The M&A saga involving two of the big three firms may have dominated news flow over the last 18 months, but 2020 revenue numbers compiled in our latest survey show signs of traction for the phalanx of small to mid-size rivals looking to benefit from the disruption…

Top 10

When Andy Marcell and James Kent were named CEO and deputy CEO of reinsurance in the combined Aon-Willis Towers Watson (WTW) executive leadership structure unveiled in late January this year, the expectation was that by now the firms would have merged and be preparing to present a united front at Monte Carlo.

This publication would be releasing its latest Top 10 Reinsurance Broker Rankings showing 2020 pro forma revenues for the two firms that would open a big gap on Guy Carpenter in second place.

Six months later and the deal was dead, run aground on the immovable obstacle presented by the US Department of Justice.

The possibility of an Aon’s Reinsurance Solutions and Willis Re combination had already long since passed, and at the time the Rendez-Vous was cancelled this spring the WTW reinsurance broking business had been earmarked for divestment to satisfy competition regulators in Europe.

In May the industry’s worst-kept secret was confirmed as Arthur J Gallagher agreed a $3.57bn deal for a divestment package that included Willis Re. That ran into its own difficulties when the Aon-WTW combination was terminated, of course, but has since been revived as a standalone acquisition of Willis Re for an initial $3.25bn that could rise by a further $750mn.

Willis-Gallagher Re joins the big three

After almost a year and a half of uncertainty and disruption, the status quo – in a sense – has been maintained, albeit that the current number three broker will (all being well) move into 2022 under new ownership and with the addition of Gallagher Re revenues.

The combined firm will aggressively look to narrow the gap to Aon and Guy Carpenter, with Gallagher’s president, chairman and CEO Pat Gallagher telling this publication that he expects to double reinsurance broking revenue within five to seven years of the deal closing.

For the purposes of our updated Top 10 Reinsurance Broker Rankings, we have decided not to combine Willis Re and Gallagher Re 2020 pro forma revenues in the table (although we do present them as a separate chart to demonstrate how the new big three would look).

We have used the $745mn 2020 pro forma revenue number for the acquired Willis Re business referenced by Gallagher in its investor presentation when the deal was announced last month. The number includes the impact of breakage, or lost business from the departure of key brokers and other employees.

Aside from Aon’s Reinsurance Solutions, year-on-year comparisons are challenging for the big three based on 2020 reported revenues.

Our 2019 and 2018 numbers for Willis Re were both estimates, with the 2019 estimate including $350mn of facultative business not included in the sale to Gallagher, while the 2018 number didn’t include fac, but did include Miller.

We also included pro forma estimates for Guy Carpenter and JLT Re combined in our last rankings, with Marsh McLennan’s acquisition of JLT closing at the start of the second quarter of 2019.

Marsh McLennan in its 2020 10-K filing provided restated revenue numbers for its brokerage operations that factored in JLT turnover as if the firm had been acquired at 1 January 2018 for full prior-year comparisons. We’ve revised our rankings to reflect those updated numbers.

That had the effect of lowering Guy Carpenter prior-year revenues from our previous estimates, pushing Aon’s Reinsurance Solutions above its largest rival into the top spot.

Top 10 Reinsurance Brokers ($mn)

Market tailwinds

So if year-on-year comparisons between the firms at the top of the rankings are a bit meaningless, what can we say with certainty?

Well, Aon’s Reinsurance Solutions grew overall revenues almost 8 percent in 2020, and reported 10 percent organic growth as it benefited from new business in treaty, growth in facultative placements as well as capital markets transactions (which are lumpy by their nature) in some quarters.

It beat its biggest rival Guy Carpenter on organic growth in three out of four quarters last year – and in the first two quarters this year – and was only outpaced by Willis Re in Q4 2020, which is the least significant of the year in terms of scale and can be skewed by a small number of large transactions.

Meanwhile Guy Carpenter reported 6 percent overall and underlying revenue growth in 2020, but is expected to see an uptick in the second half of 2021 and in 2022 as its aggressive hiring strategy over the past year begins to show through in its top-line numbers.

Willis Re has also maintained a solid level of organic growth, despite the challenges of retaining key producers under attack from rivals amid uncertainty over the firm’s future ownership. It has clearly lost business along with employees estimated in the 50-100 range, but can now look forward to stability and refocusing on hiring and its growth strategy as part of Gallagher.

All three firms benefited from market tailwinds.

Organic growth at the big 3 reinsurance brokers (%)

The rising tide of the hard market for commercial insurance has swollen premium volumes coming through proportional, or quota share, treaties – which in turn feeds increasing commission revenue for reinsurance brokers.

Those with strong capital markets divisions in their reinsurance arms have also seen a surge in activity, with record 2020 cat bond issuance a driver of additional fees and revenue for those structuring and placing the deals.

The wave of start-ups and scale-ups last year has brought new reinsurance deals to the market too.

The demand factor from incumbents may have been a wash, however, with some existing carriers looking to buy more cover to better protect earnings and balance sheets (both quota share and excess of loss), while others have scaled back on quota share cessions to retain more of the improving margins they believe they are getting from rising rates.

Some fresh demand has doubtless come as a result of the high frequency of mid-sized cat losses seen in 2020, as impacted carriers looked to buy back-up covers or more sideways protection – a trend that also looks likely to persist this year.

