A post-post-consolidated world
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I have written about this a lot, so here’s the potted version: When Aon bought Benfield in 2008 it turned global reinsurance broking into a three-horse race comprising Aon Benfield, Guy Carpenter and Willis Re. Grahame Chilton, outgoing CEO of Benfield, called it a post-consolidated world. The main beneficiary was Willis Re, now Gallagher Re. Willis got to benefit from being the smallest of three but big enough and global enough to compete with Aon and Guy Carpenter anywhere and everywhere. In that new world after 2008 it was sometimes gifted shares on massive reinsurance programmes simply for existing. That’s a nice place to be: you’re big enough to cope with the work offered yet you are small enough to have few conflicts of interest when offered that work. You’re also small enough to be able to nurture a marked cultural difference between you and your much bigger rivals. Willis Re was always the relative maverick, which was able to maintain quite an independent personality and voice. New business also meant more to Willis than its rivals. Every new account win brought meaningful growth. Willis Re also became the obvious home for displaced talent. I remember chatting to a senior Willis Re broker at Monte Carlo 2008, discussing the Aon-Benfield merger which, apart from the slow-building financial crisis, was all anyone was talking about that year. He said it was “heads I win, tails I win” for his division’s ability to attract top talent. This was because Aon’s lead broker and Benfield’s department head were inevitably going to be rationalised one day. Aon Benfield wasn’t going to be able to keep both of them forever. It was all very Mad Max Beyond the Thunderdome: Two enter, one leaves. His strategy was simply to sit tight and hire whichever one lost out! They were both great and he would offer either a job in a flash. Now finally, half a generation on, three will finally become four once more. Howden Tiger is proof that there is always room for one more. You see, Willis Re wasn’t the only beneficiary of the consolidation of 2008. JLT Re did well and so did everybody else, including wholesalers like RK Harrison. Another beneficiary was Rod Fox, who right at the end of 2007 along with industry legend Jim Stanard, had founded Alpha Re, the new broker that would soon call itself TigerRisk Partners.
Talk about good timing! Even Grahame Chilton himself later joined in, launching Capsicum Re five years after selling Benfield. I remember him telling a conference I was chairing that he had done so because clients had asked him to. It turned out that the world wasn’t post-consolidated at all and that relationships and specialist skill really did still matter. It worked out pretty well because Capsicum Re built itself a fantastic $100m revenue business in a relatively short space of time. Now Howden Tiger stands poised to play the role of Willis Re in the refreshed quartet. Both parts are small enough to merge without terrible fallout, indeed the top Tiger team has already bought in and rolled over half its equity.
So the only question left to answer for clients is – is this new broker capable of handling their business everywhere and in all classes? It’s only half the size of the old Benfield so this capacity may take a while to materialise. But once the answer to the question is yes, cedants will start preparing an extra slot at their broker beauty parades and superior growth should be baked in. Howden Tiger also immediately becomes the most attractive potential employer in reinsurance broking because it is big enough to matter but small enough to have massive room for expansion. It is also still small enough for meaningful equity to be available to the right staff, something none of its larger rivals can match. If Howden Tiger doesn’t double in size in 5 years I would be very surprised because that requires ‘only’ a 15% annual growth rate. But if it can continue Tiger’s recent 25% annual revenue growth run it will triple the business in the same timeframe. Who wouldn’t want the chance of owning stock in a company that might triple in value by 2027? If it achieved that it should be rivalling Gallagher Re for third spot. It’s going to be a lot of fun, starting with this year’s Monte Carlo, which promises to be hugely colourful as some of the biggest personalities and most vocal independent voices in the sector find their swagger and take centre stage. But the wider lesson here is that consolidation is never the end. Benfield wasn’t the last word, and for that matter neither was the absorption of JLT Re by Guy Carpenter. The key is to create the right sort of vehicle of the right scale and with the right mindset to take market share and jump into new growth segments quicker than everyone else. Howden Tiger looks absolutely optimal in all these respects. And let’s not forget that Lockton, Acrisure, BMS, and others are all still growing very quickly in reinsurance. Let’s also see what Ardonagh can build when the dust settles from its own recent major M&A activity. We’re so beyond post-consolidation. We’re all post-post-consolidated now.