Opportunity knocks – Joseph Clabby, ACE

Adrian Ladbury (AL): What kind of a year was it for ACE Europe in 2012? Joseph Clabby (JC): We had another good year in 2012. When I first came over to Europe to manage the continental Europe region it was clear to me, given the state of the economy and the market, that growth would be a challenge. But we looked closely at where the opportunities were and, over the last three years, we have consistently grown in most markets. 2012 was no exception and key markets such as France, Italy and Benelux performed particularly well for us last year. Also it’s important to remember that emerging markets such as Russia, Poland and Turkey are part of our continental Europe region and we saw strong momentum in these countries once again. So, overall I would say that it was a good solid year for ACE in continental Europe both in terms of growth and profitability and we are very proud of that. AL: But the market remains very competitive for larger industrial and corporate business in Europe. How do you plan to maintain that growth—where are you focused on and where are you pulling back?hideJC: We really did not pull back in any significant areas last year to be honest. But we have done a considerable amount of work over the last three years, reassessing our portfolios to identify the best geographies and lines to grow. Although we are very focused on the bottom line and profitability, we still very much want to be a growth business where it makes financial sense. So, having identified eight core strategically important business lines for ACE, we grew in seven of these last year. Some of our areas of focus going forward include environmental risk (EIL), cyber risk and professional indemnity in certain markets. Accident and Health (A&H) is another area where we have a growth strategy and believe there are opportunities in continental Europe. Then surety is a very successful line of business for us in the Americas and we are now launching our capabilities here in continental Europe in the same way. Given all of the pressures facing European banks to manage their capital, we see considerable opportunities in this line of business. We also see opportunities in niche areas of casualty like product recall and life sciences. So as far as I am concerned, the glass remains half full. AL: But how can you grow profitably in such a competitive market? JC: We do a significant amount of data mining within each of our key portfolios. This is very important work that also helps us identify where growth makes sense. Another key element is to have a sales and distribution model that is tightly aligned with our underwriting strategy. In particular, we have worked hard over the past few years to articulate our risk appetite in a very clear way to brokers and clients. This requires good communication both internally and externally. AL: Do you need to be a certain size to make this work so that you gain efficiencies in areas such as distribution and have access to the business through a wide network of offices? ACE’s acquisition of Cigna in 1999 presumably gave you the footprint you needed to follow this strategy? JC: You do need a footprint and the acquisition of the Cigna business has proven very valuable over time. Of course, growth is a journey and the ACE philosophy is very much to build our businesses organically and patiently over time, in areas that we know and understand well—and if we don’t understand them, then we don’t even try. It is always our approach to capitalise on the inherent value that our local expertise in 19 countries in continental Europe brings us. But being a global company also gives us the flexibility to move people around where we need them. For example, we brought Tim O’Donnell and Connie Germano over to Europe from the US, experts in different areas of liability who can now apply that experience to European clients whether their risks are located here or in the US, or in both markets. We really work hard to think and act globally and our structure enables us to foster the cross-pollination of knowledge and skills. AL: Where do you think there are coverage gaps that need to be filled and how can they be filled? Do you think risk managers in Germany and elsewhere are fair when they accuse the insurers of demanding too much information to help them tackle emerging risks? JC: This point comes up a lot and I understand why. There are two different timelines in a sense. First, as an industry we need to embrace new risks. We have done a good job of that in the past but perhaps we need to move faster today in some areas. With cyber risk, for example, ACE is taking consistent steps forward. First party coverage is a staple of ours already but now we also offer third party cover in France already and will roll that out country by country, starting with the Benelux region and Germany. The flip side of this is that, as an industry, we also have to be cautious and understand what we are underwriting. Some would prefer us to move more quickly, but we still have to be sure that the solution works—both for us and importantly the client. So at ACE, while we will embrace new risks, we will not get ahead of ourselves. Building expertise takes time. Take D&O for example: this was once a specialty line. It has now evolved into a standard cover but it was not achieved overnight. AL: Why is the market so stubbornly soft in terms of pricing? Investment returns remain poor and surely combined ratios are moving towards a level that demands action—some of your major rivals say they are seeing signs of a hardening. Do you see a hardening or is capacity just too high and still hungry? JC: We haven’t seen what I’d describe as a hardening to be honest. Maybe in specific lines in specific countries there has been some improvement. We’ve clearly seen some impact in property lines, particularly those accounts exposed to the recent catastrophes. But these are the exceptions and not the rule. At ACE, we are therefore simply planning for business as usual and for a competitive environment for the foreseeable future—and we’re okay with that because our business is still growing profitably. AL: This seems to defy logic and history—why is the market so stubbornly soft? JC: You have to give the industry credit for how it has stepped up to the recent mega-catastrophes: we’ve had some major hits in the last couple of years worldwide and the industry has responded well. But there is still an abundance of capital and the industry has been very resilient in this respect. We are also still operating in a very low interest rate environment and it’s worrying when you see industry returns on capital in the single digits, but with our focus on underwriting discipline we have set up our business in Europe to have the best chance of performing well in this environment. AL: Will empty reserves buckets be the determining factor? Releases are still occurring in some cases but we are also seeing reserve additions notably by your own company, AIG and Zurich. Is this the start of a trend that will help force a change in the market? JC: The industry certainly needs to manage its reserving very carefully at this point in the cycle. At ACE, we have a very strong focus on accident year results and we pay very close attention to this in terms of how we manage the business. This is such a core part of what we do and we have a very robust process in place. This is part of our DNA as a company. AL: What about global programmes? This is such an important part of the business as European companies continue to expand globally in search of growth. What are you doing to make sure that you meet this fast-evolving demand? JC: We have invested in a big way in our multinational infrastructure and our global network and it makes good strategic sense. This is a difficult economy currently and I see a duality evolving in Europe: while some domestically-focused firms are struggling, companies that are investing to expand globally are generally doing well. These good, strong companies are the ones that make sense for us to partner and grow with. This business is all about service and claims, quite frankly. The differentiator for any insurer is its ability to really effectively service its business locally and worldwide. We have invested heavily in this to be best in class and we strive to improve further every year. Importantly, we hold our people accountable for the service they deliver. We monitor, for example, how long it takes to issue policies and we make our service standards and performance levels very clear to our clients, so it’s all very transparent. AL: One key thing has to be staff and this is mentioned every year by risk managers across Europe when we carry out our Risk Frontiers survey. To do this business well you need good people with an international outlook who can work effectively across borders and business lines. What are you doing about this? JC: This is a focus for ACE. I’m very excited, in particular, about a new graduate training programme we are about to launch in continental Europe for our multinational practice. We are looking for the best and brightest, and we are seeing very good candidates with a multinational outlook. We will add them to our multinational service team, reflecting the importance and value we place on service in this segment. For clients, this is another example of ACE putting its money where its mouth is and underlining our commitment to long-term investment. AL: But is this commitment a two way street? A lot of risk managers say they want deeper long-term commitment from their insurers but are happy to jump ship if a better offer comes from a rival. How do you manage this risk and justify the investment if this happens too often? JC: Our job is to identify the risk managers who are interested in building a long-term partnership, to know the market and to form relationships with the right brokers and companies locally that fit with our culture and philosophy. We are strategically selective. There are a significant number of clients out there who do fit the ACE model and approach and these are the ones we want to work with. They may not be the majority of risk managers. But I would rather identify those that take the same approach as us, and who put service at the top of their list of priorities.

Opportunity knocks – Joseph Clabby, ACE

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