22 October 2013News

Towers–JLT Re deal allows US expansion plans

Alastair Speare-Cole, chief executive officer of JLT Re, says that the acquisition of Towers Watson’s reinsurance brokerage business would represent the fulfilment of one of the main objectives set for him by group CEO Dominic Burke when he joined JLT Re from Aon Benfield some 20 months ago.

He was brought in to grow the reinsurance business globally and he says he immediately saw the US as a key target where the company wanted to expand its platform.

“The JLT group did have exposure in the US on the wholesale side. We were never going to go retail in the US so the natural way to grow the platform was through reinsurance,” he told Intelligent Insurer. “In terms of the available acquisitions to do that, Towers always stood out in terms of its size, culture, quality and the types of client they have, which are mainly smaller state players or mutuals.

“That made it a perfect fit for us and we believe we were the perfect match for them. It had long been our desire to acquire or merge with Towers on the reinsurance side and it became possible a month ago.”

JLT announced it was looking to acquire the reinsurance brokerage business of Towers Watson in September for a cash consideration of $250 million. The combined businesses would have combined revenues of $266 million and 700 people worldwide. The combined business would be branded for a transitional period as JLT Towers Re. The deal is subject to regulatory approval.

Speare-Cole says a deal has also been struck where the brand of JLT Towers Re will be kept for at least 15 months, something he feels is a good thing given the solid brand recognition that the Towers brand has in the US. After that, the company will revert to JLT Re.

He is keen to stress that the deal has not been done on the basis of potential cost savings and economies of scale. As the two businesses are complementary in many areas, the focus will instead be on building on the existing skillsets in the two businesses and expanding its platforms even further.

“This deal has not been done based on cost synergies, as many reinsurance mergers have been in the past. There will be some areas where we will benefit from the greater size or expertise such as on the investment side or in our analytics capabilities. But the synergies will be more about creating a more efficient, credible and capable platform for our clients—it is not about cost savings,” Speare-Cole said.

He expects geographical expansion of the business. Post-acquisition, the company now covers 37 offices in 17 countries. “Within two years, I fully expect us to be in a lot more locations. This is a growing platform and we intend to grow the business,” he said.

Given the dominance of the reinsurance brokerage market by three players for several years, some have speculated that the combined forces of JLT Re and Towers can make strides towards breaking this dominance in some markets. Speare-Cole is measured in his response to this, saying that the approach should be about ensuring clients are being served correctly, as opposed to actively targeting an increase in market share for the sake of it.

“If we achieve market share increase, which we fully intend to do, it will simply be because we have a better grasp of clients’ problems and the ability to come up with better solutions,” he said.

“The combined platform of JLT Towers Re will give us a better chance of providing clients with the solutions they’re looking for. In the geographies and classes of business where we choose to play, we aim to be the obvious choice. I don’t really want JLT Towers Re compared to other brokers, I’d like us to be a distinctive brand that defines itself and maybe defines the reinsurance space in the future.”

As part of the transaction, JLT Re and Towers Watson have entered into an agreement that will ensure clients have continued access to Towers Watson’s risk consulting and software services. This agreement will also provide JLT Towers Re with continued use of Towers Watson’s proprietary actuarial models and software, alongside deep analytical and modelling capabilities that will be acquired with the business. This is something Speare-Cole highlights as being a big boost for the combined entity going forward in terms of the products and solutions it will be able to offer clients.