The new company formed as a result of ACE Limited’s acquisition of The Chubb Corp. will continue the Chubb practices that have made it a favorite among independent insurance agents, ACE CEO Evan Greenberg has promised.
The new company will adopt the best of both companies and Chubb’s agency system is better than ACE’s, whereas ACE is better at brokerage, Greenberg said during a webcast for Chubb employees from around the globe on July 20 in which he also addressed Chubb employees’ anxiety about the deal and why the new company will use the Chubb name.
He called Chubb a “great” agency company.
“We’re going to preserve the agency culture. We’re going to preserve the agency distribution. We’re going to preserve the branch system,” said Greenberg.
The ACE CEO said he would not be changing the contingent commission system – to do so he’d have “to be stupid or have “rocks” in his head, he said. Some insurers pay contingent commissions to agents for achieving certain goals with the insurer, such as placing a particular amount of business, retaining a number of policies or achieving a particular loss ratio.
The plan for the new company calls for not only keeping the agency distribution and branch structure of Chubb but also growing this distribution channel with new products and customers, he said.
In urban centers where both ACE and Chubb have branches, the two will be combined.
“ACE is better at brokerage. Chubb is better at agency. We’re going to get the great strengths of both companies in that. We’re going to go with our strengths of each company. In North America, this is like a merger of equals. That’s the way we’re viewing this, and again, ACE is more brokerage,” Greenberg told Chubb employees.
ACE is acquiring Chubb for $28 billion. Upon closing of the transaction, ACE shareholders will own 70 percent of the combined company, and Chubb shareholders will own 30 percent. The boards of directors of both companies have approved the deal. The transaction is expected to close during the first quarter of 2016, subject to approval by shareholders and regulators.
Greenberg will head the merged entity as chairman and CEO. John D. Finnegan, chairman, president and CEO of Chubb, previously announced he would be retiring at the end of 2016.
In the webcast remarks, the ACE executive stressed that the two companies have complementary strengths and cultures and the new company will build on those.
“Complementary means where one is strong, the other one is stronger. Where one is not present, the other one is present. That’s what creates this enormous balance and this enormous opportunity. We each add, in so many dimensions, what the other doesn’t have or, as I said, where both do it, one does it better,” Greenberg said.
He said the two are complementary in their distribution, knowledge, risk appetite and geographic reach and both have maintained strong balance sheets. He called the geographic reach of the combined entity “simply stunning.”
Both companies have product line profit structures and this will be true of the new company as well, he said.
He cast the marriage of the two as historic.
“There is no other way to say it. It is game changing for our industry,” he said, adding that the deal will create a “global powerhouse.”
Yet size is not the goal.
“It’s going to be unrivaled in quality. That is the most important thing. I don’t care about size. It’s going to be pretty damn big, but that’s not really the point. It’s the quality. It will be unrivaled in that regard, and that’s the part that everyone should take such great pride in,” Greenberg said.
He discussed why the new company is taking the Chubb name, despite that not sitting well with all ACE employees. “It [Chubb name] represents quality, and it represents a sign of respect and appreciation for what the company is all about. I don’t know any other way to show respect to somebody to begin with than to say we’re going to take your name. Do you think for a minute that that idea goes down well inside ACE? Do you think they all are uplifted by that? No, they’re offended by it. They wonder if I have lost my mind in the first instance. ACE is a highly successful company. You can’t get away from that, and yet, as I say, we’re humble, but we’re proud of what we’ve built.
“That has made it difficult for people, and I’ve had to have a long conversation and an ongoing conversation about name versus your culture and versus who you are and that it’s best we separate it, because I think taking the Chubb name, the brand represents quality, and it represents a culture which I myself will be proud to be associated with.”
Greenberg acknowledged that employees are uneasy, some even angry, about the planned merger, and he vowed to provide answers to their questions as soon as the answers are known.
“It’s an awkward moment. It’s an awkward moment for people. It’s an unsettled moment,” he said.
“Moments like this create tremendous uncertainty,” he said. “They make people uneasy, and the one promise I can give you is to the extent I am in control of it, we will make decisions rapidly and that we’ll communicate and provide answers and clarity as we know it and as we’re allowed to provide it.”
He assured employees that there will be opportunities for most of them under the new structure.
“There is going to be a rewarding, appropriate position for the vast majority of employees of both companies without a doubt. It will provide an opportunity for growth, for personal advancement, an ability to serve the company doing what you do well. Senior management of both companies, again, will select the best of breed. Wherever there is overlap, we will treat all employees with respect, with decency, and fairness,” he said.
He said this deal is unlike the deal in 1999 when ACE bought Cigna’s property/casualty business and several thousands of people were laid off. “Cigna was a broken company,” he said.
The review of personnel for merging ACE and Chubb will start at the top with leadership, he said.
“The integration is not going to be easy,” Greenberg told the webcast viewers. “I’m not going to sugar coat it. I’m not going to insult people by saying that, but the one thing I said to you twice already, and I’m going to say again, this is about growth. If this was simply about expense efficiency, than it makes no sense. It’s about growth, and it’s about efficiency, and it’s about improving our competitive profile, and it’s efficiency also that gives us a license and a flexibility to invest and grow and expand the combined organization.”
He urged the employees to continue to do their jobs and beware of competitors trying to lure them and their business away, something he said he would be doing if a competitor were buying Chubb.
“You can’t let them take advantage of your uncertainty. You’re a great company, and you’re proud, and you have a home to defend,” he said “So, you know, frankly, don’t be internal looking about this. You’ll damage your own organization. Defend it. Be energized. And don’t let anyone in your house. Be proud of it, and that includes ACE because we’re still competitors until we close.”