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By JACK ROBERTS, editor in chief of Risk and Insurance®

New York-based brokerage firm Marsh announced that it has acquired the largest independent manager of captive and third-party insurance companies in Bermuda, International Advisory Services Inc.

The captive insurance management business is dominated by Marsh and Aon Global Captive Management. Depending upon how you measure size, Marsh's captive operations may now be slightly larger than Aon's. Captives can be owned by businesses, associations or groups of businesses as a mechanism for self-insurance and managing risk.

"Globally, we're adding 180 clients, so it's a nice addition. But size wasn't the driver behind this acquisition," said Cormier.

STARTUP INCUBATION

He added that IAS has an especially strong and growing insurance incubation business in Bermuda. Typically, when there is a capacity dislocation in certain lines of the insurance business, Cormier explained, one solution may be the creation, often in Bermuda, of an insurer or reinsurer to solve that problem.

"IAS has been a leader in this market," he said.

Captive formations have declined dramatically in the last two years, reflecting the soft market and less demand for alternatives to insurance, the traditional risk-transfer option. Despite the decline, Cormier said that companies are expanding their identification of risk and continuing to look at alternative solutions. The startup incubator is one option that IAS brings.

Growth may also be coming in areas like catastrophe bonds.

"We want to be more credible in the alternative risk space, and this acquisition certainly increases our credibility," he said.

INTEGRATION

For IAS, its acquisition by Marsh gives the firm much wider access to clients worldwide and the ability to tap into a global risk platform. The two largest IAS offices were in Bermuda and Vermont; now the organization has offices worldwide.

Eventually, the IAS platform will probably be integrated into the Marsh global platform, Cormier said. But, for now, the first priority is to "not disrupt any clients--either IAS or Marsh clients," he added.

Before the acquisition, on its Web site, IAS referred to the advantage of being independent and not owned by a broker:

"Our independence also enables us to monitor and assess the performance and recommendations of other service providers without some of the conflicts of interest which often arise in these situations."

Cormier said that the principals of IAS, as the acquisition discussions progressed, "quickly became comfortable with our organization and our people."

The Marsh captive operations are separate and distinct from the more traditional brokerage operations. In fact, he estimated that about 50 percent of its clients are from outside of the Marsh network.

Cormier added, "We have to make sure that our policies and procedures protect the policy needs of our clients."

No price or financial details of the transaction were disclosed.

September 18, 2009

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