Business as usual in Europe, says Chubb’s Moghrabi

The acquisition of Chubb by ACE at the beginning of this year created the world’s largest publicly traded property and casualty insurance company, trading under the Chubb brand. The group’s total capital position now exceeds $60bn and its assets exceed $160bn. S&P has reaffirmed Chubb’s AA rating and upgraded its outlook from negative to stable. AM Best reaffirmed its A++ rating with a stable outlook and removed its under review designation. The credit analysts are clearly happy that the merger makes sense from a financial perspective. Risk and insurance managers in Europe are, however, obviously keen to find out how the combination of these two companies will benefit them.hideWill the ongoing integration mean a loss of focus in key areas such as claims and risk engineering? Will the expansion of the group mean that legacy ACE’s sharp focus on the critical international programmes segment is loosened? Will the bigger and better capitalised new insurer be more bureaucratic and unwieldy, and thus less innovative, reactive to customer demands and nimble on its feet? Readers of Commercial Risk Europe will also be interested to hear about what progress has been made in their back yard at a more granular level. These important questions are posed to Jeff Moghrabi, divisional president, continental Europe for Chubb. He presents a compelling case for why the new Chubb is good news for its continental European customers. The core reasons he gives are: Complementary businesses: legacy Chubb and legacy ACE were in some ways different animals that had different strengths across the region. The combination of the two companies’ assets is delivering real growth opportunities for its continental European business – such as global programmes for middle-market companies – in a still highly competitive and tough market. Integration locally is taking place as quickly as possible and clarity for staff, brokers and customers is being prioritised. This is quickly becoming a unified business. The new Chubb in Europe is just as focused as before on, and aware of, the need for top-class service in key areas such as global programmes and captives. It is business as usual. A neat fit According to Mr Moghrabi, the basic reason why ACE’s acquisition of Chubb makes sense from a continental European perspective is the complementary nature of the two businesses. “Legacy ACE in continental Europe was very much focused on global large account business, more recently expanding into the upper middle market as these companies expand worldwide. Legacy Chubb in continental Europe was much more focused on the middle market. This means there was little overlap,” explains Mr Moghrabi. Moreover, as discussed during Chubb’s second-quarter results analysts call, there is now a great opportunity to build the business via “cross-selling” and “up-selling” the two legacy operations’ specialist products and services, he adds. “There were areas where legacy Chubb was well known, like financial lines and life sciences cover for middle-market companies. On the other hand, legacy ACE has a very strong presence in areas like construction, cyber, environmental and surety. So we were very much aligned and made some early quick wins as a result. The integration also allowed us to further build our claims operation, based on legacy Chubb’s excellent tradition in that area. In my dreams, the combination could not be better,” explains Mr Moghrabi. The two companies were also well matched from a geographical perspective, says Mr Moghrabi. Legacy ACE had its continental Europe headquarters in France and a very strong position in this key European market. Legacy Chubb was more focused on Germany. The new company is also now stronger in other key markets such as Spain, Italy, the Nordic countries and the Netherlands. Legacy ACE’s recent focus on the upper middle market makes a lot of sense, because the highly competitive market conditions in the large multinational space show no sign of changing. Mr Moghrabi explains legacy ACE’s approach to the upper middle market in continental Europe: “We have been working very closely with local and regional brokers. This has involved training, product development, focus groups and the like. We have kept that approach and have refined it using legacy Chubb’s middle-market model, which has been successful. They are more focused on financial lines and casualty and less on first-party business. We found the legacy Chubb approach in Europe to be exceptional when we opened the hood.” The combination of the two businesses has clearly led to an organisational change that Mr Moghrabi describes as “very exciting”. The Chubb group now has core business segments in the continental European region focusing on global accounts, the middle market, SMEs, high net worth and consumer lines. Each of these segments has its own dedicated resources for key areas such as product design and claims that reflect the different clients’ needs. The bigger countries, such as France and Germany, have dedicated country leaders for many of these segments too. That helps to manage the business more efficiently and continue reflecting local buying habits. The global services operation that helps to manage multinational accounts and global programmes also has strong teams at a continental European level. “There have been plenty of quick wins,” says Mr Moghrabi. Integration moving fast Mr Moghrabi says considerable effort has been put into bringing people together across the region since January. “Customers and