After WTW confirmed its re-entry into the treaty reinsurance broking market earlier today, via a joint venture with Bain Capital, Chief Executive Officer (CEO) Carl Hess has explained that, over time, the company could obtain control and purchase complete ownership of the new company.
The announcement revealed that WTW will initially have a minority stake in the new reinsurance broker, but during the firm’s 2024 Investor Day, which was held recently, CEO Hess discussed the joint venture and suggested WTW’s holding in the new firm might change.
He explained that on the back of the company’s successful growth, simplify and transform strategy, WTW plans to deploy more capital towards in-organic opportunities than it has done over the past three years.
“A great example of an opportunity that illustrates our focus on these three areas is our re-entry into the reinsurance market, which I’m thrilled to announce today,” said Hess. “While we’ll communicate more details in the coming weeks, we wanted to share a high level overview of our re-entry into the treaty reinsurance broking space through a joint venture with Bain Capital, one of the world’s leading private investment firms.”
Hess reiterated that the new company would bring together WTW’s “rich history, leading global network and expertise in insurance broking, consulting and technology” with Bain’s “scaled team of insurance industry experts and proven track record of building and growing innovative insurance businesses across the value chain.”
“WTW will hold a significant minority interest, and over time, we may obtain control and acquire complete ownership,” said Hess.
Adding: “But, under this strategy we’ll balance strategic flexibility and capital efficiency, allowing us to pursue growth in a disciplined and sustainable manner.”
This approach, according to the CEO, will make sure that WTW aligns its investment levels with the business’ performance trajectory, while simultaneously retaining the potential for long term value creation.
The new treaty reinsurance entity also came up in the Q&A section of the Investor Day, and Hess reminded the audience that its 2021 deal with Gallagher only resulted in the divestiture of the treaty reinsurance business, with WTW retaining two key components.
“One is our Facultative reinsurance business and as you know, insurance companies look to manage their book of the risk, facultative and treaty have complementary roles, in terms of trying to fashion a remaining book that you want,” said Hess.
“The second part, of course, is ICT. Who powers the models that the insurance industry uses? So, in terms of what the insurance companies are using to model their own book, where we start with those capabilities to begin with,” he continued.
In terms of implementation, Hess said that WTW has opted for an approach that it feels enables the company to scale as it sees demand.
“We are able to scale-up quickly where it’ll be off balance sheet, until we take a controlling interest. That way, we can sort of keep this going as a capital allocation opportunity to balance out across all our other opportunities,” said Hess.
During the Q&A, executives at WTW were also questioned on how the firm will compete in reinsurance versus the larger players in the market.
In response, Lucy Clarke, President of WTW’s Risk & Broking segment, said that in her personal opinion, “it’s an incredibly exciting opportunity.”
“It is one of the finest businesses in the world to be in. We have an incredible advantage by what we already have in ICT to support a reinsurance business. It’s very much a people business, so it’s about getting the right people. But definitely the reinsurance market wants competition. So, there’s definitely a place for us in that market,” she said.
Prior to the Q&A, Clarke also commented on the company’s in-organic growth ambitions, saying that the broker will be working to optimise its business mix with a focus on high growth, high margin opportunities.
“Carl has already mentioned that we plan to re-enter the reinsurance market in 2025, which will offer high growth potential and a very attractive margin profile,” said Clarke.
“In-organic growth is an important part of the strategy at enterprise level, and we’re very excited about the opportunities and potential for M&A in risk and broking, particularly in high growth markets, North America, Europe, GB, Asia and where there is potential to enhance our specialty strategy. Optimising our business mix helps us scale in areas of markets where we are underrepresented or not represented at all,” she added.
In-organic growth and the new reinsurance venture was a key theme throughout the 2024 WTW Investor Day, with the global broker’s Chief Financial Officer (CFO), Andrew Krasner, also addressing these topics.
“A good example of our in-organic investment framework in action is our re-entry into the reinsurance market,” he said. “There’s a clear strategic fit, attractive financial profile and a thoughtful approach to being efficient with our capital.”
