Aiming high: Hub International has grown by giving its employees the freedom to stretch their entrepreneurial spirit-and a safety net to help them if they stumble.

Hub International once hired marketing experts to come up with a new name for the insurance brokerage and consulting firm.

Their suggestion? "Insurniverse."

"'Hub' started to look pretty good after that," said Marty Hughes, chief executive officer of the company. "The Hub name means a lot to us. It describes who we are and what we're about."

Hub gets its name from having 16 regional offices, called hubs, that oversee more than 200 local offices. Eleven of the hubs are in the United States and five are in Canada.

Hub also can mean a center of activity, and Hub International certainly has been busy.

It was formed in 1998 when 11 Canadian insurance brokers joined forces with an aggressive plan to grow both organically and through acquisitions. The company has held true to that original vision, growing to become the 12th-largest global insurance broker, with $442.6 million in revenue in 2005, according to the Best's Review ranking of Top Global Insurance Brokers.

Hughes says he "fell in love" with the Hub International story while at Mack and Parker Inc., the Chicago-based insurance brokerage, which became the company's first foothold in the United States.

"I always had a dream of a public company. But it's tough to bring entrepreneurial people together. They are used to running their own business," Hughes said. The key to Hub's success is just that: it allows the brokerages it acquires to maintain that entrepreneurial spirit and a sense of ownership in the company, he said.

"We want to empower our people to make decisions as if it's their own business," said Bruce Guthart, chief operating officer of Hub.

Hub focuses on middle-market commercial clients and personal lines, and has completed more than 120 acquisitions, about haft of which were completed in the company's first 24 months.

The company said it's organized with an emphasis on local, personalized service to clients, but has the resources of a much larger organization to offer expertise to its smaller outposts. Each hub is responsible for its own regional or specialty market and operates with its own management team. Hubs usually generate $10 million in annual revenue, although those that focus on a niche market may have a smaller revenue volume.

Those early U.S. acquisitions were a tough sell, Hughes said during an interview in his Chicago office, overlooking the El train tracks. Hub leaders had to explain what Hub was and what it meant to work for Hub. At that time, they also had to convince the leaders of would-be acquisitions that it's a wise move to take tip to 70% of the purchase price in a Canadian stock that they had to hold for up to 10 years.

"We had to be sure people were committed. We wanted people to have skin in the game," Hughes said. "We were paranoid at first. We did not want to make a mistake."

As the company grew--generating 42% compound annual revenue growth since 1998--Hub lessened the percentage of stock that acquired agencies had to accept as the purchase price.

While Hub says that growing organically is its top priority, it hasn't shown that it can do that yet, said Frank Cacchione of TNC Management Group, a Morristown, N.J.-based consultant.

"So far, a big share of their organic growth has come from exchange rate differences [between Canada and the United States] .They are barely growing organically from new accounts being sold or significant increases in premium on those accounts. Just about all of their growth has come from acquisitions," Cacchione said. "So far, their most effective sales team isn't the sellers on the risk side, but an effective marketing team driving an effective engine of acquisitions.

"I am not saying they aren't doing a good job. The school is still out on the ultimate financial success of Hub," Cacchione said. "They've been growing really last through multiple acquisitions that they have to absorb at some point. They have to do something that's very difficult: build efficiencies in a highly decentralized business. If they bought the assets well, if their interest assumptions are correct, and they can ultimately add organic growth ... then they are doing an exciting thing."

A Culture of Sales

The entire company runs on a culture of sales, Hughes said. Backing up that claim is the company's emphasis on training its salespeople, measuring their results and rewarding them for a job well done.

Larry Lineker headed up the company's Vancouver, Canada, office, the company's strongest sales unit, when he was tapped to take the new position of chief sales officer two years ago.

"Too often, we expect through osmosis that our salespeople will be successful," Lineker said. "But you need to have a plan. Education is the key. The top 20% know how to do it intuitively: we need to teach the bottom 80% how to be better."

Lineker said there's no magic to selling insurance.

"If you want to be really successful, you get in earlier and stay a little later. If we "know that for every five calls the producer makes, they'll secure one appointment, then if the salesperson made one more call before they left every day, that would be another 240 calls in a year, another 50 new appointments. Depending on the close rate, you might end up with 20 new pieces of business that they wouldn't have had otherwise," Lineker said.

One Company, One Vision

Kirk James, chief corporate development officer, oversees uniting the company's employees into one single culture, a tough job considering the number of acquisitions Hub has undertaken.

"Most of our challenges have been cultural challenges," James said. "Not every acquisition has been perfect. And we've walked away from some deals that in hindsight we were glad we did."

To build the company's culture, James said the company needed to articulate what its common values and visions for the company were, and reinforce that message through regular meetings with employees and through publications.

The company refers to these values as EBITA, which stands for Entrepreneurship, Balance, Integrity, Teamwork, Discipline and Accountability. (EBITA also happens to be an accounting term for Earnings Before Interest, Taxes and Amortization, a financial measure used by Wall Street analysts.)

