Greenberg’s eye firmly on the ball

One could be forgiven for assuming that as the complex merger and integration of the two legacy businesses continues, eyes at the new insurer operating under the Chubb brand would not be quite as firmly fixed on the ball as in the past. As a result, customers and brokers would inevitably suffer a drop in service as internal matters are sorted out, the argument goes. Likewise, one could assume that the financial results reported during such a period of tumultuous change would suffer as a result. This could not be further from the truth, according to Mr Greenberg, as he reported Chubb’s second-quarter and half-year results. Both net profit and premium volumes were down but this was not because staff had lost focus, he noted. This was because the group, and the insurance industry as a whole, suffered from higher levels of catastrophe losses in the second quarter and Chubb continued to turn away business that was not adequately priced in the continued worldwide soft market.hideMr Greenberg stressed that Chubb’s underlying combined ratio was healthy and that the costs related to the merger and integration were as expected. Perhaps most importantly, Mr Greenberg revealed that cross-sales resulting from the merger added some 1.5% to total premiums in the quarter. Chubb’s net profit for the second quarter was $726m, compared with $942m for the same period last year at legacy Chubb and legacy ACE. Operating income was just over $1bn compared with $788m last year. For the six months ended 30 June, net profit was $1.2bn – compared with $1.6bn for the first half of 2015. Operating income was just over $2bn, compared with $1.5bn for the same period last year. Mr Greenberg said that Chubb had enjoyed a “pretty good” quarter, despite the higher level of global insured catastrophe events. Despite the losses, Chubb’s property and casualty (P&C) combined ratio for the quarter was pretty healthy at 91.2%. If purchase accounting adjustments were excluded, the combined ratio would have been 90.2%. Mr Greenberg said this was a “really good” result, particularly as it included some $311m in post-tax catastrophe losses from a broad range of events globally. Excluding catastrophe losses, Chubb’s P&C current accident year combined ratio was 88.9% for the second quarter of this year. This compares to 88% for the second quarter of last year if the two legacy companies’ results are combined. Mr Greenberg reported that both its US and international insurance operations had “very good” calendar and current accident year results. These figures were not masked by extraordinary reserve releases. On an ‘as if’ basis, positive pre-tax prior period reserve development of $301m was down $35m compared with last year. Total P&C net premiums declined 4.7% on an as if basis. Excluding a one-time benefit from the portfolio transfer of Fireman’s Fund business last year, total P&C net premiums were down about 1.5%. Mr Greenberg reported that US commercial P&C net premiums were “flat”. International retail P&C was up 1.5%, international wholesale P&C was down 7% and global reinsurance down 13%. Mr Greenberg said he was satisfied with the reduction in premium volumes, given continued soft market conditions and the group’s strategic decision to not chase business at unsatisfactory prices. “When we were planning the merger, we contemplated underwriting actions in certain portfolios not meeting our standards or risk appetite, [which] would reduce our net premium,” he said. Mr Greenberg added that these underwriting actions, which include either cancelling or reinsuring that business, will improve Chubb’s risk-reward profile. He also promised analysts that this strategy would continue this year and into 2017. The “flipside of the coin”, according to Mr Greenberg, is that the strength of the combined company, including cross-selling and the introduction of the new combined group’s total product portfolio to an expanded distribution base, is “beginning to show”. This contributed about 1.5 points of net premium growth in the quarter, or about 13% of Chubb’s US retail commercial P&C new business growth, he said. Mr Greenberg gave some more colour about this important aspect of the acquisition and integration. “While early days, we are beginning to see tangible revenue growth as a result of the power of the new Chubb. We have very focused, deliberate efforts underway around the globe to promote both account cross-selling and product introduction to expanded distribution,” he explained. “We have specific targets and objectives, internal programmes to educate colleagues about each other’s products and services, and promotional campaigns. Some areas where you’ve seen early cross-selling success include environmental, healthcare, professional lines, workers’ comp, specialty casualty, transportation and agriculture, to name a few,” continued Mr Greenberg. Another very important area for customers is, of course, service. Analysts and investors like to hear that mergers