After all, he did so the same year the UK’s reinsurance broking champion Benfield succumbed to Aon’s all-cash £880mn bid, with its then CEO Grahame Chilton declaring that the era of the independent reinsurance intermediary of scale was over in the face of rampant global consolidation.
In its early days, TigerRisk was principally a Florida cat-focused business serving smaller MGAs and thinly capitalised insurers, reflecting the backgrounds and expertise of both Fox and his co-founder Jim Stanard.
But 14 years on and the firm has grown to ~250 employees with stand-out strengths in broader US cat – especially among mid-market/regional carriers – and capital markets including M&A advisory, capital raising and ILS. It is growing its casualty profile and has also built an established legacy/structured reinsurance franchise. It has cultivated a widely admired entrepreneurial culture and a credible analytics arm.
Projecting revenues for privately owned reinsurance intermediaries is always a challenge – compounded by the unpredictable nature of one-off advisory fees – but there is a feeling TigerRisk might reach (and possibly exceed) $200mn this year.
In today’s edition, The Insurer reports that previously revealed M&A talks between TigerRisk and the acquisition-hungry Howden Group are increasingly likely to crystallise in an agreed deal this month – and at a paper valuation that could approach $900mn.
We calculate this on the basis of an industry standard 30 percent margin (on $200mn turnover) and a high end valuation of 15x earnings. That would place the deal as second only to Aston Lark (a rumoured but not disclosed £1.1bn/$1.4bn) as Howden’s largest transaction.
It would see TigerRisk combine with the group’s own reinsurance business, Howden RE. The latter is the smaller of the two (2022 revenues perhaps $100mn), but it is growing aggressively with headcount projected to reach 150 by year-end, catapulted by two recent and audacious high-profile raids on Guy Carpenter (a 31-strong London specialty team led by Bradley Maltese in 2021 and more recently a 13-strong US MGA/program team led by Michael Jameson and Matt Beard).
“In other words, could it be one of those rare cases of intermediary M&A where 1+1 = 3?”
It has a particularly strong facultative and MGA footprint but its recently arrived specialty treaty team is reportedly enjoying some success in winning new London market orders. It is reasonable to assume the defecting GC Access team will in time also see US MGA business migrate when their contractual restrictions end and they join Howden RE (although Guy Carpenter will do its best to ensure otherwise – earlier this month it unveiled Matt Petka as the new leader of its Dallas-based unit).
Parent company Howden has invested heavily in analytics – critical for any reinsurance advisory firm of scale – with an 18-strong team led by the respected David Flandro.
And Howden RE also has another ace in its hand – its parent company’s vast international retail engine. Including its global MGA business Dual and the recent UK acquisitions A-Plan and Aston Lark it controls significantly in excess of $10bn in annual GWP.
Spitzer and leverage
This provides Howden RE with vast negotiating heft when it comes to carriers that depend upon its inward book. Yes, it is true reinsurance leverage is a thorny issue. Almost 20 years ago Eliot Spitzer made a tilt at the practice, but to little effect. In part this was because of his own disgrace and downfall but treaty brokers will also tell you it rarely wins RFPs – indeed simply raising the subject can backfire.
However, economic realities also dictate that markets relying on your front-end business will be well-disposed to support the subsequent reinsurance placements. Until recently, Howden RE has not had the treaty infrastructure to capitalise on this potential. This is changing already but the combination with TigerRisk would accelerate the opportunity.
And this – arguably – is the tantalising prize for a combined Howden Tiger to seize. Currently, the big three dominate the global client treaty market. AIG, for example, is estimated to spend circa $90mn with Aon’s reinsurance arm and Guy Carpenter is not far behind. Chubb is likely to be a similar figure. (nb: these are The Insurer estimates only).
The result is that Aon, Guy Carpenter and now Gallagher Re dominate the global brokered reinsurance market. In 2021, Aon’s Reinsurance Solutions business posted annual revenues of $2.0bn, and Guy Carpenter $1.9bn, while Gallagher Re is thought to have generated top line of just over $900mn based on combined estimates for Willis Re and the former Capsicum Re business last year. It is reasonable to assume they may be even higher this year based on continued market hardening.
There are a multitude of reasons as to why global carriers currently concentrate their spend with the big three: talent, analytics, global footprint, corporate inertia created by long-standing relationships. All of these are likely influential to a greater or lesser extent but a contributory factor will be the size of an intermediary’s inwards book.
And even if Howden RE and TigerRisk both enjoy a superlative 2022, it is unlikely their pro forma combined revenues would exceed $340mn – in other words, still a long way from Gallagher Re in third place.
However, the combined business would finally be in a place to position itself as a credible global alternative with a number of leading market franchises and with rapid growth in both businesses independently of each other. Of course, Howden will never match the vast global scale of Marsh or Aon or, for that matter, Gallagher when it comes to the US mid-market.
But judged on different criteria – European retail footprint, fac, US cat, legacy, MGAs/programs, London market specialty and capital markets – the combined Howden Tiger looks a better contender to compete with the big three by winning new orders and continuing to attract more talent.
Clients and competition
It should also be noted that a number of the global carriers – including the likes of Allianz, Chubb and Mapfre – were understood to have campaigned vociferously behind the scenes to lobby regulators against the proposed Aon-WTW deal on the basis of reduced choice. On that basis, they should welcome the emergence of a potential new challenger.
In other words, could it be one of those rare cases of intermediary M&A where 1+1 = 3? Yes, it would need to invest further in placement talent and international/US offices but that has to be the goal if it wants to compete against the big three…
For continued access to market leading content click here to enquire about a subscription to The Insurer - your company may already have a corporate subscription in place...
Scan here to download the app