Chubb CFO Bancroft Interview: Getting It Done
May 19, 2016
Interview, Philip Bancroft, Chubb Ltd. CFO
There’s a lot of talk about strategy in the property/casualty insurance industry these days, but at Chubb Limited, C-suite executives understand that developing a strategy is the small part of a formula for strategic success.
Chubb Limited has grown from a $10 billion company called ACE Limited to one with more than $50 billion in capital during CFO Phil Bancroft’s tenure. A key member of an executive management team that believes in putting that capital to use—with expansion into more than 20 countries during his tenure and roughly $8 billion in acquisitions over the past eight years—Bancroft explains that his “force of will” fits in with the “can-do” culture that simply believes in getting things done.
Chubb Limited was created from the combination of ACE Limited and Chubb Corp. on Jan. 14, and the acquisition is just one step in a long-term growth strategy that continues on. But more time and energy is spent on executing strategy than developing it, according to Chief Financial Officer Phil Bancroft, who explains how the tone at the top ripples through the finance department and other functions of the $50 billion-plus enterprise (by market capitalization).
“Our CEO Evan Greenberg talks about the company being patient in strategy and impatient in execution,” Bancroft said. “We have a pretty consistent long-term strategy and a vision. It’s, by design, fairly simple, so we can all understand it,” he said, noting that Chubb’s executive team worked together, under the leadership of Greenberg, who is also chairman, to map out the go-forward path.
The clear targets of the strategy are to grow book value and tangible book value and to use capital efficiently to grow return-on-equity as well, Bancroft said, confirming details that Greenberg outlined in the company’s annual report. “It’s also key in our company—and this comes all the way from the very top—that underwriting discipline is primary,” Bancroft added. “We won’t take an underwriting loss to make an investment gain,” he said. “We have a conservative fiduciary view of how we handle our investment portfolio,” he added. “It’s a double-A-rated, relatively short duration, four-year portfolio. We’re not taking risks on both sides of the balance sheet,” the CFO said.
All of that is a given, along with supporting goals set forth in the chairman and CEO’s annual letter—like expanding the Asia and Latin America operations to ultimately be 30 percent of the company’s gross premiums (from the 23 percent mark at year-end 2015) and building accident/health and life consumer businesses to follow a similar path (rising from 25 percent to 30 percent of net premiums). And the finance function is structured to support the strategy of continued building.
“It’s a global finance team with people all over the world”—roughly 1,200 of them with direct reporting lines to both the local management and the global function headed by Bancroft. “We’re in 54 countries. We’ve tried to centralize some of that into regional units,” Bancroft said. “For a number of reasons, including regulatory, books and records have to be local in many jurisdictions. So, we’ll also have local teams. [But] for the most part, they’re overseen by the regional units,” he said, referring to central units in London for Europe, in Philadelphia for the United States, as well as in Singapore and Latin America.
Layers of structural complexity belie the description that both Bancroft and Greenberg use when they sum up the strategic plan in one word: simple. “It’s really not complicated…It really does come down to, ‘OK, now do as you said you’re going to do,’” Bancroft said.
“Evan is prone to say that it’s 10 percent strategy and 90 percent execution,” he explained, noting that the executive team works collaboratively to get that 90 percent done.
As for his personal role, Bancroft said: “When we need to raise $5 billion in debt, as we did last year for the Chubb acquisition, I’m working on that. If operations are more important because we’re working on the integration of Chubb, I’m spending more time on that.”
According to Greenberg’s letter, the $5.3 billion of long-term debt raised in October was the largest ever bond offering from an insurance company. Together with $9 billion cash on hand and a stock consideration of $15.2 billion, the $29.5 billion deal closed on Jan. 14—the largest P/C insurance transaction ever.
Asked about integration challenges, Bancroft said simply, “That’s not to be underestimated.” Tasks at hand include “some pretty significant movement of personnel in the finance function. Integration also requires changing systems and gaining information about the business we need to manage—connecting all the pipes, ledgers and all of that.”
“There are plenty of challenges in 2016 and beyond,” he noted.
Outsiders see the challenges that Bancroft tackles—past and present—as anything but easy to accomplish. “He would have to win the ‘steady hand’ award. He’s been in his post for 10-plus years, through a lot of changes, and really the company hasn’t had as much as a financial hiccup,” said William Wilt, president of Assured Research.
