Aon + WTW to “extend proven model of catastrophe bonds” – CEO’s Case & Haley

The impending combination of insurance and reinsurance broking giants Aon and Willis Towers Watson (WTW) will aim to “extend the proven model of catastrophe bonds” as the resulting organisation will continue to look to help clients access the capital markets, CEO’s Greg Case and John Haley have said.

The two CEO’s, Greg Case of Aon plc and John Haley of Willis Towers Watson (WTW), have written a broad defence of the coming together of their two firms, which will create a new leader in insurance and reinsurance broking.

The merger of Aon with Willis Towers Watson (WTW) is the largest deal in the insurance and reinsurance broking market’s history and as a result it is being scrutinised closely by regulators around the world.

The CEO’s of the two broking giants have written a long justification for the coming together of their companies, saying that the resulting larger organisation can better help their clients to “navigate an increasingly complex world.”

“Aon and Willis Towers Watson share a commitment. We are dedicated to helping clients meet rapidly changing, increasingly complex and interconnected challenges. Each company has moved the needle, albeit in different ways. We have developed complementary solutions, capabilities, skill sets and expertise. But much remains to be done.

“Client needs continue to outpace innovation, exposing a troubling gap, and the solution lies beyond the capabilities of either Aon or Willis Towers Watson alone. We realized that to fully serve clients across all industries and geographies, we must look beyond our own organizations and capabilities.

“The combination of Aon with Willis Towers Watson represents a bold step that will enable our colleagues to establish a new standard of client leadership and innovation,” the CEO’s wrote.

One key thread throughout the letter is a focus on capital agnosticism and the importance of being able to accelerate choice of and access to a diverse and increasing range of insurance or reinsurance capital sources, with innovation seen as a key driver to enable this.

As well as pure access and diversity of capital there is also a mention for how risk and capital are connected structurally, with the respective insurance-linked securities (ILS) teams at the brokers getting a mention.

The pair claim that the traditional re/insurance broking model is siloed and focused on placement of risk, while the professional service firm approach is advisory but not capital driven in solutions, while technology firms are providing data and helping users recognise the patterns in it, but not providing client solutions.

“As a result, client needs are not being met. Their inability to maximize the value of their human capital and their exposure to risk continues to rapidly accelerate.

“The combination of Aon with Willis Towers Watson is designed to address this unmet client need,” CEO’s Case and Haley explained.

Rethinking how clients access capital is one of the four core areas of client need that Aon and WTW feels is addressed by their merging.

Alongside helping clients navigate new forms of volatility in their businesses, build a more resilient workforce and address the underserved.

Bringing together insurance, reinsurance and capital markets expertise is key in solving diverse needs of clients, the CEO’s explain, with an example that, “Willis Towers Watson’s (re)insurer risk and capital management tools will blend with Aon’s capabilities to serve the new needs of banks and asset managers. Aon’s capital markets position will blend with Willis Towers Watson’s investment in solutions to meet the needs of resilient infrastructure, food security and other demands.”

At its core though, the CEO’s explained that “Risk management is all about matching risk with capital.”

“A primary focus of our combined firm will be to embrace and strengthen the multidimensional nature of capital to provide greater access, unlock value and protect it in novel ways,” Case and Haley further explained.

Which is where the catastrophe bond and insurance-linked securities (ILS) gets a mention.

Case and Haley wrote, “Aon’s innovation in insurance linked securities, like the partnership with the World Bank that introduced a $1.36 billion catastrophe bond to address earthquake risk in Latin America, is one example of creative new ways to access capital. As well, Willis Towers Watson has innovated through their catastrophe bonds for corporate risk.

“In coming together, our organization will extend the proven model of catastrophe bonds to bring deeper and diversified sources of capital to address a broader spectrum of traditional and nontraditional client risks.”

It goes more broadly than catastrophe bonds as well, with a clear reference to the ILS market and how it marshalls capital into the insurance and reinsurance industry.

“We will use best-in-class analytics, combined with a deeper data set to build trackers for specific classes of risk, establishing special purpose financial vehicles and improving the value chain for sourcing capital by using leader and follower capacity that industrialize and scale the solution,” the CEO’s explained.

Overall, Greg Case and John Haley want to impress on the reader that the merging of Aon and Willis Towers Watson (WTW) is a “once-in-a-generation combination.”

“What we are building together defies traditional categorization. Our new organization will have a critical seat at the table, advising clients on issues that have traditionally been left unmanaged due to the gap between traditional brokers, professional services firms and technology providers. We will also have a keen focus on addressing the types of unmet need that come from enhanced collaboration between the public and private sectors, which will be essential to close the rising protection gap and build resilience against catastrophes.

“In a highly complex and increasingly volatile world, this once-in-a-generation combination establishes the combined Aon as the firm to help clients navigate today’s challenges and together tackle some of the greatest issues facing society.”

It’s clear that this far down the line the desire is to complete this monster broking merger without hold up or hindrance.

But that is down to the regulators and with many observers already calling the broking market oligopolistic even before this huge deal, it’s going to be interesting to see what ramifications such a major coming together has for the insurance and reinsurance market over the longer-term.