Ripple effects

In what’s being billed as the largest deal ever for the global insurance industry, London, U.K.-based commercial brokerage Aon plc announced in early March its intention to acquire Willis Towers Watson for nearly $30 billion in an all-stock transaction.

If the deal closes as expected during the first half of 2021, subject to regulatory and shareholder approvals, the definitive agreement will create a combined equity company value of about $80 billion. Aon shareholders would own approximately 63% of the company (which will go to market under the Aon brand), while Willis Towers Watson shareholders would own approximately 37%. Shares would be exchanged at a fixed exchanged ratio based on closing prices on Mar. 6.

Industry professionals and observers told Canadian Underwriter they were not surprised by the proposed deal when it was announced Mar. 9.

“I think the writing has been on the wall for some time, even prior to the rumoured acquisition of Willis by Aon of about a year ago,” Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction, said on the day of the announcement.

“I felt that it was only a matter of time before Willis was acquired,” McGillivray said. “With Marsh & McLennan acquiring JLT almost a year ago, this gave impetus to this deal.”

He was referring to Marsh & McLennan’s acquisition of Jardine Lloyd Thompson Group plc, a US$5.6-billion deal that closed Apr. 1, 2019.

Kent Rowe, president of the Insurance Brokers Association of Canada, said that while the proposed deal was considerable, it wasn’t overly surprising. “M&A activity in our business, on the insurer and broker side, is something we’ve all become accustomed to,” he said. “Many brokers are on the acquisition trail seeking to acquire volume, technology, operational efficiency, sales capabilities and talent from a staffing perspective.”

Rowe didn’t think the specific Aon-Willis deal — which appeared to take a back seat in the news cycle after the emergence of the coronavirus pandemic — would have much effect on Canadian brokers. That said, brokers are likely taking a look at these kinds of deals more broadly and wondering how they may affect their businesses. “The great thing about deals like these is that inevitably it gets people thinking about how they can compete and thrive,” said Rowe. “I think that’s a good thing for brokers in Canada.”

A former reinsurance executive in Canada spoke anonymously to Canadian Underwriter in exchange for a candid opinion. He thought the deal could potentially redistribute key reinsurance talent within Canada, or it could also prompt a “white knight” entity in the United Kingdom or the United States to establish a new Canadian operation. Also, a reinsurer could bulk up its existing Canadian operations with talent shaken loose after the Aon-Willis merger.

The source noted what the regulators do with the deal is key. Regulatory authorities will be determining whether the operations of the two reinsurance entities will be allowed to become one without running afoul of restrictions on market concentration. “If the reinsurance side [of Willis] is allowed to just move over and become one [with Aon’s], then things are very interesting around the world.”

Angus MacCaull, communications analyst with Nova Scotia-based brokerage AA Munro, stressed that while he’s not a regulatory expert, he believes that these types of mega-deals will affect the regulatory environment in Canada.

“I think brokers — especially smaller ones — compete with giants like this by advocating for market and industry regulation that reflects the Canadian context,” MacCaull said. “It has to be open enough to participate in global growth and strong enough to stay rooted here.”