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2016 brokerage revenue: $7.78 billion
Percent increase (decrease): (4.3%)
Eighteen months after one the largest mergers in the insurance broking and consulting sector, Willis Towers Watson P.L.C. is looking to switch from integrating two distinct businesses to growing as a unified company.
The $18 billion deal, which brought together London-based brokerage Willis Group Holdings P.L.C. and New York-based consulting firm Towers Watson & Co., was completed in January 2016.
Since then, much of the management team’s efforts have focused on combining the businesses.
The process included some key leadership changes and the exit of several high-profile former Willis executives, including former Willis CEO Dominic Casserley, who had been deputy CEO of Willis Towers Watson after the merger. He left at the end of 2016, and in April private equity firm Warburg Pincus L.L.C. named him as a senior adviser in its financial services group.
Willis Towers Watson CEO John Haley, who previously headed Towers Watson, said that 2016 was “essentially a year of building.” “We did the merger and we put in place a lot of things that I think are going to position us well for 20172018 and beyond,” he said. “The first year of a merger, there’s always a little difficulty, but we feel like it’s put us in a very good position for starting 2017 now.”
Willis Towers Watson reported $7.78 billion in brokerage revenue in 2016, a 4.3% decrease from the prior year, yet it remains No. 3 in Business Insurance’s 2017 ranking of the world’s largest insurance brokers. The firm attributed the fall largely to foreign exchange fluctuations. On a constant currency basis, it reported 2% organic growth.
Paul Newsome, managing director at Sandler O’Neil & Partners L.P. in Chicago, said last year was a time of transition for the broker as it worked through the merger.
“They struggled with organic growth, revenue growth through the course of the year,” Mr. Newsome said. “It was not a horrible year for them; they did well in terms of meeting their adjusted margin targets and certainly seemed to put through an enormous effort in trying to restructure the combined business.”
But it is still too early to assess whether the merger has been a success from a financial viewpoint, Mr. Newsome said.
“I don’t think the merger will result in any serious financial harm,” he said. “But I think it remains to be seen if it’s a really successful merger that added value from a shareholder perspective.”
Bruce Ballentine, lead analyst at Moody’s Investors Service Inc. in New York, said the brokerage made progress in merging the two organizations last year. “It’s a big effort for anybody to merge two roughly equal-sized firms,” Mr. Ballentine said. “They have a diversified global presence, and they are one of the big players in insurance brokerage and related advisory services, so we think they’ll get through the merger in good shape.”
Both Mr. Newsome and Mr. Ballentine said 2017 started well for Willis Towers Watson as it reported first-quarter revenue of $2.32 billion, a 3.8% increase from the year-earlier period. Net income in the first quarter of 2017 rose 43.7% to $352 million from $245 million a year ago.
“The company has a good market presence as the third-largest global broker, and metrics are gradually improving as the company works through its various restructuring programs,” Mr. Ballentine said.
The leadership team is wellplaced to grow the brokerage business, Mr. Haley said.
“I love the leadership team that we have in place now,” he said. “We took Todd Jones, who had been one of the co-heads of North America. We put him in charge of corporate risk and broking. Todd is sort of a broker’s broker. In the short time he’s been in charge, he’s made an enormous difference in that operation, and it’s one of the reasons why we entered 2017 excited about where we’re headed.”
Like several other large brokers with London market operations, Willis Towers Watson is being investigated by the U.K.’s Financial Conduct Authority for allegedly sharing competitively sensitive information within the aviation insurance sector. Mr. Haley noted this was an ongoing investigation and said the brokerage is fully cooperating with the FSA.
Commercial insurance brokers continue to face strong headwinds in 2017 as they strive to grow in the soft market and a still-sluggish economy.