Analysts at Wells Fargo Securities have suggested that a potential combination with Aon could require Willis Towers Watson (WTW) to sell off its reinsurance arm, Willis Re.

Speculation about a possible merger deal between the two broking giants was sparked last week after WTW confirmed that it was exploring “strategic alternatives” for Miller, its wholesale unit.

The move comes almost a year after early stage discussions regarding a potential combination between WTW and Aon collapsed.

Commentators have theorised that the Miller sale could be preparing the ground for a bigger mergers & acquisitions (M&A) deal, possibly once again with Aon as the brokers wait out the one-year cooling off period between rounds of negotiation.

However, Wells Fargo believes that an acquisition by Aon could require WTW to potentially shed more of its businesses, in order to avoid over-concentrations in certain markets.

In particular, analysts highlighted Willis Re as a likely candidate to be offloaded, perhaps in a similar way to JLT selling its aviation business to get regulatory approval for the sale to MMC.

While it was sceptical about the logistics of a WTW/Aon merger when talks were first disclosed in March 2019, Wells Fargo now thinks that a deal is likely.

It noted that the timing for a deal would make sense given the news of the Miller sale and with WTW CEO John Haley set to retire at the end of 2020.

Analysts also pointed out that a merger could be mutually beneficial, as Aon has been best in class on managing expenses and its free cash flow, both of which are below peer averages for WTW.

At the same time, Aon could gain back market share lost to MMC in the JLT deal and could become the largest global insurance and reinsurance broker.

Aon has not seen a big impact on its business due to the MMC/JLT deal, but Wells Fargo believes this could be due to the timing of the renewals, and predicted that bigger impacts could be visible next year.

That said, the firm considers the current economic backdrop to be one where Aon can thrive even without a merger, particularly given the trend of firmer reinsurance pricing.