Canadian Underwriter

Speculative ripple effects of the Aon-Willis merger on the Canadian reinsurance scene

March 20, 2020   by David Gambrill

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Aon plc’s announced agreement to acquire Willis Towers Watson in early March for $30-billion in an all-stock deal raises a host of interesting speculative possibilities for Canada’s reinsurance market, a former reinsurance executive in Canada told Canadian Underwriter recently.

Among them is a possible redistribution of some key reinsurance talent within Canada. And perhaps even a new “White Knight” reinsurer being established in Canada on the initiative of parties based in either the United States or United Kingdom.

Canadian Underwriter has withheld the name of its source so that the person could speak candidly about the potential impact of the Aon plc-Willis Towers Watson deal on the Canadian reinsurance scene.

First off, it should be noted that the deal, touted as the world’s largest insurance deal, is not done. Aon plc announced the deal in March. Subject to regulatory approval, Willis Towers Watson shareholders would receive 1.08 Aon shares for each Willis Towers Watson share, which represents a 16.2% premium to Willis Towers Watson’s closing share price on Mar. 6, 2020. The equity value of the combined entity would be approximately $80 billion, Aon plc announced.

Aon told Canadian Underwriter when the deal was announced on Mar. 9 that it was too soon to tell how the acquisition might affect Aon’s operations in Canada. The deal remains subject to the approval of the shareholders of both Aon Ireland and Willis Towers Watson, as well as other customary closing conditions, including required regulatory approvals. Aon said it expects the transaction to close in the first half of 2021.

Canadian Underwriter asked the source for commentary about the deal’s potential impact on Canada. The source noted that what the regulators do with the deal is key. The regulatory authorities will be determining whether the operations of the two reinsurance entities will be allowed to become one without running afoul of restrictions regarding 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,” the source told Canadian Underwriter.

For example, what will happen with personnel from the combined entity? Aon announced anticipated savings of $267 million after the first full year of the combined entity, reaching $600 million in the second full year, and a full $800 million achieved in the third full year. Aon plc’s announcement does not go into detail about how the savings will be achieved, and so it remains to be seen how the deal will affect people on the reinsurance side of the business.

For example, the deal could lead to an interesting game of musical chairs within the Canadian reinsurance industry, the source suggested to Canadian Underwriter. Hypothetically, if brokers were to be let go as a result of the mega-merger, or if brokers were not interested in being part of the combined entity, that could have an interesting ripple effect in Canada’s tightly-knit reinsurance industry.

For one thing, Willis’ resinsurance team in Canada, based on merit, could be shifting into some senior roles within the combined entity. “Willis in Canada have done an incredibly good job,” the source said. “In a very quiet way, they have done a lot of business. It hasn’t been always the typical reinsurance deal, like everyday transactions…And if the reinsurance [business of Aon and Willis Towers Watson] in Canada does come together, based on age of people and how successful they have been, I can see some of the Willis people taking very senior positions in the combined entity. They have done extremely well.”

Another possibility would be for smaller organizations to beef up their reinsurance capabilities in Canada by attracting any talent that splits away from a combined Aon-Willis reinsurance entity.

BMS, for example, does reinsurance business in Canada. “They have a hand in a couple of pieces of reinsurance,” the source noted. “Maybe now is the time for them to say, ‘Why don’t we become a larger entity in Canada and grab these people and add them?’

The same might apply to Beech & Associates, the source said. “Maybe it’s time that they make a bigger move, I don’t know.”

And then there is the ‘White Knight’ option, in which a foreign entity sets up a new shop in Canada.

“You don’t have to go that far back when Benfield started in Canada,” the source said. “If the reinsurance side does [get approved as part of the Aon-Willis deal], I’m sure there will be some people [potentially interested in] starting up a new operation in Canada, on the reinsurance side. They might come from somewhere else in the world, the United States or the U.K., for example, and say, ‘We’ll set up shop in Canada, and we’ll grab a few people.’”

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