The intersection between the capital markets and the insurance industry
Insurance is part of the DNA of global capitalism, but due to concerns around complexity and liquidity, the market has historically struggled to attract the capital needed for growth.
Aon’s Capital Advisory division works with insurance clients to enhance return on capital by matching risk with capital to make better business decisions. It’s been built around the goal of simplifying and streamlining the process of deploying capital into the London insurance market, in particular, deploying capital into the Lloyd’s of London insurance market.
The division is led by three veterans of the London market. Will Allen, formerly of investment bank KBW and one of the co-founders of London Innovation Underwriters, joined in May and was followed by Ed Thomas, who joined from Lloyd’s as its Head of Member Services. Barry Gale is head of legacy. He joined the division earlier this year and joined Aon in 2021 from KPMG.
“Our global footprint allows us to see and evaluate the best ways to place risk for our clients,” Allen tells City PM. “Part of our work within Capital Advisory is to consider the intersection between the capital markets and the insurance industry. Our belief is that the capital markets are underweight insurance risk due to concerns about complexity, moral hazard and liquidity,” he adds.
The role of the team is to break down these barriers and “help make the capital markets more comfortable investing in the industry.”
The role of Lloyd’s of London
A key part of that is opening up Lloyd’s role in the market. “The diversity of specialty risk in the Lloyd’s market makes it one of the most capital efficient markets for investors to participate in insurance risk,” Allen says. The market has made a lot of progress in the past few years, opening up the market to new entrants, and it’s now an “exciting time for third-party capital,” according to Thomas.
“One area in particular where Aon’s Capital Advisory practice is leading the way is advising potential start-up syndicates, where we have seen strong appetite and which present an exciting alternative growth opportunity for new investors,” the former head of Lloyd’s Member Services says.
“We have knowledge of working inside Lloyd’s, so we can help clients adapt to that environment and its unique language. We believe we have the right team to help capital providers build a strategy to enter and grow in the market,” he goes on to note.
Aon’s Capital Advisory business is just one part of the Aon group. Its global footprint gives it a key advantage over competitors that are trying to edge into the same market. What’s more, the group’s deep expertise in the market helps it ensure capital is getting to the right places.
“Capital means a lot of different things to different constituents,” notes Gale. However, ultimately, “Capital is critical to the insurance and reinsurance market and in helping the wider economy. We’re talking about growing capital, maintaining capital, demonstrating the sufficiency of the capital base,” he adds.
For companies entering the market, leveraging capital in the most efficient way has proven to be a pain point in the past, something Aon’s Capital Advisory division is designed to help with. “We’ve found teams within organisations don’t tend to work together in terms of optimizing their company’s use of capital. So, we’ve bought all the functions under one roof to ensure that we have a range of expertise to assist companies with their capital optimisation,” says Gale.
Exit opportunities
Aon has an edge in the market for deploying capital into the Lloyd’s market, which can be a confusing proposition for new investors, especially around exit opportunities and the use of capital.
“The more we are seeing private equity and alternative sources looking to enter the Lloyd’s or other markets, the greater the focus from investors on the certainty around exit,” notes Gale.
“Aon will support the transactions with analytics, advise on the most appropriate deal structure, drive competitive tension and negotiate the best outcome, all achieved while providing clarity and confidence in the process from a team who’ve been doing these deals for more than 15 years. We can bring that experience to produce the right outcome for the client and the market,” he adds.
“Capital optimisation is tough,” the head of legacy at Aon explains. “No business is going to be perfect in that regard, but enlisting an organisation such as Aon with experience across the board can really help to shape better business decisions,” he continues.