Risk managers concerned Marsh JLT deal will reduce choice and divert focus

Leading risk managers are concerned that Marsh & McLennan Companies’ (MMC) planned acquisition of JLT will reduce their choice of broker and divert attention from client-facing services towards integration efforts, causing a temporary loss of focus. This is particularly worrying for risk and insurance managers because it comes at a time when they want more help from brokers to deal with emerging, intangible risks. There is a worry among those that we spoke to that such innovation will be put on the backburner as the MMC JLT deal shakes out. MMC announced last month that it is set to buy rival JLT in a $5.6bn cash deal. The parent company of Marsh and Guy Carpenter said the deal for London-listed JLT has been approved by boards on both sides of the transaction. The bid amounts to $5.6bn in fully diluted equity value, or an estimated enterprise value of $6.4bn. JLT shareholders will receive £19.15 per share, which represents a 34% premium on their closing price on 17 September just before the deal was announced. MMC estimates the deal will close in spring 2019. The company also explained that there is no termination fee for either side of the transaction. Both sides are committed, said MMC’s CFO Mark McGivney. JLT operates in 40 countries, with particular focus in the UK, Australia and key emerging markets across Asia and Latin America. The broker provides risk and insurance broking advice to energy, mining, healthcare, construction, marine, aerospace and financial services firms through its specialty business. JLT also has a reinsurance arm and an employee benefits business. “This a good acquisition from a growth perspective because JLT outgrew its competitors and we expect this to continue,” said Dan Glaser, president and CEO of MMC. The takeover will see MMC become a “stronger specialty risk” broker, he continued, specifically mentioning aerospace and energy. Mr Glaser said JLT will increase MMC’s revenues to approximately $17bn and add another 10,000 staff. The move will see a “tremendous injection” of talent into MMC, he said. While the new company’s scale may provide benefits for risk managers, those we spoke to said the deal leaves them with even less choice of broker and could see attention shift away from services they desire. Carl Leeman, chief risk officer at Katoen Natie and past president of the International Federation of Risk and Insurance Management Associations (Ifrima), said the deal is “no doubt” bad news for risk and insurance managers. “We have one competitor less and there will be a lot of uncertainty for employees of both companies because, as always, there will be layoffs, no matter what the communication is today. As a consequence, employees will be even more focused on their own survival with Marsh or JLT, instead of being able to put all their energy into client service and new products,” added Mr Leeman, who remains a director at Ifrima. A leading risk manager in the UK explained that the news came as a shock and voiced similar fears. “My initial concern is it is bad news because of the reduction in choice. Hopefully the intent by Marsh will be to preserve the pockets of expertise, but badge them under Marsh. I hope the people that jump ship from JLT – to seek certainty or because they are not comfortable in the Marsh culture – do not dilute the acquisition,” he said. Tracey Skinner, director of insurance and risk Financing at BT Group, told CRE she can clearly see the rationale for the deal from Marsh’s perspective. “Increasing pressure on growth produces the pressure to acquire when it is difficult to grow your own book. I can see that in many ways JLT is a good fit for Marsh with strengths in some areas – specialty and some regional spread – where Marsh would like to be stronger,” she said. But Ms Skinner noted that the sheer speed of the deal has taken everyone by surprise and agreed with others about it resulting in a lack of choice and loss of attention on clients’ needs. “For the insurance buyer, this deal naturally leads to less choice. The integration process can also lead to a temporary loss of focus,” said Ms Skinner. She said this comes at a time when companies are increasingly looking for brokers to support them by providing creative insurance solutions for intangible risks. Franck Baron, president of the Pan-Asia Risk and Insurance Management Association and risk manager at International SOS, said the Marsh JLT deal was in part expected because organic growth is currently so hard to come by. Meanwhile, JLT were seen as too big to be a specialised broker and too small to compete with the three jumbo intermediaries, especially in markets such as North America, he added. But like many other risk and insurance managers we spoke to, Mr Baron fears the acquisition will divert resources and focus onto internal matters rather than those of clients. “Consistency, access to expertise and market leverage are key across Asia-Pacific. Those objectives should not be impacted by ‘synergies’ and focus on efficiency gains and too-demanding profitability goals as the companies come together,” said Mr Baron. Like others, Mr Baron said the risk transfer industry is failing to adapt to the new landscape and suggested the Marsh JLT deal is only likely to hinder matters, at least in the short term. “Exposures are becoming mostly intangible: cyber, reputation and intellectual property, complex supply chains. The insurance and broking industry is struggling to remain relevant to corporate risk managers related challenges. The digitalisation of our businesses and markets are creating brand new emerging risks, like driverless cars, AI-related technologies. Again, a tough wake-up call for the insurance and broking industry. We do not see that much of this integrated in the insurance offering and broking/consulting services,” he said. CEO of the UK risk management association Airmic, John Ludlow, said the deal significantly strengthens Marsh in key areas that will add value to its global proposition. But he urged the new company, and brokers in general, to up their game. “Marsh and indeed all brokers deliver a range of services to clients, some of which the sector dominates, such as policy design and placement. In other areas they lag behind, such as risk advisory for large corporate clients, which often comes from the big four and a growing number of other risk advisory firms. I would like to see the brokers invest more in this area to ensure that insurance is always seen as part of the wider risk management solution,” said Mr Ludlow. Ferma declined to comment on the deal. MMC and JLT expect to see annual cost synergies of approximately $250m during the next three years. But they said this will be more than offset by one-off integration costs of about $375m. The deal will mostly be funded by debt. Several ratings agencies have changed their outlook on MMC’s rating to negative as a result of the increased leverage. Once the deal completes, Dominic Burke, group CEO of JLT, will join MMC as vice-chairman and serve as a member of its executive committee.

Risk managers concerned Marsh JLT deal will reduce choice and divert focus

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