and acquisitions (M&A) lead to decent cost savings and thus higher margins. However, customers worry that these gains will simply deliver a lower level of service, at least in the short term. Mr Greenberg was clearly keen to reassure customers and investors that savings can be made without negatively impacting service. “We remain on track with all of our integration plans and activities. We are meeting our milestones in terms of integration savings, support function expectations, underwriting and claims initiatives, and growth initiatives,” he said. “Our outstanding claims and risk engineering organisation has not missed a beat during the integration, especially in light of the increased level of cats and continues to distinguish the firm in serving both our commercial and personal policyholders,” continued Mr Greenberg. Another danger during any M&A is that staff tend to spend so much time worrying about their jobs and fighting perceived rivals for position that production and service suffers. Mr Greenberg said this is not the case at Chubb. “Our people are continuing to knit themselves together and coalesce into one unified culture. In fact, most of our people are spending far less time on integration-related process and procedures, and more and more of their time focused on serving their customers and distribution partners,” he told analysts. Cross-sales: Proof is in the pudding Chubb’s senior management provided analysts with some real cases of post-merger cross-sales during the firm’s recent results call. Everyone talks about the positive benefits of cross-selling and even up-selling as a result of mergers and acquisitions, but this is often hard to see from the outside. Evan Greenberg and his management team at Chubb are more than aware of the need to back up fine talk with real evidence if they are to convince analysts, investors and customers that the acquisition of Chubb by ACE really makes sense. During Mr Greenberg’s call with analysts to announce the group’s second quarter results, one analyst, Sarah DeWitt of JPMorgan Securities, asked for further detail of this supposed cross and up-selling benefit. Mr Greenberg invited his fellow senior managers to provide the hard evidence. John Keogh, executive vice-chairman and COO at Chubb, said there was a “bunch” of examples he could give. One was a piece of business the company wrote during the second quarter, which was worth a couple of million dollars in premium. This was based on a relationship that legacy Chubb enjoyed. Mr Keogh explained this “very strong” relationship went back for a number of years through Chubb’s position as a lead directors’ and officers’ and excess liability carrier. The client is a large nursing home chain. Legacy Chubb had chosen to not underwrite this chain’s medical liability business over the years because it was not one of the company’s specialties. However, legacy ACE had been active in that business for a long time and had performed well in the line. “Knowing the client well, knowing the producer well, we went and had a conversation about their coverage for medical liability. Given the relationship they enjoyed with legacy Chubb, they were more than happy to talk to us about that and that resulted in us writing medical liability for a couple of million dollars of premium, which I think we probably would not have written but for the two companies coming together,” explained Mr Keogh. John Joseph Lupica, vice-chairman and president, North America major accounts and specialty insurance at Chubb, said that from a branch and regional office standpoint it is “awesome” to see the new company come together. He explained that Chubb has some 48 branches that are “really learning” from one another and the momentum is “just terrific”. Mr Lupica said Chubb has policies in place with “dual declination”. This means that underwriters are able to see each other’s opportunities and means they all know each other’s appetite. He gave the example of a large risk management account, which emanated from a satellite office produced via an agent that was not on the legacy ACE producer list. This agent had a house account that was introduced to Chubb’s risk management and ESIS claims team. Mr Lupica said the new Chubb group took a small, single specialty line that legacy Chubb had written and turned that into a $6.5m relationship by being able to write workers’ compensation, general liability and auto, all on a cashflow basis. “Again, from an office we didn’t have presence in and an agent we didn’t have licensed, just terrific,” commented Mr Lupica. Paul Krump, executive vice-president, North America commercial and personal insurance at Chubb, stressed the importance of individuals spending time together and understanding each other’s “appetite”. “Evan [Greenberg] calls it knitting the organisation together; we’re seeing it every day in the middle market lots of opportunities,” he said.

Greenberg’s eye firmly on the ball

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