EC investigates Aon / WTW deal, cites competition “concerns”

The European Commission (EC) said yesterday that it has opened what it calls an “in-depth” investigation of the merger of insurance and reinsurance broking giants Aon and Willis Towers Watson (WTW), citing concerns over the potential impact to competition in some key markets.

Specifically highlighted are concerns that Aon’s proposed acquisition of Willis Towers Watson (WTW) “could significantly reduce competition” in the key markets of commercial risk brokerage services, re-insurance brokerage and provision of retirement and health & welfare services to commercial customers.

European Commission (EC) Executive Vice-President Margrethe Vestager, responsible for competition policy, explained, “Aon and Willis Towers Watson are two leading companies in the market for insurance and re-insurance brokerage. They help companies with their risk management and with finding the right insurers for their needs. We have opened an in-depth investigation to assess carefully whether the transaction could lead to negative effects for competition, less choice and higher prices for European customers in the commercial risk brokerage market.”

An initial investigation by the EC raised concerns around commercial risk insurance broking.

The EC explained that in particular it is concerned the merger could reduce competition in:

• Brokerage services to large multi-national customers in the risk classes Property & Casualty, Financial and Professional services, Credit and Political risk, Cyber and Marine;
• Brokerage services to customers of all sizes for Space and Aerospace manufacturing risks as well as in a few additional risk classes in specific national markets.

Aon and WTW are “two of the very few brokers that are able to provide these services on a multi-national scale,” the EC said.

At the same time, the EC is also going to investigate the reinsurance broking market, because “The transaction would combine two of the three leading reinsurance brokers and thereby may reduce choice for insurance companies placing their risks with reinsurance companies.”

There will also be an investigation of Aon and WTW’s consulting and administration services which are delivered to companies regarding their retirement, health and welfare schemes offered to employees.

“The Commission will now carry out an in-depth investigation into the effects of the transaction to determine whether it is likely to significantly reduce effective competition,” the EC said.

It now has 90 days to undertake this, which could take us to May 10th 2021.

Aon confirmed that the EC has initiated a Phase II review in connection with its combination with Willis Towers Watson.

However, the broker said this is a common step for a merger transaction of this size and to be expected and that the transaction remains on-track to close in the first-half of 2021.

Aon further explained that, “As stated previously, Aon’s and Willis Towers Watson’s businesses are complementary, operating across broad, very competitive areas of the economy, and Aon remains confident of a positive outcome without any divestitures. Aon expected a thorough review of this combination and will continue to work closely with all the relevant regulators, including the EC. The firm looks forward to continuing its dialogue with the EC throughout the Phase II review process.”

The fear for the parties involved, Aon and WTW, is that divestitures, or sales of certain operations, could be required to get the deal through under competition law.

That could reduce the value of the combination, it is assumed.

Analysts have also cited that the potential for any delay, while antitrust due process occurs, could also result in a greater loss of talent as key brokers look to jump ship given the extended uncertainty among employees.

It seems likely the deal will go through, given the investment made in it by both parties involved. But whether the resulting company will have the full-level of insurance and reinsurance broking and advisory service provision that had initially been envisaged, remains a question that now only the lawmakers can answer.