WTW can still offer ILS advisory & structuring after AJG reinsurance deal

It appears there are no non-compete restrictions to prevent Willis Towers Watson (WTW) from continuing to offer advisory and structuring services related to the issuance of insurance-linked securities (ILS), after the sale of its treaty reinsurance business under Willis Re to Arthur J. Gallagher (AJG or Gallagher).

Last Friday it was announced that Arthur J. Gallagher & Co. had agreed to pay $3.25 billion upfront, with a potential additional consideration of $750 million subject to certain third-year revenue targets, to acquire the treaty reinsurance brokerage operations of Willis Towers Watson’s Willis Re unit.

As we also explained that day, the acquisition includes the Willis Re Securities unit, a specialist team with expertise and a track-record in catastrophe bond or insurance-linked securities (ILS) structuring, arranging and sales to investors, as well as other capital market skills.

These are seen as fundamentally profitable business activities by analysts and so seen as a positive acquisition gain for Gallagher, not least because AJG already has a significant footprint in the ILS market with its Horseshoe brand under the Artex division, so is expected to generate significant synergistic opportunities from the enlarged ILS and catastrophe bond focused capabilities.

All of which might lead you to think that Willis Towers Watson is losing something significant, in letting the ILS advisory and structuring service related piece of its business go along with Willis Re’s treaty reinsurance operations.

But, clearly recognising the importance of insurance-linked securities (ILS) as a market and how this can still be an attractive piece of its business going forwards, WTW seems to be leaving the door open to continue offering services in the ILS space, with ILS advisory and structuring seemingly explicitly excluded from the specific non-compete clauses of its agreement with AJG.

While WTW has agreed a two-year non-compete on treaty reinsurance broking as part of the sale of its Willis Re assets to Gallagher, a number of areas are excluded from this, by our reading of the typically verbose documents filed.

Among these are facultative reinsurance, which is no surprise given fac was not included in the sale in the first place, as well as some reinsurance broking services for captives.

Perhaps more surprising is the fact a lot of the service areas related to those offered by the Willis Re Securities team are excluded from the non-compete and so WTW appears to be free to continue providing M&A and corporate advisory services, as well as advisory and structuring services related to the issuance of equity, debt or insurance linked securities (ILS).

Of course, rebuilding this business is unlikely to be an immediate priority for WTW.

But it does provide options going forwards, especially as WTW has a significant investment advisory business which could tie in nicely with capital market and ILS advisory and structuring capabilities too.

For Gallagher, this is a new avenue of opportunity, as it does not have a track record in structuring ILS deals like catastrophe bonds. But now, with the addition of Willis Re Securities, Gallagher can begin to venture into this space as well, while recognising the synergies it provides across its business.