Liberty's leading light
THE FRIDAY INTERVIEW:Ted Kelly, chairman, chief executive and president of Liberty Mutual.
As chairman, chief executive and president of Liberty Mutual, Armagh-born Kelly has 45,000 employees in 26 countries under his management and annual revenues of $30 billion (€25 billion).
His journey to the top of one of America’s largest companies has been meteoric from his upbringing in a house with no running water in the parish of Derrynoose outside Keady, Co Armagh.
“We have grown 450 per cent in 11 years since I took over,” he says.
“I am blessed with having a real good management team. Once in a while I think, ‘yeah, I have come a long way from where I was’, but I don’t feel any different.”
Insurance is a people business, he says, and he approaches his work running such a large company in the same way he did at the start of his business career – he hires the right team around him to get the job done, he says.
“You emphasise that and don’t worry about the size and scale - the rest takes care of itself.”
Kelly says Liberty Mutual is constantly eyeing potential acquisitions around the world at any one time. He has been aware of Quinn Insurance for “a very long time”, he says, and admires it as “very successful model”, albeit one that has some pricing and solvency issues.
When Quinn Insurance was put into administration by the High Court in March, Kelly asked the head of his international unit to take a look and contact the administrators to express an interest.
He says the joint administrators are having a tough time “sorting out a sophisticated financial structure” given the structure of the Quinn Group and the insurance subsidiary’s place in that.
However, he advises them to move quickly to prevent the company losing further value and to maintain existing business lines. “The longer a company stays in administration, the more damaged the goods become,” he said.
“What we are concerned about is that the administration process is sufficiently protracted that what is there at the end is not going to be attractive to anybody.”
Coming from the Border region, Kelly is aware of the significance of Quinn’s role in the area and the difficult employment prospects in the Cavan-Fermanagh area. “It is a pretty important employer – the Quinn family has done well for that area,” he said.
While the administrators are already reducing Quinn Insurance’s 2,450-strong workforce by some 900 jobs to take account of the closed UK business lines, Kelly says that moving quickly on the sale of the business could prevent further redundancies.
“Time is of the essence,” he said. “If they want to extract quality from that – if people want to save the jobs in Fermanagh and Cavan – they have got to get back into proprietary hands quickly. “We would be a good owner. We have demonstrated that. We have built businesses.”
Such is Liberty Mutual’s interest in the company that last week Kelly met the Financial Regulator whose concerns about Quinn Insurance’s 1.3 million policyholders and the company’s solvency led to the administration.
The model followed by Quinn Direct – selling directly to customers rather than through brokers – is familiar to Kelly; Liberty has a similar business in Spain. Quinn’s position as Ireland’s second largest insurance company appeals to Liberty Mutual, despite the solvency problems created by debts of €1.2 billion at the wider Quinn Group and bank loans of €2.8 billion held by its owners, Seán Quinn and his family.
Kelly refers to two similarly troubled firms – one in Venezuela and California – that Liberty bought in the mid-to-late 1990s and turned around in difficult circumstances.
In 1996 the US group wanted to break into Latin America – Liberty bought Venezuela’s largest insurer, Seguros Caracas, out of bankruptcy and it is now the eight largest company in the country, insuring one in every three cars. In the late 1990s Liberty took over a Californian insurance firm called Golden Eagle which was owned by a single proprietor but had overextended itself financially and fell into state control.
Both companies had grown to leading positions in their markets but had fallen on hard times when Liberty bought and fixed them.
“I don’t care about the company – it didn’t get where it was before the trouble without having a lot of very good things in it,” he said.
“Instead of trying to get rid of the bad, identify the good first and build on the good and then the bad falls into place,” he remarked.
Liberty has a small business in the IFSC in Dublin, Liberty International Underwriters, which deals with corporate customers.
But the company has no retail or personal business in Ireland or Britain which bodes well for Quinn Insurance if Liberty’s interest led to a takeover – the US group would be less likely to shrink the existing Irish operations as it has no competing existing businesses.
While conceding that Liberty Mutual has yet to pore over Quinn Insurance’s books and assess whether a bid could work, he says a takeover could be a springboard for Liberty Mutual to grow its European business significantly. “This would position us well in the retail market in the British Isles,” he said.
He is impressed by the quality of Quinn Insurance’s core Republic of Ireland business, which he described as “superb”, but said the Northern Ireland business was “not as good” and that there were problems with the company’s pricing in Britain.
Quinn Healthcare doesn’t interest Liberty, he said, as the firm has avoided health insurance, concentrating instead on motor, property and employer insurance.
Kelly said Liberty would price any offer after assessing Quinn’s books and that the sale process “better get started very quickly”.
“The sooner the administrators make the set of books available to ourselves and the 46 purported others that are interested the better so we can make an informed evaluation,” he said.
The administrators are drafting an information memorandum on Quinn Insurance for circulation to any potential suitors and intend to appoint international corporate finance advisers over the coming months to assess interest and to run the sale of the company.
Kelly said he has yet to figure out the criteria on which the administrators will base a sale. “If the interests of the Government and the administrators is to make sure they have a viable ongoing insurance company with a good protection of employment, that is one consideration,” he said.
“If the consideration happens to be extracting the maximum value, and it takes care of some of the financial problems in the Quinn Group, then that is another issue.”
Liberty certainly has the financial wherewithal to buy Quinn. The group, which is owned by its policyholders, has assets of $109 billion and made profits of $315 million from revenues of $8.2 billion in the first quarter of this year.
The company suffered heavy write-downs on investments in the early part of 2009 due to the financial crisis. Kelly said that the US insurance industry emerged from the crisis better than other sectors. AIG got into trouble because of the financial products it sold rather than from its general insurance business, he said.
“One thing that makes us very different from a bank and a life insurer – there are no call options on our money,” he said. “If you want money from us, you have got to burn your house or wreck your car first – you cannot knock on our door and ask for money – you can knock on a bank’s door and ask for money.”
The question at Quinn and the difficulties facing the firm is whether it has “enough real assets to liquidate the claims”, he said.
Liberty is bearish on the euro, says Kelly, and this will also play a role in whether the company’s board sanctions a bid for Quinn.
Kelly said the “lack of discipline” in Irish banking was “disappointing” but the austere budgetary measures taken in Ireland and the way they have been generally accepted by the public was “a credit to the society”.
On the record
Ted Kelly, chairman and chief executive of Liberty Mutual
Family: married with one child and three grandchildren.
Interests: Family, golf, skiing and reading.
Education: From near Keady, Co Armagh. Educated at Queen’s in Belfast and Massachusetts Institute of Technology.
Career: He taught at Brunswick University in Canada and the University of Missouri before becoming an actuary for US firm Aetna. He has been chief executive of Liberty Mutual since 1998.
Something you would expect: A contributor to the Democratic and Republican parties in the US.
Something that might surprise: His first job was on the bottling line at Cantrell Cochrane in Belfast for 3/3d an hour.