Royal sees the world as its oyster

By Richard Braddell

WELLINGTON - What's a venerable British institution like Royal & SunAlliance doing with an American chief executive?

The answer is that Royal no longer sees itself as British, but as global. That being so, the appointment of the former head of North American operations, Bob Mendelsohn, makes sense, or so Mr Mendelsohn says.

Mr Mendelsohn got the job in 1996, putting him at the head of a group with funds under management in excess of $US100 billion, and with half its assets outside the United Kingdom.

Since Royal is global, Mr Mendelsohn says, it is also logical to globalise the shareholder base by listing the group in places other than London.

"We've globalised our senior management, we've globalised our board, we are globalising the employee force around the world, it would be logical to globalise the shareholder base as well," Mr Mendelsohn says.

"Clearly our goal over the next several years is to globalise our shareholder base as well so that it is reflective of the business we are doing around the world."

In New Zealand, Royal has become known for an acquisitive streak which has helped it into a leading position in fire and general insurance, and changed it from a bit player in funds management and life insurance to an operator to be reckoned with, even if it is still on the small side.

New Zealand, and Australia, where the takeover of Tyndall is nearing completion, are viewed as attractive because they are countries where Royal can get the required return on capital.

Royal has yet to decide whether to continue the Guinness Peat Group-initiated actions against Tower Corporation's demutualisation plans. But clearly an opportunity to pick up the juiciest plum in a rapidly consolidating market is one that could not be lightly overlooked.

Mr Mendelsohn says that size is everything in financial services, unless you want to be a highly specialised player in a particular market. And by size, he means on a global scale, since the economies of scale essential for competitiveness leave little room for the in-between.

Royal, which still has about 60 per cent of its business focused in fire and general insurance, is structuring its operations around the business and retail customer segments, rather than products.

"I think the industry will move away from product-based structures. We are doing it around customers rather than distribution channels, but we are asking, what does the customer need at different stages of their life and how do you bring your resources to bear for that customer?" Mr Mendelsohn says.

But that does not mean that Royal will follow the likes of AMP by getting into banking. Quite the opposite. When it suits, a model of forming alliances with other players who are leaders in their field will be followed. That may include banking alliances with HSBC or Citibank, or, as is the case in New Zealand, the workers' compensation joint venture with Southern Cross and GMV, which is being heavily marketed under the Fusion brand

For Royal, being global was a key factor in winning the coveted joint venture with Southern Cross, because while the New Zealand market has lost connection with workers' compensation underwriting, it
was able to import the expertise from other operations.

Describing New Zealand's workplace fatality and injury experience as "Third World," Mr Mendelsohn said the injury prevention disciplines the private sector would impose on employers would go a long way to remedying that.

For Royal, there is little point in trying to compete with Southern Cross, since its dominant market position is unassailable on a cost and service basis. Instead, Royal has forged the joint venture against five other rival suitors.

Mr Mendelsohn says Royal is also quite happy to manufacture products to be sold under other companies' brands. It could, for instance, have put its own kiosks to sell Royal products outside Boots chemist stores in the UK.

But the arrangement it came to instead, under which Boots used its own brand and marketing strength to sell Royal-developed products, was far more lucrative for both parties.