And the last two years have seen strong growth in demand for facultative reinsurance, providing another source of growing revenue for reinsurance brokers that include fac operations.

Contenders on the rise

Those dynamics have also proved to be strong drivers of growth at several of the small to mid-size reinsurance brokers that sit below the big three.

Six of the seven firms below Willis Re in our rankings delivered double-digit revenue growth in 2020, and several are likely to be on course to further accelerate that in 2021 as their aggressive hiring strategies translate to new business wins and additional opportunities from their expanded capabilities.

TigerRisk, which CEO Rod Fox would assert is not a “challenger firm” because of its ability to go toe-to-toe with the big three on large account pitches, saw solid 2020 growth of 12 percent, based on our estimated revenue numbers.

As well as growth in reinsurance placements, the firm has been highly active in M&A, capital markets and legacy transactions, which is likely to have helped boost its top line.

There is no sign of the intermediary and advisory firm slowing up in 2021 either, and its Flexpoint Ford recapitalisation last year has helped fuel an aggressive hiring strategy.

Our current number five Gallagher Re will leapfrog TigerRisk into third place assuming the Willis Re transaction closes and nothing else dramatic happens in the reinsurance broking space in the next year.

The firm had already gained traction in its latest foray into reinsurance with the full acquisition of Capsicum, and is thought to have grown by 30 percent in 2020, with a similar growth rate expected in 2021 as it benefits from significant investment in its capabilities and infrastructure, including analytics.

Acrisure Re – formerly Beach & Associates – is another firm that is understood to have seen strong growth in 2020, with the expectation of further momentum in 2021.

According to our estimates, its top line increased around 25 percent to $100mn last year, with approximately a fifth of that coming from its London wholesale operations.

Strong growth is likely to have come across the platform, including the programs and insurtech space in the US, where the firm has been highly active.

Lockton, BMS and Howden grow rapidly

The biggest growth story in 2020 came at Lockton Re, however, with our estimates putting revenues at around $87mn, up 25 percent on the prior year.

Although the Tim Gardner-led firm wouldn’t confirm the 2020 revenue number, a spokesperson said that Lockton Re saw “great growth” as the strategy set in 2019 led to expansion in “colleagues, capabilities, new clients and geographical reach”.

“We welcomed over 100 new colleagues and continue to welcome many more in 2021. Client wins have come from across the business and included large globals, regional clients and new start-ups, we transferred 75 treaty clients to Lockton Re during the year and placed hundreds of facultative transactions,” they added.

The spokesperson highlighted the firm’s talent, SAGE platform and seamless global teams as factors that have been welcomed in the market. And momentum has continued in 2021, with the broker now operating from 13 offices, with 230 colleagues and capabilities in all key reinsurance segments, the spokesperson said.

BMS Re, in eighth place in this year’s rankings, may have been overtaken by Lockton Re, but the firm delivered strong growth with revenues up 25 percent to $85mn in 2020, according to estimates by this publication.

The firm is understood to have seen significant growth in its global reinsurance portfolio in the UK, US and internationally, as it expanded its geographic footprint and its product specialities focus.

P&C facultative, property treaty (including cat, risk and aggregate), professional lines, wheels, financial lines and program business have all seen growth from the number of deals placed and increasing exposure valuations.

And there was strong growth at Howden Re, including reinsurance business placed by Howden Specialty, as revenues climbed by almost 37 percent last year to $71mn.

Sources said that drivers included US MGA program business, as well as the firm’s facultative and treaty portfolios. There has been significant expansion in Europe and Asia Pacific, especially Australia, and aggressive hiring in 2020 is expected to support the broker’s ambition to go beyond the $100mn revenue mark in 2021.

UIB and Holborn

UIB returned to our rankings this year as Holborn dropped out. We mention both firms here because their presence (or absence) in our rankings reflects the challenges of putting together a league table for reinsurance brokers based on incomplete and inconsistent data.

Even among the large publicly traded firms there are significant differences in the way they report reinsurance revenues. Willis Re numbers have largely not been broken down to any kind of granular level in recent years, leaving us to rely on estimates, while parent WTW has several times changed the way it reports its various divisions.

Talk to a senior executive at one of the big three about a rival besting them on a quarterly organic growth number and they will raise what they say are legitimate questions about the way the number was reported and that it is never an apples-to-apples comparison.

With most of the privately held firms below the big three unwilling to provide a public estimate of revenues, we are left with canvassing a range of market sources in an attempt to get an accurate read on top-line numbers each time we conduct the survey.

Last year UIB didn’t make it, and some participants contend that the “group reinsurance revenues” they have provided for this year’s survey do not correlate with the definition of “pure cedent-based reinsurance” that others are reporting.

But then among other firms there are claims of inconsistencies around the way gross versus net commissions are included in revenue numbers, among several deviations in the way different companies account for top line.

Holborn, which does not make the top 10 this year, does report what we believe are clear and transparent revenue numbers from reinsurance transactions, and arguably deserves to retain its place on those grounds.

The venerable New York-based firm reported 12 percent top-line growth to $47mn in 2020, with revenues on a net brokerage basis and exclusive of income from consulting, interest or other income, in contrast with some of the other firms in our survey.