Chartis CEO Charts A Value-Over-Volume Course For The P&C Giant

A: When I go out to visit our customers—who are the most sophisticated consumers of insurance in the world—the first thing to observe is that 92 percent of them stuck with us through the darkest hours of the company's crisis. The reason customers give me as to why is first and foremost our people. Our people have developed an understanding of our customers' needs that dates back decades, and they have maintained a lot of communication at a time of great uncertainty with our customers—who feel very vindicated for sticking with us. So we're delighted that we're here, and we're here, as you say, in a position of strength to help our clients.

Q: And in addition to the quality of your people, what are some of the other factors that account for more than 90 percent of your customers keeping their business with a subsidiary of AIG—a company that was, frankly, being held up in the mainstream press and in public opinion as the poster child for irresponsible corporate behavior?

A: Our ability to offer solutions to meet the complex insurance needs of complex companies. Multinationals that deal with us in multiple lines in dozens of countries are not about to switch their business without a very, very good reason to go with somebody else. And we do have unique capabilities in specialty lines and the ability to tie it all together in a fairly seamless way for customers.

Q: And you mentioned people. Let's talk about that: Certainly there was a perception that in the immediate wake of the bailout, Chartis lost a large number of key executives. Talk about what you've done to retain talent and where you think you are now vis-a-vis the competition in terms of the talent of the people here.

A: One of the great strengths of this place is that it has developed and fostered the talent that has not just in recent years but over decades populated many of the leadership roles at many of our competitors—so we have a wealth of talent, and we retained the lion's share of our talent despite the difficulties. It's a testament to how the leadership team felt about each other and about the franchise—that they together could weather the storm.

The statistics are very powerful. Of the top 2,000 people in the company, over 58 percent of them have been with the company for more than 10 years and over 30 percent of them have been with the company more than 20 years—so it's a really deep and long-standing bench. There were some individuals who left, but this business is about teams—and we have retained the heart of the teamwork that makes this place special.

Q: And at the level of recruit where you're getting involved, how are you selling Chartis?

A: The exciting opportunity is to be at a leader in its industry with global reach, with an unrivalled customer base and an openness and willingness to change in a way that allows an outsider with good ideas to get those ideas readily accepted and implemented. Rarely do you find a company of this scale—and we're talking in the case of Chartis over 40,000 people in 90 countries—who are as nimble and open to adaptation.

And that comes from AIG having such a near-death experience during the crisis. People realize that while many things were just fine, some things we need to do differently. And in the area of risk management and in the area of using technology to make better use of data: These are very exciting opportunities—an untapped potential that certain specialists who we can recruit from the outside get pretty excited about when I talk to them.

Q: Your appointment as CEO coincided with a major organizational restructuring at Chartis. Instead of geographic-based business units, with commercial and consumer lines grouped together, you now have two global divisions: one for commercial business and one for consumer lines. What drove this change, and what benefits should clients see as a result?

A: Today, instead of having about half-a-dozen separate profit centers all with the mandate to write property-cat risk at different attachment levels in different jurisdictions—and potentially competing with each other—we now have one global property group. It's a very major transformation in the way we govern our decision-making, and it already has been accepted very widely. It allows us to take advantage of the scale that we have to meet the needs of customers as opposed to operating as a federation of many small profit centers that have the limitations of their own balance sheets.

So it has helped us to meet the needs of customers who are looking for limits that historically we perhaps would not have offered in property aggregates outside of the U.S. because other countries would jealously guard their own budgets as opposed to thinking that they were part of a global organization that could take that.

Q: And speaking of global business, where are geographically the greatest opportunities for growth for Chartis?

A: We have an enormous presence in Japan—that's the first point. It's a mature market, but it's one that's so big and our position in it is so strategic, that you've got to start there. And it's very different to the composition of our business in North America and Europe: It's largely a consumer business.

But most importantly that platform in Japan which we've had for many years has given us insights in the consumer space that we are using in our growth strategies in nine other countries we view as high-priority for growth. There are three in Latin America: Brazil, Columbia and Mexico; two in what we call the central region: the United Arab Emirates and Turkey; and then in Asia: Vietnam, Indonesia, China and India.

These are the areas where we're looking to grow, and the principal growth is going to come from consumer—and a big part of that is direct marketing. We have had good early returns on this strategy.

We go back in some of these countries for decades and decades, so we have a deep local experience, but we're also bringing to bear state-of-the-art technology that we developed in Japan to really provide the needed capacity as these economies grow rapidly. As their populations emerge into the middle class and need insurance, the insurable value of goods and services increases substantially.

So we see these countries as great opportunities, principally in the consumer and small-business space, but also to some extent on the commercial, especially in infrastructure as well as our marine because these are all export-driven economies.

Q: But I would imagine you're probably not looking to plant a bigger stake in the personal-lines ground in the very mature, very crowded U.S. market—or am I wrong? Are you looking to grow personal lines here?