brokers expect us to hit the ground running. By the end of April, we had announced approximately 100 senior management positions and by the end of this summer we expect around another 100 positions will have been be confirmed,” he says. To help ensure as smooth a process as possible, the company has adopted a ‘buddy’ system that pairs up individuals from both legacy companies, says Mr Moghrabi. “We have created walkarounds by which people can see and visit each other and discuss up-sell opportunities, cross-sell opportunities and defensive plays. We have encouraged healthy engagement at all levels to get around issues,” he explains. There have also been bigger meetings, such as a three-day event in Lisbon attended by 240 managers from both legacy companies. “Andrew Kendrick, regional president for Europe, and I have carried out a number of ‘town hall’ meetings on a national basis. I ask everyone to think, believe and act as one,” says Mr Moghrabi. The broker and risk manager response to the acquisition and subsequent changes has been overwhelmingly positive, according to Mr Moghrabi. “For the AMRAE meeting in France at the start of February, we managed to bring our presence together and held joint meetings with clients and brokers. We have managed to stay very close to brokers and customers through many regional events and meetings. The one thing we did not want was to be inward looking, so we have worked hard to be very visible with risk managers and brokers and it has worked well,” he says. “We have been telling them about our risk appetite in various areas. One key point that we have made is that this is not a merger of (re)insurance companies, which can create capacity problems. In most cases we can enhance capacity and the market has been impressed by what we can offer as a combined company,” explains Mr Moghrabi. Market opportunities The positive news about the acquisition of Chubb by ACE comes in stark contrast to news emanating from other leading rivals such as AIG and Zurich, as they grapple with difficulties and legacy issues of their own. What impact is this market dislocation having upon the market as a whole and for Chubb in particular? Would the challenges faced by other global insurers and their potential downsizing lead to opportunities or an even more competitive market as they seek to defend their portfolios? “I worry about what we do, not about the competition,” Mr Moghrabi says. “There certainly is a lot of change going on in the market currently but this does not dictate our approach. We are fortunate because the timing looks good for us. But it is difficult to say what market changes mean for continental Europe. Customers tend to be very patient and loyal here.” “Short term, it could lead to some irrational behaviour so we have to stick to our guns, focus on our margins and growth, where the margins justify it,” adds Mr Moghrabi. Service remains key Asked where he sees the best opportunities for growth in the current market Mr Moghrabi identifies the SME segment, followed by the middle market. Additionally, the larger multinational space remains very important for the new Chubb. However, Mr Moghrabi says this segment is more of a “service play”, particularly when it comes to captives. “You have to be able to service captives in this segment. We do not see a dampening in demand for captives because of Solvency II. But the threshold of service expected by customers for captives is definitely rising because of regulatory change. Compliance, transfer of claims payments, understanding of local contracts and wordings all become ever more important,” he explains. Mr Moghrabi believes the number of insurers able to truly service this high value but complex large customer market will become fewer and fewer over time. “You cannot waffle your way around this area. You need the understanding, experience and technical skills. The compliance needs are so high that it takes big investment to get this right,” he says. The big insurers that are serious about such clients have created dedicated IT platforms to help manage complex, cross-border programmes. These are designed to help customers, brokers and insurers more effectively and transparently track and monitor premium flows and activity. Legacy ACE invested in the development of its Worldview platform. Mr Moghrabi says this has been a big success and really helps Chubb to bring broader and deeper products and services to bear in the holistic manner that customers seek. “We are constantly enhancing Worldview and broadening our global programme offerings,” he explains. “The platform enables us to offer all lines – property, D&O, accident and health and so on – through the same team. Customers want to deal with the same individual and team for their programme. But one individual cannot be expected to know everything. The platform helps us to deliver what the customer wants in a consistent manner, managed by the same team [that] they know and trust,” says Mr Moghrabi. One interesting new area of development for the new Chubb is the chance to further expand its global programme offering for middle-market companies. “We now have the ability to manage US employers’ liability and workers’ compensation business for the middle market in continental Europe. We have found this to be a compelling proposition. This is a very exciting beginning,” says Mr Moghrabi. Overall, Chubb is seeing strong growth in global programmes business, predominantly driven by middle-market customers. “This will continue because there is a rising recognition among customers of the