By STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets
Aon consolidated its top position in the reinsurance brokerage space last year with the acquisition of London-based Benfield Group Ltd.
The Chicago-based insurance brokerage operation took over Benfield in a deal valued at $1.75 billion, which included the assumption of $170 million of Benfield's debt.
Aon Re's 2007 revenues of $958 million in 2007 made it No. 1 in reinsurance brokerage while Benfield's estimated $656 million put it in third position. Together, the new unit will control about half of the marketplace.
Greg Dickerson, director of Fitch Ratings, said the softening reinsurance market and its declining revenues made consolidation likely in the past year as companies look to cut costs in all areas.
In December, Aon said that between 500 and 700 jobs would be eliminated as the combined unit seeks to effect about $185 million in cost savings.
"We are clearly in an environment where organic growth is tough to come by, so acquisition is a way to grow somewhat quickly," Dickerson says.
Top executives of both companies hailed the deal as complementary to Aon Corp. Aon CEO Greg Case said that his company's top position in the casualty reinsurance market was matched with Benfield's unique expertise in property catastrophe area.
Dickerson agreed, noting that Aon will benefit by playing off Benfield's strong hold in areas such as Asia and the catastrophe-prone region of the Southeast United States.
In Florida in particular, the combined unit could benefit from an expected hardening in the market because of severe catastrophe losses in 2008, along with the fact that the state's catastrophe fund is in the process of retaining less risk.
"That is a big market for Benfield, and Aon could benefit from any uptick there," Dickerson says.
The global economic crisis has had the effect of cedants looking to get rid of more risk to improve capital positions that have suddenly become shakier because of investment losses. He said that is one more factor that could lead to a reinsurance market hardening. The new entity is now known as Aon Benfield after its first few months as Aon Benfield Re.
The Benfield deal followed the acquisition earlier in the year by Aon of the global reinsurance operations of Arthur J. Gallagher.
Grahame Chilton, who was chairman of Benfield, became a vice chairman of Aon Group.
Some London insurance observers have expressed concern about a 50 percent market share for one brokerage and the power that brings to reinsurance customers, especially in a soft market when they are holding so many cards as is.
"I suppose on the margins that could be true, but it would be really tough to quantify," Dickerson says.
February 20, 2009
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