Merger Checks off Middle Market for Willis President

Willis' group president goes on the record about the HRH merger, particularly on his firm's focus on the U.S. middle market.

By Matthew Brodsky

Grahame J. Millwater, group president for London-based global brokerage firm Willis Group, occupies an open office of glass and wood on the 16th floor of the slick corporate headquarters at 51 Lime Street, next door to Joseph Plumeri and down the hall from an expansive outside terrace overlooking a postcard horizon of Tower Bridge, the massive ferris wheel called the Eye, the Parliament and nearly every other local landmark.

"Effectively, it ticked a lot of the boxes we were looking for," Millwater said about the pending merger with U.S.-based broker Hilb Rogal & Hobbs. The biggest tick was U.S. expansion, particularly in the middle market. "This absolutely ticked that box," he said. "We're delighted with what it does for us in the United States"

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On July 2, Willis announced that it received clearance from U.S. Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act. And the merger has been getting rave reviews from analysts and experts in the daily trade news fare. But a talk with the authoritative yet accommodating Millwater, confident enough to don a red tie patterned with small, neat fish, gives the impression that he doesn't need anyone's affirmation to know this deal will work well.

Describing the middle market as a "core sweet spot," Millwater discussed how Willis foresees real growth opportunity in the market. Willis of course will continue to serve the Global 500, he stressed, but typically at these massive organizations, they are less dependent upon insurance capital, and account for a much smaller percentage of intermediary revenue than their share of the global economy. The middle market companies, on the other hand, depend on intermediaries, especially when it comes to placing complex lines and especially when confronting international exposures.

That is why middle market customers--and HRH--need a broker with global specialty programs and "vast experience" in areas such as supply chain issues like Willis, according to Millwater.

Middle market clients have more such complex risks interwoven into international supply chains. As these companies grow and their global worries multiply, they could outgrow a broker like HRH. Now they can't.

The merger is not a matter of Willis overshadowing what HRH had been doing in the United States. As Millwater put it--affirming what's already been said by analysts--the merger will bring together two complementary organizations with similar mindsets.

"We both understand the middle market producers cultural needs," he said.

Willis had a "good" retail footprint in the States, Millwater said, but it will have a "great" one after the merger. HRH has a strong presence in major cities that Willis needs to get into, and vice versa. The merger will strengthens Willis' position in such regions as California, Texas and Florida.

The two firms' U.S. specialty programs appear to complement one another, with Willis in construction, executive risk and environmental, said Millwater, and HRH being strong in complex property, for instance.

In some cases, HRH has better U.S. specialty programs, he said.

He also mentioned a shared understanding at the senior management level for how to manage business, explaining why a "good feeling" was shared between the two leadership groups and the merger discussion "proceeded quite quickly," according to Millwater.

The two organizations are poised to tackle the small commercial market, building on a plan put in place last year when Willis acquired InsuranceNoodle, an "e-broker" platform for small business owners.

"We see bigger opportunities with HRH in that market," Millwater stated.

Another big box for Willis to tick with the HRH merger is growth in the employee benefits market and the opportunities to diversify away from property/casualty.

The Willis-HRH merger awaits further regulatory approval and a nod from HRH shareholders. But when and if it does go through, Millwater foresees a timeline that involves two years of shaking out any "inefficiencies," and another two years to fully harness the synergies of the two organizations.

Announced on June 8, 2008, the transaction is expected to close in the fourth quarter of 2008, after which it could double Willis North America revenues.

MATTHEW BRODSKY is senior editor/Web editor of Risk & Insurance®.

July 15, 2008

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