Ace boss Greenberg: When to buy; how not to sell

"There are so many ways to screw up" an insurance company, says Evan Greenberg, New York-based chief executive of Ace Ltd., which counts Bermuda as its hometown, Switzerland as its current base, and Philadelphia as its biggest employment center, with more than 2,200 workers in Wilmington, Lafayette Hill, and at its North American headquarters a block from Independence Hall.

How do you wreck an insurer? By investing or marketing poorly; by failing to collect useful customer and industry data and use it quickly; and mostly by not charging enough, so that claims, when they come in, wipe you out.

That's what happened to Philadelphia's Reliance Insurance Group, which cost the industry a record $3 billion loss when it blew up at the start of the 2000s; or the state's major medical malpractice insurers, which failed in a series around the same time. Too often, insurers - like U.S. banks in the mid-2000s -- "lower standards in return for market share."

Instead, Greenberg says Ace is enduring the current "soft market" for business insurance by refusing to cut prices to meet rivals desperate for business at a time when the U.S. economy is slow. "You can't compromise underwriting discipline. You have to be willing to (lose) market share," he told me. "We have to be willing to shrink. And we've been shrinking for three years now" in some business lines.

"We're in the math business, product-by-product," says Brian E. Dowd, Philadelphia-based head of Ace's American businesses. "We're not anti-growth. But when the data says it's not time to grow, we're OK with shrinking." Ace's premiums total more than $1 billion a month.

The company has remained profitable; its share return is up an average 8 percent annually since just before the stock market collapsed in 2008, trailing US-based rival Chubb Corp., pulling even with its Bermuda rival XL Capital, and far exceeding longtime industry leader American International Group, Philadelphia-based health insurer Cigna, Radnor-based life insurer Lincoln National Corp., and most other big insurers.

Despite falling premiums, total Ace assets have been growing, as the company puts surplus capital to work diversifying through acquisitions like yesterday's two deals: a $1.1 billion buyout of Iowa-based crop insurer Rain and Hail Insurance Services Inc., and a separate $200 million acquisiton of a Malaysian business insurer.

Greenberg grew up in the business. His father, Maurice "Hank" Greenberg, ran American International Group, the largest U.S.-based insurer, from the 1960s until 2005, three years before the notorious government bailout of AIG's failing securities-lending  Evan was a rising star at AIG in the 1990s, but left in 2001 in an exodus of executives seeking more rapid advancement as the elder Greenberg clung to power.

Evan Greenberg was in Philadelphia today to mark Ace's 25th birthday, though the company's roots here stretch to Colonial times: It includes the former Insurance Co. of North America, which Ace bought from Cigna Inc. in 1999. Ace was founded by a group of US companies, including Merck, GlaxoSmithKline, du Pont and Dow Chemical, among others, seeking cheaper liability and disaster insurance. Based in Bermuda, Ace paid very low taxes, compared to its U.S. competitors. It has since gone public and diversified into everything from construction and accident, to corporate directors' and workers' compensation insurance.

Though he's kept his home in New York, Greenberg praised Philadelphia as a cheaper place to do business, with an increasingly liveable downtown. He also praised the Pennsylvania Insurance Department regulators who check the books at Ace's major subsidiaries. "Business is fungible," and financial companies in particular move easily when they're unhappy, he said. "From a regulatory point of view, we enjoy very good relations here."

He wouldn't mind seeing a stronger federal role in setting standards for U.S. companies, like Ace, that sell half or more of their policies abroad. But he notes that federal officials haven't even started writing the extensive national regulations required by Obama's financial reform law last Spring.

Ten years ago, before Greenberg joined, Ace was the 24th-most-valuable insurer traded on stock markets; it's now in the top 10. "That isn't just because we did such a good job during the crisis," Greenberg says. It's also a bet on the company's future performance: "We emerged stronger from a capital and a franchise psoition than when we entered. I think the next couple of years are going to produce a lot of oppportunity around the world."