In fact, Bancroft started at ACE in 2001. During a recent interview, the veteran CFO spoke to Carrier Management about his career before that, changes he’s seen and a leadership style that embodies the “can-do” culture of the company now known as Chubb.
Who Leads the Finance Function?
CFO Philip V. Bancroft
Company: Chubb Limited
· 1982-2001: PricewaterhouseCoopers
· 1996-2001: Partner-in-Charge PwC N.Y. Regional Insurance Group
· 2002-2016: CFO ACE Limited
· 2014-2016: EVP ACE Group
· 2016: CFO Chubb Limited
What’s happened at Chubb during his tenure?
· Expanded into more than 20 countries through partnership, acquisition and office openings, including China, South Africa, Vietnam, Brazil, Mexico, Thailand.
· Multiple acquisitions, including $7-$8 billion worth over the last eight years.
· Acquisitions of Fireman’s Fund and Atlantic Mutual high-net-worth personal lines businesses.
· Entrance into crop/agribusinesses including acquisition of Rain and Hail Insurance Services.
· $2.5 billion acquisition of Combined Insurance Co. of America, doubling ACE’s accident and health business.
· Acquisition of New York Life’s Hong Kong and Korea operations.
· Moved place of incorporation from the Cayman Islands to Zurich, Switzerland.
· In last 10 years, more than tripled net operating income ($3.2 billion in 2015 vs. less than 1.0 billion) and capital ($38.9 billion at year-end 2015 vs. $14.2 billion).
· Formed ABR Reinsurance Ltd. with BlackRock, which serves as investment manager.
· Closed acquisition of Chubb to create Chubb Limited on Jan. 14, 2016 with $55 billion in capital and over 30,000 employees.
Functions he oversees: Finance, financial planning, accounting, treasury, rating agency management, global tax, actuarial and investments.
What he thinks: Managing our business so that we can get leading financial strength ratings and have adequate reserves and a strong balance sheet are not distractions in any way. They’re core for the business and my responsibility.
Q: Tell us about your background. What positions did you hold in the insurance industry and outside of it, before joining ACE?
Bancroft: I went to Temple University and worked my way through as a teamster—as a mechanic in a teabag factory. That job was an eyeopener. It certainly did motivate me to put more time into my career.
After school, I worked at Coopers & Lybrand (PricewaterhouseCoopers now) for 20 years, about 11 as partner, focused mostly on the insurance industry. For the last six or seven, I led the New York City insurance practice…I came to love the industry and decided at some point that I’d like to actually participate in the management of it as opposed to looking at it from the outside.
Q: What attracted you to ACE?
Bancroft: It was a budding, relatively small, global company. They had just acquired the P/C operations of CIGNA, which really made them a global company. Prior to that, they were a company of about 200 employees, and in that acquisition, they acquired about 10,000. So, it really seemed to be the foundation for a company that had an awful lot of growth potential. At the time, the market cap was about $10 billion. As you know now, it’s around $56 billion on good days.
Q: Did the public accounting background help in your role as CFO?
Bancroft: It’s a very good start, and you certainly learn about the framework of the accounting rules…As we get into complicated issues and arcane insurance areas, I can make a better contribution because I can have a more independent view. But it probably would not be the ideal start for a company of Chubb’s size now. It was OK for ACE, when we were a $10 billion company, and [even then] it wasn’t an easy transition. I’d say that with the patience of our executive team, I made the transition.
I think the ideal background [today] would be public accounting, and then a role in an operating unit where you’re focused on operations—a regional role, where you see more of the operations than you do coming into the global CFO role.
Q: Beyond that experience, what are the most important qualities for a CFO to possess? What do you look for in the next generation of financial leaders?
Bancroft: I think being measured and thoughtful and detailed. You really can’t jump to conclusions or have opinions without really having thought them through. It’s about being deep into the details all the time. Decision-making has got to be very fact-based, and if you’re not engaged in the details, you can only be superficial with your contributions…
When we recruit, we’re looking for people with interpersonal skills and strong technical backgrounds…We find that that centralization [Chubb’s regional finance structure] gives us more flexibility for cross-training and the like. We spend a lot of our time on succession planning. We move our finance executives around the world, and we get them experience so they can get to the next level.
