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Transforming ACE into a global player
Published Sept. 18, 2006
HAMILTON, Bermuda--ACE Ltd. has evolved from a special-purpose insurer to one of the largest global insurance organizations in the world over the past 20 years. The main architect of its expansion and diversification, Brian Duperreault, stepped down in June after 12 years with ACE to become nonexecutive chairman. Mr. Duperreault spoke recently with Business Insurance Editor Regis Coccia about ACE's past and future.
Q: What are the secrets of ACE's success and growth as a global insurer?
A: These things are never easy to put in simple words. I was blessed, first of all, with a board that recognized what we needed to do. We needed to diversify; we needed to expand our capabilities. In fact, they hired me for that purpose. To start with, I had great support from the board. The company itself, when I arrived, had a great culture, great people, a solid balance sheet. It was the perfect vehicle. I didn't have to fix anything when I got here. And there were very, very good people. The focuses were narrow, but what they were doing, they were doing very, very well. So I had a platform and the opportunities were there. It was a good time for ACE to reach out.
We were very disciplined in who we hired. We dealt in quality, not necessarily quantity. And we were as disciplined in who we acquired. I always said they had to make us better, we couldn't make them better. We didn't have enough people to acquire a company and have to go in there and fix things. We needed them more than they needed us, in a sense. By keeping to that, we were able to build up a momentum of capabilities. Every acquisition was a compounding process, it wasn't just additive. One step at a time, one place at a time. We didn't rush into it. It was more of a marathon. Simply put, it was the people in the company, whether they came through the companies we acquired or one at a time, who made it happen.
Q: ACE's record for successful acquisitions is remarkable, and purchasing CIGNA's property/casualty business was a special circumstance. What would ACE look like today if that opportunity hadn't come along?
A: We looked ourselves in the eye when we were doing this acquisition, saying the same thing, "What if we don't get it?
So we decided to raise the price. It's very hard to speculate. We would've had great people, we would've been energetic and we would've done something. But that was such a unique opportunity to be global instantaneously that we probably would not have the capabilities that we have today. We would try to acquire them, and it would have been much more difficult. It would be many more steps, and when you take that many more steps, the chances of missteps increase. I don't know where we would've been, but it would've been a much more difficult path. I think the goal would've been the same, but it would've been much harder to do.
Q: Where do you see business opportunities for ACE in the next one to two years? Will ACE continue to make acquisitions?
A: We acquired at a time when we had no capabilities in certain areas. Either you grow them inside the company or you acquire them. It was much easier to acquire. Then, post-9/11, there was this wonderful time of organic growth where we absolutely increased our capabilities, but we were able to do it by acquiring talent one at a time, let's say. And the marketplace was giving us the opportunity to grow organically. So it was more the method fits the time. Will we acquire again? Absolutely. I don't think there's any question that we will acquire, but we'll also grow organically and everything in between.
The place for greatest opportunities? They're everywhere. I'm an optimist. If you look at the world, you'd have to first say Asia. It's such a dramatic opportunity for everybody, not just ACE. And everybody knows the story: There's a growing middle class, technological advances, open markets, all these things are there. So China, Southeast Asia, India, all are growth opportunities where you can grow much faster than GDP. But we're doing great in Latin America, particularly in the accident and health business. Our U.S. operations are continuing to grow. We are nowhere near our maximum spread within the United States. Our regional expansion has been pretty good in the past five years, but it continues. The U.S. is just as much an opportunity for us as the emerging markets.
Q:What are the keys to successful underwriting? What are some of the things you've tried to instill at ACE?
A: Underwriting is not like any other kind of discipline. The closest thing you can compare it to is gambling, in a sense. We take risks. There are odds. Even the worst gamblers know you don't play every hand. In instilling the proper approach to underwriting, the first thing you have to tell your underwriters is do the right thing. If the right thing is grow, then you should grow. If the right thing is to decline the business, decline the business. You can't buck a trend. If the market is soft and the opportunities are few, and you're growing, there's something wrong. All too often in our business, companies think that they can grow in spite of that. You can't.
