Aon launches team to deliver on capital (agnostic) optimisation

Aon’s Reinsurance Solutions division has launched a new Capital Advisory team led by Eric Paire, as it recognises the need to deliver on capital optimisation for its clients.

In a reinsurance marketplace awash with different forms of capital, matching the correct capital with the risks it wants to assume is vital for re/insurers.

The new team at Aon Reinsurance Solutions will offer expertise to help re/insurer clients achieve this, with the capital markets, ILS and alternative forms of capacity set to become a key part of the offering.

Eric Paire joined Aon from rival Guy Carpenter earlier this year and has now been tasked with rolling out the Capital Advisory offering to Aon Reinsurance Solutions clients, re/insurers, Lloyd’s syndicates and also captives.

It’s expected the division will take a capital agnostic approach, to identify how to integrate the most efficient and appropriate forms of capital into re/insurer business models, while positioning Aon in an advisory role to drive new revenues.

The team will deliver “a holistic approach to capital optimisation” in order to help its clients “achieve capital efficiency” the company said.

This will involve “accessing alternative or traditional capital,” as well as helping clients identify ways to make better use of the capital they already have.

At its core will be a focus on cost-of-capital and the return that forms of capital seek, hence the matching of the right opportunities to the most appropriate capital.

Aon noted the pressures re/insurers face, in terms of low growth, underwriting margins and investment returns.

As a result efficiency gained through capital optimisation will be an important lever as attractive returns on common equity become harder to find, with alternative capital and insurance-linked securities (ILS) part of the suite of products that can assist.

Nick Franklin, UK CEO of Aon’s Reinsurance Solutions business, said that, “In a low interest rate economy with pressure on returns, we are committed to working with insurers as their strategic partners to optimise the capital supporting their businesses. We have a head start with our intrinsic knowledge of clients’ operations as their reinsurance intermediary, and can bring an additional focus on P&L with our specialist skills from across Aon.”

Eric Paire, Head of Capital Advisory, added, “There is no single move, no silver bullet, that will restore insurers’ profitability overnight. It is all about fine tuning and optimising the various components of the P&L and the balance sheet for increased operating and financial margins, and an enhanced capital mix, while reducing volatility and allocated capital for a lower cost of capital.”

The new Capital Advisory team will be based in London, but with expansion to the U.S. planned as Aon anticipates a global operation here.

Optimising insurers capital mix will be a key part of the offering, which is where the ILS market and its investors fit into the Capital Advisory puzzle, as well as in offering more reinsurance to help meet capital requirements.

Speaking today in Monte Carlo Frankland explained that it becoming harder than ever for re/insurers to make money, “in a market like this that appears to be around for some time to come.”

“The consequences of this are that our clients are having to look ever more closely at how they both access capital, the returns required by the various pots of capital that they access, but also how they work their own capital models. How they can become more efficient and more optimised in how they allocated capital against the classes and the businesses they underwrite and the risks they take.

“Capital optimisation within itself is probably as important an aspect of delivering profitability now as any other triggers.”

He went on to explain that clients are very aware of the broad range of capital options now available to them, making it vital that brokers are able to offer this advisory level capital optimisation advice and servicing.

“Clients do understand that reinsurance is only one form of capital available to them and almost all other forms of capital exist in a world not particularly in our expertise, so we are having to develop skills on both the liability and asset side of the balance-sheet to advise clients really where reinsurance as a tool fits and what other tools are available so that we can give generally holistic advice.”