Q: Describe your leadership style. What or who were the biggest influences in shaping it?
Bancroft: I think of myself as being detail-oriented. I also think there has to be a force of will, if you will. So, when we have difficult tasks to accomplish, they just have to be done. I think it’s good to have the view that they will be accomplished. It’s like getting the guys back from Apollo 13.
We have a good culture here. We have an unusual depth of people that have that can-do kind of attitude.
Q: What’s your typical day like? What activities take up most of your time, and how is that different than five years ago?
Bancroft: There really is no typical day. We have days where I’m traveling to Mexico or Brazil or Thailand to look at a new acquisition, or we spend days preparing for the quarterly analyst calls and investor discussions.
We have days where we spend our time on integration of major acquisitions. We’ve just been through the Itaú acquisition in Brazil, and of course now Chubb is consuming a lot of time.
I have days I spend with executive management on enterprise risk management, or on strategic planning, or annual planning, or succession planning. It’s been an ever increasing responsibility as we’ve grown—and a real challenge, and a pleasure, actually. I’m really energized.
Q: Tell us more about how strategic decisions take shape. How does something like, “Let’s look at Chubb and analyze it,” happen?
Bancroft: The analysis of Chubb has happened many times over many years. We’ve been very interested in that company. Now that the stars have aligned, we were able to agree very quickly. It was a relatively quick decision because we had been well prepared and understood and knew how we thought it would fit.
Q: Are there industry-specific challenges that prevent insurance industry CFOs from being more involved in strategy? The need to deal with rating agency, regulatory and reserve adequacy issues, for example?
Bancroft: As the CFO, I don’t view regulations or rating agencies or reserve adequacy as being separate from our strategy. It’s an important part of the strategy, and it’s an important part of my responsibility.
We want to be a global P/C insurer that has exceptional financial strength. That’s a key part of it. Managing our business so that we can get leading financial strength ratings and have adequate reserves and a strong balance sheet are not distractions in any way. They’re core for the business and my responsibility.
Q: What are the biggest challenges for a CFO in 2016, for you as a CFO of Chubb and for a CFO in the P/C insurance industry in general?
Bancroft: There are regulatory changes where regulators are becoming much more extraterritorial. Technology is also changing. I think the use of technology is going to be a differentiator in the industry.
Workforce management is also a priority around the world. People tend to come after Chubb people when they need to fill openings.
The tax base erosion project is also a priority. From a compliance standpoint, there is country-by-country reporting about the operations for all global companies.
(Editor’s Note: The action that Bancroft referred to is the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, which the Organization for Economic Co-operation and Development describes as a project designed to deliver solutions for governments to close the gaps in existing international tax rules that allegedly allow multinational companies to artificially shift profits to low-tax environments. Country-by-country reporting is one of 15 focus areas of the BEPS project—Action No. 13—and one of four minimum BEPS standards agreed to by OECD members and the G20 economies in November 2015.)
The integration of Chubb is also of the highest priority. That’s not to be underestimated.
Q: Is there a lot left on your plate as far as the integration is concerned in the finance area?
Bancroft: We’re transitioning a large team to our central location in Philadelphia, and we’re closing our first quarter as a combined company. We are studying how to measure and combine various operations—measure their performance so that we can understand what’s happening in the business. There’s plenty to do.
I would think it’s going to take probably two to three years to really have it completely integrated. But everything’s on track. We’ve begun the planning process. As soon as the [acquisition] announcement was made, we did an extensive amount of very detailed planning all the way through to the close on January 14. And since then, we’ve been working day and night to execute on those plans.
Q: Were there any positive or negative surprises in integrating the finance functions?
Bancroft: No. They have been—and we expected this—they have been a fairly well-organized function with the same sense of conservatism that we’ve had [and similar] philosophies around reserving and investments. They take their risk on the underwriting side, as we do. And they’ve really been, as a team, making a significant contribution to the integration.
Q: What accomplishments are you most proud of during your tenure at ACE?
Bancroft: Developing the finance function as we’ve grown has been a real success. We’ve attracted some senior executives over the years that are just excellent.
The other thing is our culture. We’ve built a culture of an awful lot of serious-minded, hardworking people. And it’s a very collaborative and communicative group.