Merger spectre may stymie deals

The spectre of consolidation could play an important role in some negotiations during the Monte Carlo Rendez-Vous this week, Nick Frankland, the UK chief executive of Aon’s Reinsurance Solutions business, told Monte Carlo Today.

He said many ongoing discussions between firms relating to potential mergers or acquisitions were an ‘open secret’ in the market—but this could influence the way buyers might approach their renewal negotiations.

“In this climate, consolidation is still at the fore for many companies and that will be discussed. The question is whether that could be a hindrance where some players are seeking the right value for deals,” Frankland said.

Beyond the influence of consolidation, he expects the negotiations to be focused on the performance of individual programmes—as opposed to reflecting wider trends in the market. He said that after small rate increases at the start of the year the mid-year renewals were broadly stable, with many reinsurers writing more business.

“This suggests that either they have written more or given more limit, or that reinsurers are broadly comfortable with pricing,” he said. “I don’t expect anything dramatic—just discussions based on client-by-client and programme-by-programme. Each deal will be viewed on its own merit.”

Frankland also commented on the implications of the ongoing profitability review at Lloyd’s. He said he believes the review is needed as there are some syndicates that have not been profitable for several years. He said Aon’s Reinsurance Solutions business was supportive of the process and, as part of its global offering to clients and markets, was able to assist any syndicates that may need either to raise capital or to make other strategic changes as a result.

“I don’t think there will be syndicates shutting down as a result, but these are questions that need to be asked. As with all our clients, we aim to help them to grow their businesses profitably so we will support Lloyd’s in any way we can,” Frankland said.

He added that Lloyd’s must also look at its cost of doing business, as this could help some syndicates achieve better profits. But, he added, the market’s biggest asset is its people and the market will remain strong because of this.

“Some of its appeal has evaporated over time and people are trying to work out what capital model works best at Lloyd’s. But the greatest asset it has is the talent pool—that is what sets it apart.”