What Marsh’s $5.6bn acquisition of JLT will mean for risk managers

Firstly, said John Doyle - the president and chief executive of Marsh’s insurance broking operation - the deal was not about size. He said the acquisition was about growth, although he acknowledged that the increased scale could help his firm to achieve that. 

Sitting in a conference room in Marsh’s London offices overlooking the Thames, Lucy Clarke – the freshly-appointed head of the new Marsh-JLT Specialty unit – agreed. She pointed out that, if it was about size, Marsh already had “plenty of scale”.

“We were big already,” Doyle chimed in.

Clarke said JLT’s employees weren’t used to working for a company with the scale and resources of Marsh, adding: “From our perspective it’s a much broader offering.”

“This combination is about growth, first and foremost – it’s financial success will be driven by that,” said Doyle, insisting: “It’s not a cost-cutting exercise for us.”

Job cuts

However, while both executives are hoping for an uptick in revenues – and ultimately profits – following a costly integration period, headcount is likely to suffer.

“There will obviously be some duplication of roles and some redundancy as a result,” Doyle acknowledged.

“For the most part, the redundancies are likely to exist in functions, in staff function areas,” he went on, adding that would take place all over the world.

He said that, in part, the reduction in staff numbers would be through attrition – waiting for employees to quit, either because of the merger or otherwise.

But both Doyle and Clarke, who were with JLT before the merger, said they wanted to minimise the number of people that quit the newly-merged firm.

The two executives said they were trying to ensure the combined firm would be the type of place that people wanted to continue to work. But Clarke acknowledged: “People have to make choices and not everyone will make that choice.”

“I hope as many of us as possible will remain at the greater Marsh,” she added.

Will the best people leave?

But the pair’s comments come as speculation mounts that some of the best people will leave the newly-combined firm following the merger. In a blog post, JLT’s former commercial director, James Twining, said that many of his former colleagues landed at the broking house because they didn’t want to work for one of the big three brokers, of which Marsh is one.

”JLT was able to articulate a distinctive message with real cut-through that was hugely successful in attracting some of the best people in the market from the big three, by making them feel special and part of something different and better,” Twining said.

”It was almost tribal – you were either lucky enough to be invited to be part of JLT, or you were against them.”

”Whatever the cold economic logic of the circumstances that led to JLT selling out, many will always view this decision as an unforgivable betrayal of trust, such was the power of the ‘cult’ JLT had created.”

Twining says that from a client perspective, the deal was “negative” and “doesn’t improve the overall customer proposition”.

Following the formation of Marsh-JLT Specialty, which saw Marsh take out one of its biggest competitors, Clarke reassured clients that the competitiveness of the market would not be affected.

She said there was one fewer player but Doyle observed there were “thousands of others”. And Clarke said it would be good for clients.

“We’ve made it perfectly clear to everybody who works for us that we’re redoubling our focus and our efforts on clients - and also to speak to clients about the integration, insofar as they’re interested,” Clarke said.

But she noted: “We don’t want to bore them with stuff they’re not interested about.” The executive added that Marsh JLT Specialty was “not mandating” any team changes.

And, in fact, she said most clients just wanted the firm to “keep moving” after the deal.

As for the benefits of the integration, Clarke said that specialty clients wanted their work done quickly and accurately by teams who were easily reached and knew what they were talking about.

“For me, particularly in the specialty classes, it would be an unmatched depth in terms of teams and resource,” the executive said.

She added that the decision to identify her new division as a specialty business, highlighted the combined entity’s focus on providing tailored cover to companies across the spectrum.

She said there were seven specified global specialty areas: aerospace; construction; credit; energy and power; financial and professional lines; marine; and the private equity-cum-mergers and acquisitions division.

“It’s not an alarmingly different structure for either business. It’s a familiar structure where there’s global specialty heads driving consistently excellent service in their specialty, wherever they are in the world,” she explained.

A hardening market?

The deal comes as the insurance market looks close to reaching an inflection point, with prices in some lines on the up.

But Doyle was quick to say: “I wouldn’t characterise the market as hard.”

“I think it’s relatively stable, obviously when we talk about the market, it’s really a collection of hundreds of markets all over the world.”

But he added: “In some risk areas and some geographies, obviously, there are more meaningful price changes than in others.”

He went on to say that the timing of the deal had nothing to do with the current market dynamics.

“We help our clients manage risk and quite often that means we go into the insurance market and trade some of their risk off to a third party’s […] balance sheet,” Doyle said.

“The outcome of that is what it is, our job is to do the best job on behalf of our client that we can. And if that means a higher price for certain classes then so be it.”

He went on: “We have a lot of talented people and our value isn’t based purely on price, and we’re not discount brokers - we’re there to help our clients manage their risk.”

“Certain times that could mean a higher price.”