Arthur J. Gallagher & Co. would be the “best fit” for Willis Re if regulators force the sale of the reinsurance brokerage as a condition of approving the larger acquisition of Willis Towers Watson PLC by rival Aon PLC, analysts at Keefe Bruyette & Woods Inc. said in an investor note Monday.
The New York-based investment bank noted that while Aon’s management says it expects to buy all of Willis, European regulators are investigating the deal, which is scheduled to be completed in the first half of this year, over antitrust concerns.
In announcing the probe, the European Commission cited several sectors where there could be concerns of reduced competition, including reinsurance, space and aerospace, and some benefits-related services. Since the $30 billion deal was announced in March last year, analysts have speculated that the combination of the brokerages’ reinsurance units might raise competition concerns among regulators.
If a sale of Willis Re is required, Gallagher already accomplished a successful re-entry into the reinsurance brokerage sector via a joint venture in 2013, the KBW analysts noted.
“If (Gallagher) buys Willis Re, we think it could very effectively compete with Aon and (Marsh & McLennan Cos. Inc.’s) Guy Carpenter within reinsurance brokerage, while strengthening its relationships with – and understanding of – many of the insurance carriers for whom it currently provides primary insurance brokerage,” the note said.
But several other privately held or private equity backed brokerages could also be potential acquirers of Willis Re, the analysts said.
Gallagher, which is the world’s fourth-largest insurance brokerage and has grown its international business significantly in the past few years, was also the buyer of Jardine Lloyd Thompson Group PLC’s aerospace practice when that business was sold to ensure regulatory approval of the 2019 purchase of JLT by Marsh & McLennan.
Aon and Willis are the second- and third-largest insurance brokerages, respectively, and the combination of the business potentially would make the united company the largest brokerage ahead of rival Marsh & McLennan.
Aon already is the largest reinsurance broker, with $1.66 billion in 2019 gross revenue, and Willis is the third-largest, with $1.02 billion in revenue, behind Marsh & McLennan’s Guy Carpenter Co. LLC, with $1.48 billion, according to Business Insurance’s most recent ranking.
All three dwarf their nearest reinsurance brokerage rivals, including No. 4 TigerRisk Partners LLC, with $125 million in revenue, and No. 5 Gallagher Re, with $100 million.
Gallagher and Aon declined to comment on the KBW report.