The chief executive of Aon said the firm decided to sell its insurance unit, Combined Insurance Company of America, after determining it could not drive the type of business it needed in order for it to be profitable.
Speaking today in New York at the Goldman Sachs Financial Services Conference, Greg Case, president and chief executive officer of the Chicago-based insurance brokerage firm, said an analysis of how to measure and grow the underwriting business caused executives to reevaluate the company's position as an underwriter.
Mr. Case said an analysis highlighted the fact that “unless we could substantially improve the core underwriting performance of our underwriting businesses, it was going to be hard for us to drive performance.”
“We made a decision–a very fundamental, strategic decision,” Mr. Case continued. “That decision was that we are going to be a professional services firm that would be focused on risk and human capital. And it meant that if we could, we wouldn't do anything rash, we would trend out of the underwriting businesses and into the professional services business.”
Aon completed its sale of Combined Insurance Company of America to ACE Ltd. in April of this year.
He said the firm feels “very fortunate” to exit the underwriting business and be able to reinvest into Aon.
The observation came from a participant's question about why insurers do not pay more attention to return on investment capital, something Mr. Case has concentrated on during his tenure at the firm.
He said the firm has capital tied up around the world and will be looking at managing that area more closely to improve its return on investment capital in the future.
As for other insurers, Mr. Case said those industry leaders use other metrics to measure their company's success and he could not make a judgment on their decisions.
Christa Davies, Aon's chief financial officer, explained that over the last 20 years Aon had acquired over 400 companies but never integrated the systems into one organization, and this produced a lot of waste and duplication.
Since 2005, the firm has been engaged in integrating systems and eliminating back office functions. The company anticipates a total savings, when it is all done, of close to $700 million annually, she said.
Aon will reinvest 20 percent into the savings to continue to improve the ongoing brokerage business, the executive said.
“We believe we're investing more in our client capabilities than anyone else in the industry,” said Ms. Davies.
The company is making additional improvements with investments in technology and talent and acquisitions, she added. The company invests $200-to-$250 million in acquiring overseas in specialty firms.
On the most recent transaction, reinsurance broker Benfield, it gives the firm additional resources to help clients with their placements.
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