Price and cultural fit has to be right, insists Marsh boss at Insurance Times Global Leaders Forum

Marsh UK chief executive Martin South has not ruled out further acquisitions in the UK, if the price is right and the target fits the mega broker’s strategy.

Marsh bought HSBC Insurance Brokers two years ago, but has since not made any fresh UK acquisitions.

However, Insurance Times understands that Marsh has taken a look at acquiring Giles, Towergate or Oval in the past 18 months.

At the Insurance Times Global Leaders Forum at the Tower Bridge Hilton Hotel last week, South declined to comment on the consolidators, but said he remained interested in acquisitions that fitted well.

Speaking at a session on rates and the global outlook, he said: “We are very interested in the DNA of our company and where it will add value. Bulking up for the sake of it is not
our way.”

South stressed there was competition for capital within the company: “We have to compete for capital in a global organisation. Would you want to invest in the UK against Asia, Latin America or other parts of Europe?”

In a later session on the London market, the panel agreed that the competitiveness of the Lloyd’s and London insurance markets was being stifled, particularly by the cost of doing business in the UK and inefficiencies within the market itself.

While chief executives at the forum praised the reputation, innovation and resilience of London and Lloyd’s, they highlighted the restraints keeping the market from competing more effectively globally.

David Howden, chief executive of the Hyperion group, said the cost of regulation was a big issue for his peer group. “If you look at Lloyd’s brokers, the cost of regulation to us is 3% of our revenue,” he said, adding that this was the largest cost, with the next biggest accounting for just 1% of turnover.

“It is more expensive to be a London market broker, in terms of regulation than it is to have a broking business in every other one of the 26 European jurisdictions. One country costs as much as the other 26. That is a significant competitive disadvantage.”

Commenting on Lloyd’s, retired chairman and chief executive of Bermuda-based (re)insurer Endurance Kenneth LeStrange agreed. “The cost structure continues to be an issue, and part of that is technology and some of the inefficiencies in the present infrastructure. But the institution is well on its way to improving that.”

While efficiency improvements are underway in the London and Lloyd’s markets - examples including the recent electronic endorsements pilot - some question whether enough progress has been made.

Panellists noted the speed at which new companies has been able to form on Bermuda to plug gaps in global capacity after major events such as Hurricane Andrew, the 11 September 2001 terrorist attacks and Hurricane Katrina.

Lloyd’s Market Association chief executive David Gittings said market practitioners expressed “nervousness” about whether UK regulations would let companies respond quickly enough to market needs.

“The second thing that I think [creates] some nervousness in the London market is whether the IT infrastructure in London is getting better quickly enough,” he added.
A further issue for panellists was the relatively high levels of corporation tax in the UK.

“Tax, taken together with regulation - with all aspects of regulation like Solvency II or the interest the European competition authorities are continuing to show in the
subscription market in London - all of those things are a drag,” Gittings said.

However, Alterra chief executive Marty Becker held up the Lloyd’s array of international licences as an example of how the market is reducing costs for market participants.

“If you look at Lloyd’s on a standalone basis, it is a little expensive in terms of the regulatory process there. But if you look at what it would cost you as a carrier to have separate operations in 20 or 25 countries, it is less expensive to do it with a Lloyd’s platform.”

 

Talking points …

● Are the broker complaints about insurers not paying claims promptly part of the usual griping, or is this something that is happening more frequently in the downturn as insurers look to save costs?
● As both insurers and brokers complain that red tape is strangling their businesses, how effective are the trade bodies at lobbying the FSA and Europe?
● Marsh has not made a UK acquisition since HSBC Insurance Brokers in 2009. Are the mega brokers being put off by the soft market, meaning they are more likely to invest in the booming emerging markets?

 

Market views

Some of the key statements made at last week’s Global Leaders Forum:

“I know that we are underwater as an industry, so we have to make sure there is capital there to pay off claims.”
Marsh UK chief executive Martin South

“London has always been very US-centric. It needs to think about how it moves away from that, gets out there more globally and takes market share.”
Hyperion chief executive David Howden

“If you are a Lloyd’s business, you are facing the prospect of supervision coming from two regulators [the PRA and the FCA] as well as Lloyd’s. It is a cost that other jurisdictions don’t appear to have.”
Lloyd’s Market Association chief executive David Gittings

“Solvency II is like a big train that was launched before the banking crisis and is happily going in the same direction until it reaches a wall. We are in a strange situation. If you invest in gilts, you are not much better from a capital point of view than corporate bonds.”
Groupama UK chief executive François-Xavier Boisseau