Carrier conglomerates an evolution, not a revolution: Marcell

The trend for (re)insurers to look for M&A deals which broaden their capabilities and access to risk and capital is a natural evolution of the (re)insurance market, Aon Reinsurance Solutions CEO Andy Marcell said.

Speaking at Aon’s press conference in Monte Carlo, the executive commented on recent M&A transactions – such as AIG’s $5.56bn acquisition of Validus and Markel’s agreement to buy Nephila – which point towards a trend of emerging (re)insurance conglomerates.

Both deals allowed the acquiring companies to build scale and broaden their skill set and product offering. They also demonstrate a trend for carriers to bring insurance, reinsurance and alternative capital capabilities under one roof.

“Is there a new model? Potentially yes in the sense that the most sophisticated solution providers want to have optionality in terms of how they deliver solutions to customers in the most effective way for them and their cost of capital,” Marcell said.

This is an entirely natural thing for them to do, the executive continued.

“This [trend] is an evolution, I don’t think it’s a revolution. And we welcome it.”

From the perspective of Aon and its clients, the AIG-Validus transaction made Validus a stronger company, Marcell said.

Meanwhile, Markel’s Nephila deal makes the insurer’s product offering even broader, and Aon welcomes that, the executive added.

Earlier in the press conference, Aon Securities CEO Paul Schultz said he was expecting more insurers and reinsurers to use M&A to broaden out their ILS or alternative capital capabilities.

“I would say the frequency and intensity of those M&A discussions with our clients have increased this year,” he said.

“Given what has just happened with Markel and Nephila, I would say we will see more of those types of transactions this year.”

Aon also announced the launch of a new capital advisory unit, initially in the UK, to be led by Eric Paire, who joined the firm from Guy Carpenter in March.

Marcell explained that this division will be responsible for setting initial strategies with clients, and the Aon Securities team would take over in executing solutions at the “capital-facing” stage.

The new division will focus on helping cedants to make capital efficiency gains, whether by accessing alternative or traditional capital, identifying better opportunities or improving investment strategies on the asset side of their business.

During the event, Aon Reinsurance Solutions UK CEO Nick Frankland said the new division would also “absolutely” be using the run-off market as part of its offering.

Aon is looking at advising on more legacy transactions but also holding more proactive, rather than reactive, conversations around capital optimisation as well, he said.

Capital optimisation is going become an implicit part of the market going forward, Frankland added.

In a statement, Paire said there was no silver bullet that would restore insurers’ profitability.

“It is all about fine tuning and optimising the various components of the P&L and the balance sheet for increased operating and financial margins, and an enhanced capital mix, while reducing volatility and allocated capital for a lower cost of capital.”