There's always some opportunity, but by and large you have to keep faith with your underwriters. You can't tell them, "I want you to be disciplined, select the right risks and if you can't get the price don't write the business," and then in the next breath say, "What's your production like? Are you making your budget?" They're not stupid. If you tell them one thing, then say you're short of your budget, they know you're really telling them: grow. Underwriters all want to do the right thing. And they absolutely want to grow. You don't have to push them to grow. What you have to do is reassure them that doing the right thing by not growing is supported by management. I used to tell them all the time, "Don't worry about growth. I'll worry about growth. You worry about profit."
In the last soft market, we acquired companies. And we had a great growth track record but we never gave in on our underwriting. If you look from the day we went public, I think our combined ratio is the best around for the kind of company we are, which is global and diversified. But I think we probably have the best track record, and it boils down to the underwriter believing management will support them if they have a decline in production.
You can't get these numbers right. You can't tell precisely what the profitability is in a particular year. But you know whether it's good or bad. It doesn't require that kind of fine-tuning to make the right decision. When it's good, you should write as much business as you can. When it's bad, you better be cutting back. Underwriters can always make money no matter what the market is. Maybe they have to cut their production in half to do so, but they can make money. Our simple approach to business is we just like to make money every year, but we don't necessarily want to have percentage increases in production every year. You grow book value and the rest takes care of itself.
Q: You joined ACE as CEO in 1994 and led it during a period of stellar growth. In 2004, you turned over the CEO post to Evan Greenberg and remained executive chairman until your retirement June 1. Why step out of an executive role now?
A: I stepped away from an executive position because I really believe there is a certain timeframe for everybody to run a company as a CEO. You should always step down when you're doing a good job. You don't want somebody tapping you on the shoulder saying, "I think it's time for you to go." By definition, people should be saying "Why are you stepping down? You're doing a great job." That's one of the requirements to have a successful turnover, that the guy who's leaving the job has been doing a good job. ACE is my baby. I feel very much like an owner, one of the architects. What I would like to see as a legacy is a company that succeeds period, regardless of who's running it. I don't define myself as a CEO and I don't define the success of ACE as "it works because I'm running it."
When I had all those thoughts in mind, I didn't want to stay too long. It is good to change management. People get stale, not just the guy in the CEO's office. Everybody gets stale, you figure Brian likes things done this way, so you don't do it a different way. And maybe Brian doesn't even know what way that is, but there's this feeling that that's the way it is. Things start to settle down and calcify. You don't want that. There needs to be a breakup of patterns and change. And that only occurs with a new person coming in with a fresh set of eyes, and also the people expecting that there's going to be change. You have to have the right guy. Evan was with me and he was clearly the right guy. The market was right. You don't want to step down when the market is bad because everybody thinks there's something else wrong. So my timing had to be just right, and that time was there.
Q: How did you get into the insurance business? Everyone wants to be successful, but did you foresee this for yourself?
A: Not at all. I didn't want to be a businessman. I was going to be a scientist, a mathematician. The purest of the sciences. Then I got drafted, got married and figured I needed a job. For a math major there weren't a lot of job opportunities in 1973. But I found one in the insurance business. So it's just circumstance, happenstance that I ended up in the insurance business. I went to work for AIG. Great company, great training ground. I learned so much there. So if I planned it, I don't think I could've planned it any better. But I can tell you, there was no plan.
It's like making acquisitions. You can't make this list and say I'm going to do this one next. Never happens. Somebody calls one day and presents an opportunity. Your planning has to be more in terms of your ability to execute. I didn't have a plan, but I recognized an opportunity when I saw one at AIG.
Q: What's next for you? What's the next chapter?
A: I'm still the chairman of ACE. I have other outside interests. "Retired" is a funny word. I'll be working on other things, and that's fun, too. I play golf. My family thinks it's an obsession, but I do like it. I did buy a ranch in Texas, so I'm a rancher now, too. It has a whole different rhythm to it. That's my outlet and it's really a lot of fun.