A: Personal lines here is a niche business. We focus on the ultra-high-net-worth individual, and we have a 33 percent penetration of the Forbes 400 richest. We've learned a lot from this very demanding client base, and we think we can extend those lessons to the mass affluent. We also have some interesting opportunities in group benefits, but that's more about exploiting our relationships with the employers rather than the individuals.

Q: Can you elaborate on that a little bit more: How do you plan to go about expanding the group-benefits business?

A: We already had a number of initiatives there within Chartis, but also [AIG's] domestic life company, Sun America, had its own group business. We just recently announced a merger between these two, and so we've created critical mass, and we have great hopes that we will expand that business in a way that is successful.

Q: What about your specialty business: Are there lines that are particularly appealing where you think there is a great opportunity for growth?

A: We have areas where we have historical leadership like aviation which we continue to like very much.

Property cat is obviously still very much a challenging space with overcapacity, and so we watch that space carefully. Markets are hardening somewhat in this country but still have a ways to go before we think it's particularly attractive. It's an important service to our customers, and we provide it as part of a broad relationship, but we watch our aggregates carefully.

Internationally, we see opportunities to expand our property-cat exposure to balance our portfolio, and that's where we're really leveraging this global organization so that we can offer that capacity in a way that leverages our degree of diversity and geographic breadth.

We see emerging areas like cyber risk where there is potential for growth, but it's in its very early days. There's not a huge volume in that area, but we think cyber security is an important issue that companies have to get their minds around—and we're well positioned to help them with it.

Q: In the six months since you've taken the helm as CEO, what is the biggest challenge that you've personally faced?

A: I'm trying to infuse a sense of clarity as to our core performance objective. And in particular if there is one thing I would emphasize, it's value over volume. We're more than large enough as a company, and our mission is to be the most valuable insurance company in the world, not the largest. So how do we get there?

It's by being the most valuable in the eyes of our customers, in the eyes of our employees, our regulators and our host governments. And it means we have to measure what they value. We have to really get to the heart of which products and services that we provide add the most value—and do more of them and less of the ones that don't. That may mean we trim back on some areas and grow in others, and that to me is a big challenge.

Q: The shift away from volume to value: Is that a tough cultural change? And if so, how are you achieving internal buy in?

A: The first thing is that we align people's incentives to doing the right thing, and we've instituted rigorous performance metrics in the last couple of years where we do relative rankings of individuals. But while the change process is aided by incentives, most importantly people just like to be part of a winning team. And there's no better incentive than having customers tell you that they want to come back and renew their policy with you; or if they left you during the crisis, that they want to come back to you.

Q: Speaking of the crisis, and the bailout which gave ownership of the company to the American people, what has it been like working with the government?

A: We've obviously had a very close relationship with the government through the assistance that we've received from both the U.S. Treasury and the New York Federal Reserve. We've been very pleased with the people we've dealt with in both. And I was very pleasantly surprised with the constructive and pragmatic way that we've operated with those who have worked with us. And they've allowed us to get on and do our jobs in a commercial way to meet our customers' needs.

Q: While we're on the subject of the government, what are some of your top concerns on the federal-legislation front—FIO, FSOC, et cetera?

A: Washington is obviously concerned about the regulatory framework for the industry and looking to work together with international regulators to come up with something that responds to the increasing interconnectedness of large financial institutions. The changes that may come from the regulatory front are still somewhat opaque, but it's quite likely that we will be regulated at some point by the Federal Reserve and probably as a "sifi"—a systemically important financial institution.

But I think we're probably as sifi-ready as any insurance company in the world, having worked so closely with the Fed and understanding what it takes in terms of improved risk management and compliance. We've also massively de-leveraged the company so that our capital structure is very much over and above what I think would be demanded by future capital regimes.

Q: The burdens of being labeled "sifi" are clear. But is there an upside to it?

A: The scrutiny that comes from having a regulator that is charged with looking at the whole enterprise, which is what comes with that designation, is good if that regulator is of high integrity and staffed with high-quality regulators, which I believe the New York Federal Reserve is.

I spent 20 years of my career at JP Morgan regulated by the New York Fed, and I think that they made the company stronger, better run and were a very helpful extra and very dispassionate set of eyes. For sure, there are times where they have imposed caution and imposed procedures that may feel burdensome.

But I do believe on balance it provides reassurance to customers, to rating agencies and others that what you see is what you get when you buy a policy from the company—that there are no problems here hiding under the rocks. We're committed as a company to being really transparent to our stakeholders, whether they be our creditors, our rating agencies or our customers. So having another set of eyes looking with us under every rock for any problems is something we welcome and that helps build trust—because we're in the business of making long-term, very large promises which we absolutely intend to keep.  

See Chart: Chartis-Three Years After The Bailout
See Additional Charts: Reserve-Charge Impact & Reducing Exposure