value global programmes bring to cross-border exposures,” says Mr Moghrabi. Employee benefits Another growth area for Chubb is the inclusion of accident and health business within global programmes. Mr Moghrabi says customers are becoming more aware of the sense in including group personal accident and business travel risks – using the global programme for all exposures, not just traditional non-life lines. “This is a journey that started five to six years ago. It is the best choice to give customers global solutions. Our accident and health colleagues quickly worked out that this made sense and the same occurred with international travel,” says Mr Moghrabi. Support for Ferma As has been well documented, the whole area of global programmes is bedevilled with complications and barriers, not least in the areas of tax and regulation. Mr Moghrabi is naturally a supporter of the initiatives by risk management associations such as the Federation of European Risk Management Associations [Ferma] and the International Federation of Risk and Insurance Management Associations [Ifrima], to lobby the insurance regulatory community, represented by the International Association of Insurance Supervisors [IAIA], to work out a more consistent approach from national supervisors. “If guidelines could be developed then that would be welcome. It probably will not be the Holy Grail but it would be a good start point,” says Mr Moghrabi. Standing out from the crowd Mr Moghrabi believes the future for international insurers such as Chubb is to be more “distinctive” in the services they offer customers and brokers. The level of service on offer for customers will clearly depend upon the scale and complexity of the exposures and programmes in question. Insurers will therefore need to be very clear about what they have to offer in lines, segments and territories. This is a management challenge for all insurers, not just the new Chubb. “No one should say ‘we just want to be very big’. It is just not enough to approach this business on a balance sheet basis because it is just too complex – and service matters. No one can be mediocre in any part of the business. No one can afford to exist on combined ratios at 100%. It is about professional underwriting, claims and all behind that and getting the pricing right. This is the core,” explains Mr Moghrabi. The new Chubb approach is the same as legacy ACE’s – to empower those in the field to make the right decisions and thus meet customer expectations and the company’s targets at the same time. “This will not change with the acquisition. A lot of insurers look at things in very different ways; we cannot be complacent and constantly have to ask ourselves – are we getting it right in continental Europe? There are no ivory towers here. People at all levels will dive into the business and challenge us and give advice. This is healthy and is especially important as you get bigger,” explains Mr Moghrabi. Cyber market coming of age Jeff moghrabi, divisional president of continental Europe for Chubb, is well aware of criticism from risk and insurance managers about the supposed inability of the insurance industry to react to their fast-changing needs in critical areas such as cyber. However, he believes that legacy ACE had a good track record in this area, particularly cyber, and that the new Chubb will be even stronger. The key to success is to work closely with customers and their brokers to ensure that the coverage fits requirements, whether embedded within existing lines or standalone. “We have been covering cyber since it first emerged as a serious risk. Legacy ACE was very strong in the US for third-party business and in Europe they were strong in first-party business. A few years ago, we created a global practice to ensure a consistent approach and this has worked well for us, our customers and brokers,” explains Mr Moghrabi. He has been “very pleased” by the progress made by Chubb in this key area, especially in the multinational and upper middle-market spaces. One of the biggest challenges for cyber is the fact that many risk and insurance managers are not convinced that this is a separate line of business that should bring a significant extra cost. They say they would rather see cyber cover included within existing programmes. Mr Moghrabi says he understands that perspective and that legacy ACE was working hard with broker partners to help tackle this issue – and now the new Chubb is doing the same. “The question is how you tie it all up, all the coverages in one seamless programme. We have worked hard to embed this with local wordings and the like as much as possible. For us, cyber can be embedded in any existing coverage. The real game is how you embed this explicitly and transparently,” he explains. Some market experts have suggested that cyber could be one area in which risk managers tap the abundant money currently on offer from the capital markets to arrange innovative solutions via their captives and thus, above their own healthy retentions. This sounds plausible in theory but may not be so easy to achieve in practice, especially given the potentially catastrophic nature of the risk, suggests Mr Moghrabi. “I do not see a silver bullet solution for cyber, such as through alternative risk transfer and the like. Really it is about doing your homework, whether on a standalone basis or tied into existing coverage. But I believe we are making good progress – watch this space,” he says.

Business as usual in Europe, says Chubb’s Moghrabi

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