Global insurance and reinsurance broker Aon believes that the relevance of its business is on the rise and is confident that it can produce mid-single digit organic growth or higher, according to analysts at J.P. Morgan. Analysts met with Aon’s Chief Financial Officer (CFO), Christa Davies and the Chief Operating Officer (COO) of Risk Solutions, James Platt in London recently, at J.P. Morgan’s U.S. All Stars Conference. On the same day as the meetings, it was announced to the marketplace that Marsh is to acquire JLT Group for $5.6 billion, a deal that represents a compelling combination of two of the world’s largest insurance and reinsurance broking groups. The ongoing evolution of the risk transfer industry has led many market participants, including insurers, reinsurers, and brokers, to look at ways of increasing efficiency while at the same time remaining relevant and of sufficient scale to successfully operate in a highly competitive and pressured landscape, and merger and acquisition (M&A) activity is often a result of this. However, and according to J.P. Morgan, Aon appears unlikely to seek a large acquisition, but seems more interested in smaller acquisitions that provide new capabilities or products. Of course, M&A isn’t the only way to increase scale, and while organic growth has been hard to come by in more recent times, Aon is reportedly upbeat that it can accelerate organic growth and grow its margin as it gains market share. As the broking business shifts from a relationship driven sector to one driven more by data and analytics, a transition Aon itself has been undergoing over the last decade, Aon believes the relevance of the re/insurance broking business is increasing. According to analysts at J.P. Morgan, Aon’s substantial volumes of data on risk allows the company to create new products for clients in new and emerging business lines, including areas such as cyber, mortgage insurance, pensions, health, and also intellectual property. As an example, the insurance and reinsurance broker believe there is significant growth potential in the cyber market, stating that current global premiums of $3 billion could reach $50 billion in a decade. “Clients are increasingly demanding more analytics and global breadth which allows AON to gain market share from smaller competitors globally. It is also expanding in new areas such as mortgage insurance, pension de-risking, cyber and could consider other areas such as student loans. Meanwhile, the margin could expand as it shifts the business mix to higher margin businesses and leverages technology,” say analysts. The combination of Marsh and JLT is expected to result in revenue of roughly $16 billion, based on 2017 figures, which is higher than the $10 billion reported by Aon at the end of 2017. Furthermore, and regarding just reinsurance, Guy Carpenter (owned by Marsh) was the second largest and JLT Re the fourth, with Aon sitting in the top spot. However, based on 2017 revenues, the combination of Guy Carpenter and JLT Re results in slightly higher revenues than Aon’s Reinsurance Solutions unit. It will be interesting to see how the rest of the brokerage community reacts to the takeover of JLT Group by Marsh, and whether this sparks a wave of M&A activity across the broking sector. But despite this, analysts’ comments suggest that Aon is confident it can grow organically in the current market climate, and believes it is well positioned to take advantage of the growing relevance of its business.
Potential growth opportunities for global insurance and reinsurance broker AON could lie in emerging business lines, including cyber and mortgage insurance, according to JPMorgan analysts. AON appears unlikely to look to a major acquisition as a means of maintaining relevance, JPMorgan said. Instead, smaller acquisitions, along with its substantial data on risk, could see AON provide novel capabilities or products for clients in emerging areas. AON believes the cyber sector holds significant growth potential and has predicted that current global premiums of $3bn could hit $50bn in 10 years.