The CIAB-hosted Insurance Leadership Forum earlier this month saw the rumour mill go into overdrive.
The event in Colorado Springs was dominated by a number of key themes, including growing casualty concerns and expectations that the sector is set for a rehardening – which had also been a hot topic in San Diego a week or two earlier.
But the most active talk concerned M&A involving retailers and wholesalers – most notably Aon’s ambition to acquire a platform to regain a wholesale capability (and a middle market retail footprint), and the future of Truist Insurance Holdings (TIH), with suggestions that its banking parent was looking to fully offload the parent of wholesale giant CRC Group.
Both have been the subject of plenty of conjecture and further reporting since.
Commentary on M&A was conspicuous by its absence on Aon’s earnings call last Friday morning, with proceedings instead taken over by news of the firm’s restructuring efforts as it doubles down on its Aon United strategy.
However, our sister publication The Insurer revealed in early October that the global intermediary has been identifying a number of potential M&A targets thought to include Galway Holdings-owned Jencap and Epic, in a move that would expand the firm’s presence in middle market retail and also mark a watershed return to US wholesale.
Sources suggested that a deal was unlikely to be announced in the coming weeks, but that a transaction could come together as soon as the end of the year.
This publication has previously reported that Aon and its fellow big three global retail brokers have been eyeing a return to the wholesale space.
They are understood to have been considering options to either acquire or build in-house capabilities in a bid to recapture some of the flow of business.
In last month’s issue of E&S Insurer we reported that Marsh was considering plans to use its MGA platform Victor to build out wholesale brokerage capabilities.
On parent company Marsh McLennan’s Q3 earnings call this month, president and CEO John Doyle responded to suggestions that his company is looking to formally return to the wholesale space, commenting that the firm wants to have the flexibility to bring admitted or non-admitted solutions to clients.
He said that given the continuing volatile risk environment, the current high E&S market volumes are likely to be sustained for longer than in previous cycles.
Doyle continued: “Underwriters are looking for flexibility. And third-party wholesalers can give us access to certain markets. At the same time, we access some E&S markets directly today. So in terms of third-party wholesale, I think we'd have to be thoughtful about whether or not we would be a good owner.”
And as we report in our lead article today, WTW has sought to redefine its relationship with wholesalers, at the same time introducing an MGA to bring additional specialty product.
The outcome of its RFP was not the dramatic consolidation of wholesale relationships that had been feared at the outset, but nevertheless signalled an attempt to gain greater control and more direct access to E&S carriers.
As retailers continue to reshape their relationships with wholesalers and seek ways of diverting some of the flow of business into the channel, there are also changes afoot in the wholesale landscape.
Truth in the Truist rumours
Reports broke earlier this month that Truist is working on a deal to sell its remaining majority stake in TIH to private equity firm Stone Point and other potential investors for around $10bn.
The Semafore article came after this publication had alluded to the likelihood that the bank would look to sell the remainder of TIH to Stone Point in one piece, with the new owners potentially then looking to IPO parts of the business in the future, such as wholesaler CRC Group.
Sources at the CIAB event had suggested that TIH was being seen as a liquidity event for the bank by the end of the year.
On Truist’s third quarter earnings call, the bank’s chairman and CEO Bill Rogers was coy, but said that actions taken to date have been about creating greater financial and strategic flexibility.
“We wanted to establish value in the business, and the business is growing … We wanted to make sure that the insurance business has flexibility to continue to grow [where] Truist [then] has an opportunity to respond to whatever may happen.”
The executive noted uncertainty in the market that made it all the more important to retain strategic and financial flexibility.
The minority sale to Stone Point earlier this year has put the bank in a position where there is a trade-off between the capital benefit of retaining TIH and the need to create flexibility for a potential full sale.
But he said: “There’s not like a queue … [where] if something happens we do this. But we want to just continue to reserve this flexibility and continue to apply it to both the bank and the insurance business.”
Reading across the developments of the last month, what is clear is that the reshaping of relationships and the balance between retail and wholesale looks set to be an area of significant activity going into 2024.
The size and growth of the wholesale sector has got to a level where it is impossible for the big three retailers to ignore. At the same time, they do not want to disrupt the very valuable role that wholesalers continue to play for them in helping navigate hard market conditions in a number of lines of business, and in accessing specialty expertise.
It’s a fine line to walk, and one that at E&S Insurer we will be watching closely over the coming months…
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