantly, the integrated corporate culture and network, enabled by technology – to serve the needs of multinational companies around the world, both in risk transfer and risk management. We have the product appetite and breadth to meet their requirements, and there are very few companies in the world that have that capability – I can count them on one hand. Some of them do it well, and some of them don’t, and I put our company right at the top of the list of those that do it well.

How would you define the corporate culture at ACE ?
Every company has to have a unique and distinct culture if they want to be distinct, and we spend quite a bit of time thinking about culture. A company is a village, and what defines and sets the sense of values and commonality of interest within ACE are the terms that define a corporate culture. And in our company, what comes to mind is "optimism”. We are optimistic, it’s an optimistic culture.
We have a flat management structure, so communications within the organization are very, very good. Accountability is critical; while part of our culture is to be respectful and decent to each other, at the same time this is a frank organization and a frank culture. And while we disseminate a lot of responsibility, it is a culture of accountability.
We’re well integrated as an organization, and we cross cultures around the world in many countries. We are passionate, we are driven and we are a highly disciplined and focused organization.

What talents do you look for in your senior staff?
In my senior staff, I look for people who behave like owner-managers. In the way they think and perform, they own this business. They have technical excellence in their area of responsibility, they have great organizational skills, they have good leadership skills, they are able to inspire and communicate – because you have to get it done through others – and they are execution oriented.

Does ACE prefer to promote from within the organization?
Yes, and yes. When you join ACE, you haven’t taken a job, you’ve taken on a career. You’re on a mission to be part of a team that is driven to create one of the world’s great organizations.

Why the insurance industry as your career choice? What drives you to succeed in this business?
Well, it didn’t take a lot of imagination for me to enter the insurance industry. I was raised with insurance in my blood; it was around me. My dad obviously looms large in the contributions that he has made to our industry, globally.
I think probably no single individual has made greater contributions to the industry than he has, and I was raised from childhood aware of the insurance business. Sometimes we joke that I had my own P&L when I was 7.
What drives me to succeed is that I behave as an owner-manager.
This is my medium of creativity, this is how I express myself. I want to belong and be part of something that is bigger than I am and to make a contribution to society. And I think that’s true for all of us – we want to live our life with meaning, and we want to believe that the world is a little better place because we were here. That inspires me every day and I am driven to want to build a great organization that will endure for generations to come. That’s the mission that I’m on.

What are the three most valuable lessons you have learned about running an insurance company?
Number one, everyone has to find their own way. The first thing I tell anybody is to be yourself.
You have to be who you are. You’re never going to fool anyone. After that, I think that you have to have a real clarity of vision and be able to communicate, translating that into strategy and an agenda of priorities, and be very clear about the priorities.
The organization only has so much bandwidth to focus on what is most important to execute. People should understand why they are executing and that’s communication and context of strategy.
Number two, we’re in the business of risk, and your balance sheet is the most important asset next to people. Your ability to manage and protect that balance sheet is everything. Hand in glove with that is "exposure management” – don’t manage the premium, manage the exposure. And, always lead from the front. The CEO’s position is a great asset to the organization that cannot be wasted one minute out of 365 days a year.

What is your view of the insurance market's performance during this prolonged period of financial uncertainty and turmoil?
The insurance industry has shown remarkable stability during and following the financial crisis, in contrast to the rest of the financial services industry.
Even in this moment of volatility, our industry has been remarkably stable and has continued to serve society and its shareholders and its policyholders, I think, in an admirable fashion.
The industry should be proud of that. The balance sheet of the industry overall is in good shape and I think the industry’s ability to deliver its product and service is quite efficient. At the same time, the industry’s focus on return on capital and a proper risk-adjusted return on capital is wanting, and that is because we are in a cyclical business and many organizations, regardless of their words, show by their actions that they chase market share at the expense of an adequate return.

2011 was one of the worst years on record for catastrophic events. Do you believe that the insurance industry has responded in a positive way? What else can it do in the future to address continued catastrophic events?
I think the industry in the last 18 months has experienced significant catastrophe loss activity, and has acquitted itself extremely well. It has met all its obligations in a timely and fair process. But the industry can only take risk to the extent of its balance sheet. This issue of catastrophe risk goes well beyond the insurance industry – it’s a political and social issue. Regulators and politicians must wrestle with the fact that insurance is only part of the solution. We have to be able to charge the proper risk-adjusted rate.
Inadequate building codes and allowing people to build in areas that are terribly catastrophe prone – without the recognition of the consequences – represents a tremendous cost to society. That’s what I worry about.
And, that there is always a populist movement to keep insurers from charging the proper rate, which means we’re subsidizing bad behavior. Not addressing the proper building codes because of cost is subsidizing bad behavior. We are allowing over-concentration of values to develop in catastrophe prone areas, and I worry about the social implications of that in the future.

How has greater oversight by insurance regulatory bodies around the world affected the way in which global insurance programs are being structured?
I think many of the changes taking place that impact the insurance industry are ill thought out and it is not clear to me what problem they are trying to address.
While the modernization of insurance regulation and oversight is important, the principal goal of regulators should be to protect policyholders’ interests, and, given the performance of the insurance industry during the financial crisis, it is not clear to me how all of the regulatory activity, particularly that which is taking place in Europe, will make the industry better.
There is too much bureaucracy, too much "regulation on top of regulation", and I think it represents an unnecessary tax on the industry. Ironically, all of this will only create more inefficiency without necessarily improving insurance company performance.

Speaking of regulatory issues, what is your view of the regulatory changes taking place in both the U.S and the E.U. and their impact on insurance companies'’ ability to operate?
In each region of the world, and in each country – as I don’t believe there is one size that fits all – I believe that there ought to be uniformity of outcomes, i.e., protect the interest of policyholders, so that when policyholders buy a policy from an insurer, they ought to be able to rely on the ability of the insurer to meet the obligations under that policy. But, there is not one best way of regulating for that certainty.
Each country and each region is informed by its own culture and its own history. Europe has a more socialist and government-oriented approach. The United States has a more private sector-oriented approach, which is different. And in crafting regulation each is informed by its own environment. The United States insurance regulation is designed simply to protect the interest of policyholders.
All other constituents take the risk of success or failure, which is part of a free market and capitalist environment. In Europe, the regulatory environment surrounding insurance, particularly under Solvency II now, is meant to protect the interests of more than the policyholders – it’s meant to protect the interests of policyholders, bondholders, shareholders, and employees in a system that is intended to have zero failure. In my judgment, if you remove the risk of failure, you severely limit the risk to succeed.
I respect the European wisdom and right to develop their own system, and ACE is a corporate citizen in Europe and we’ll fully comply. But at the same time I recognize the wisdom of the U.S. system. And there are systems beyond the two of those. A global system shouldn’t have a uniform set of rules and regulations that are imposed on all; no, it should focus on minimum standards, and should be about minimum standards of outcomes which protect policyholders’ interests. When one jurisdiction can meet that minimum standard then it ought to be recognized by all others.

Given the current status of the insurance market and the global financial market, what is your viewhow ACE will approach the market? Is product innovation a part of ACE 's future or is it more a concentration on underwriting fundamentals?
I am tremendously optimistic about the future of my company. And it is "steady as she goes". Insurance is a long-term business, and building a successful insurance company, in my judgment, requires patience in strategy and impatience in execution.
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