For instance, when it comes to balance, James said it's important that employees are allowed to make time for life outside of work. "People with balance tend to make the best reasoned decisions. It comes from a better grounded perspective," he said.

When it comes to integrity, James said that means more than being ethical and honest.

"That captures everything about what our responsibility is, to our customers and our shareholders. We score people on ethics," James said.

Key Points

* Between the beginning of 1999 and the end of 2005, Hub International acquired 116 brokerages, which accounted for 79% of its revenue gains.

* The company has more than 200 offices in the United States and Canada.

* The company sells commercial and personal property and casualty insurance, life and health insurance, employee benefits and risk management services.

Fact and Figures About Hub

Hub (hub) n. 1. the center part of a wheel; 2. a center of activity; 3. the 12th-largest global insurance brokerage

Headquarters: Chicago

Business Mix:

United States: 86% of 2005 commission income was generated from sale of commercial lines; 14% from personal lines

Canada: 61% of 2005 commission income from commercial lines; 39% from personal lines

Commission Income: usually ranges from 5% to 20% of the premium charged by insurers; accounts for 88% of Hub's revenue base, excluding contingent commissions.

HBG: Hub International's stock ticker. The stock is traded on the New York and Toronto stock exchanges.

Source: Hub International's Annual Report; Hub International

LEARNING THE ROPES: (top photo) Larry Lineker, chief sales officer, Hub International, tiptoes across a ropes course 20 feet off the ground at the Indian Lakes Resort, Bloomingdale, Ill., as part of a team-building practice for Hub. Various Hub employees tried out the course, which helps to show how working together can help a team reach its goals. (Lower photos) From the ground, Hub leaders Dennis Pauls, chief financial officer, left, and Larry Lineker, chief sales officer, right, cheer and offer encouragement to colleagues on the ropes above.

[ILLUSTRATION OMITTED]

Measuring Success

An important component of Hub's sales structure is the development of the Pipeline, an intranet that allows the company to track its daily performance. It tracks the sales activity of its agents through five steps of selling: prospecting, first meeting with client, second meeting with client, proposal and writing of insurance policy.

"In their own region, managers can see the top 10 account opportunities and see the number of producers above or below target," Larry Lineker, chief sales officer, said.

The system also reminds producers not to focus only on taking care of immediate opportunities, but to keep the pipeline filled, Lineker said.

"We know we need X amount of business in the pipeline to produce Y amount of revenue," Lineker said. "When you have a full pipeline, you automatically feel more relaxed and confident of the opportunities you are working on, because it's not like if you can't land this account, there's nothing."

One major benefit of the Pipeline is it recognizes agents for closing a deal. A ticker runs continuously, showing new sales by agent, premium and type of business (see below). It also lists the top performers for each office and the entire organization. Salespeople, who tend to be an outgoing, competitive bunch, can see how their peers are performing and are often encouraged to do better, Lineker said.

"Our agents love the recognition," Lineker said. "People think salespeople are motivated by money. That's a mistake. They are motivated by recognition."

The company often celebrates the success of its brokers. Top performers are honored annually at a resort trip. The company also puts together a monthly newsletter, called "Boast and Brag," to tout the work of its top salespeople that month. And each month, senior managers send hand-written personal notes to the top 25 brokers to congratulate them on a job well done.

"It's a lonely job being a salesperson," Lineker said. "You can't be really successful if you're not having fun at it. We need to help create that atmosphere. We're having fun with our rewards programs, publications we send out, and little contests."

Hub sponsors Hub Academy, a two-week training and teambuilding program that has included about 100 newer producers over the past few years, and the Quadrant4 leadership development program for emerging leaders from all functions in the company. Corporate officers participate in both programs, giving participants expanded access to senior management.

As part of the Hub Academy, participants are challenged in team-building exercises, including a rope course. The academy has been held on various rope courses, but in July, the chief sales officers of the company participated in a course in Illinois. The group was divided, and then various members were chosen to thread their way across a rope obstacle course about 20 feet in the air to collect envelopes which contained puzzle pieces. Partipants are protected by a harness connected at the top, and were able to use the harness and safety line to improve their mobility over the course. At one point, participants were challenged by crossing the ropes course while blindfolded and had to rely on a colleague for guidance. Despite being assigned to different teams, participants quickly discovered by helping each other, regardless of which team they were on, they'd all benefit.

"It's very much like selling insurance. You have to be focused. You feel like you are alone," said Julie Zimmer, vice president of sales. "But you are not. People are on the ground cheering you on, and when you need help selling in the field, they are there for you, too."

Lineker said one of the key aspects of the Pipeline is it allows agents to communicate with their colleagues from around the country. If a broker in California has a question on a type of errors and omissions policy, he or she can ask for help, and often receive responses from other brokers in other hubs.

"We look for folks to wear two hats--one in their area of expertise and the other to help us become a better company," Lineker said.

Entrepreneurial Spirit

While Hub has grown through an aggressive merger strategy, the heart of the company is sales. Last year, the company boasted revenue growth of 25%, which included acquisitions and 6% organic growth.

