Artex chief executive sees further mergers among ILS service providers
Further mergers are likely among service companies in the growing Insurance Linked Securities (ILS) space.
That’s the view of Peter Mullen, chief executive of Artex Risk Solutions, the captive and alternative risk transfer solutions subsidiary of Arthur J. Gallagher. Artex recently said it was acquiring Bermuda-based Horseshoe Insurance Services, the biggest independent company providing insurance management, fund administration, advisory and corporate services to the ILS market.
“I do see more mergers,” Mullen told Intelligent Insurer in an interview, adding: “Smaller service providers are going to struggle.”
Mullen identified a number of areas where smaller companies might find difficulty. He said firms needed scale to invest in the technology required to service the ILS market.
“Technology is one of the big differentiators,” said Mullen. He added that increased regulation would also make it more difficult for smaller players to survive.
He pointed to the difficulties of operating in offshore locations and the Organisation of Economic Development (OECD)’s substance requirements. The OECD, in its efforts to combat what is sees as harmful tax practices, is now assessing the preferential tax regimes of all zero- or low-tax jurisdictions on their substantial activity requirements. It aims to prevent such low-tax jurisdictions from attracting profits from certain mobile activities without corresponding economic activity.
Mullen said the ILS space would grow in 2020 and 2021. “It stalled a little in 2019 as a result of 2017 and 2018 being two of the worst years on record for catastrophe losses,” he said. “Bur we know of specific individuals coming to market next year with more capital.”
He said: “All the dynamics around the ILS asset class remain pretty strong. The market is not correlated with other assets. From the Artex perspective, I see growth in the continued unbundling of transactions.”
Mullen said that corporate buyers forced the unbundling of the insurance transaction, 30 or 35 years ago, and “the whole captive world was born.” He added that in the last 10 years, a similar thing had happened in reinsurance .
Mullen said Horseshoe had “talent we like, client base we like and systems we like”.
Artex has a headcount of some 400 people, and Horseshoe has about 80. Mullen said he did not anticipate any reduction in headcount as a result of the merger as both the businesses were growing at “quite a clip”.
He said the deal would allow the combined group to offer a broader range of services.
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