Hub runs on an unusual management structure. A seven-member senior corporate executive-management team divides up different aspects of running the company, with each one responsible for one of seven key areas: corporate leadership (Marty Hughes, chief executive officer); operations (Bruce Guthart, chief" operating officer); financial reporting (Dennis Pauls, chief financial officer); sales (Larry Lineker, chief sales officer); legal (Marianne Paine, chief legal officer); human capital (Kirk James, chief corporate development officer); and mergers (Rick Gulliver, president).

Senior managers spend a lot of time traveling. Hughes estimates he travels about 25 weeks out of the year visiting field offices; while Gulliver spends more than half of his time on the road looking at would-be acquisitions.

"The personal interaction piece is huge for me," Lineker said. "We need to get out into the field and spend time with our sales leaders and sales strategy. We're not managing from 20,000 feet."

Dividing the leadership of the company into those seven areas helps streamline the company's operations, Hughes said. For instance, if there's a question in response to a hub's quarterly or weekly report, just one of the seven--the one responsible for the area in question--contacts the hub to get the answer, then reports to the full management team.

The team meets weekly to discuss ongoing issues, and hosts quarterly meetings with the chiefs of the hub offices.

"The big difference in our model is we've chosen people that are very entrepreneurial and profit driven," Pauls said. Before Hub was formed, several of its senior managers ran their own businesses and took out second or even third mortgages on their homes to expand their businesses.

"If you look at the executive management team, every one of the seven of us has run a business where we had to make payroll Friday afternoon. That changes you. The thought of losing doesn't cross your mind. You do not think of not making a profit," Pauls said.

Pauls said many companies have great people who are engaged ha their work running offices. "But until you've put your house and your whole life on the line ... that makes a difference. We have a tremendous amount of people who've done that, and it's one reason our regions drive hard for their results," Pauls said.

After six years as CFO, Pauls will take over as president and CEO of Hub's Ontario hub. He'll continue as CFO until a replacement is found.

TEAM HUB: Hub's leadership team is clockwise, from far left, standing: Dennis Pauls, CFO; Rick Gulliver, president; Marianne Paine, chief legal officer; Kirk James, chief corporate development officer, and seated are Marry Hughes, CEO, Larry Lineker, chief sales officer, and Bruce Guthart, chief operating officer.

Hub by the Numbers

3,700

Number of employees

200

Number of offices

$38.7 million

Revenue in 1998

$442.6 million

Revenue in 2005

24

Number of brokerages acquired in the United States in 2003-2005

7

Number of brokerages acquired in Canada in 2003-2005.

70%

Percentage of 2005 revenue stemming from U.S. operations.

56%

Percentage of total expenses spent on cash compensation and personnel costs, the largest single component of total expenses, in 2005.

15%

Percentage of company stock owned by company employees.

Source: Hub International's Annual Report; Hub International

Looking for Acquisitions

"We have become a buyer of choice," said Rick Gulliver, president of Hub's merger division, adding his phone rings three or four times a week with someone with an agency they'd like to sell to Hub.

Marianne Paine, the company's chief legal officer, said the company follows a protocol when acquiring another company, including having a team evaluate the target acquisition. "No two deals are the same," she said.

And Hub does not take all comers. "With any acquisition the key to the return on investment is the execution after you close. There are always challenges when there's a change in control with any organization, and if I don't see a good culture fit when we're meeting with people, that can be one of the biggest hurdles. They have got to be excited to do a deal with us. They have to believe that 1 plus 1 equals 3. Otherwise, we're just buying someone out and taking on their problems," Gulliver said.

Gulliver said the company looks for people with personalities similar to Hub's executive team. On larger acquisitions," we request that they take a form of payment in Hub stock in escrow, so they can't trade it immediately. We need people in the field that are watching the till with as much interest as the rest of us in the company," he said.

And there's plenty of opportunity to acquire new agencies, both future hubs and "fold-in" operations, which are smaller acquisitions that report to a larger hub.

"There are 6,000 independent agencies with $1.25 million to $10 million in annual revenue in the United States, generating a combined $18 million in revenue," Gulliver said. "We have no plans to stop acquiring companies."

Hub International's Growth Spurt

(U.S. $ Thousands; results given by Canadian GAAP)

Total Revenue

Hub has nearly tripled its
revenue from 2001 to 2005.

2001    153,993
2002    219,960
2003    286,359
2004    355,081
2005    422,556

Note: Table made from bar graph.

Net Earnings

The company's net earnings have
also grown by 2.5 times from 2001
to 2005.

2001    10,005
2002    29,401
2003    36,509
2004    26,244
2005    25,718

Note: Table made from bar graph.

Adjusted Net Earnings

Not including the $14.4 million and
$28.7 million in earnout compensation
paid out in 2004 and 2005,
respectively, related to the 2004
Talbot Financial Corp. acquisition,
Hub had 64% compound annual
growth in adjusted net earnings.

2001    10,005
2002    29,401
2003    36,509
2004    40,171
2005    54,463

Note: Table made from bar graph.

Source: Hub International 2005 Annual Report