CEO forum: consolidation

As the trend of consolidation continues, how do you believe this will reshape the industry? How will it affect your business?

Amer Ahmed, CEO, Allianz Re: "With the consolidation we will have a number of larger players with, probably, stronger balance sheets and broader range of capabilities and services they can offer to their clients. Given some of the changes in cedant buying this seems to complement the move towards fewer, larger and more complex programmes being reinsured.

"So as a buyer we see this as a positive trend, although there will potentially be some reduction in choice."

Eric Andersen, CEO, Aon Benfield: "Some would say that the trend towards consolidation reduces the opportunities for client and/or market engagement for brokers, due to the fact that the number of market participants is being reduced. However, I would turn that argument around and say that post-M&A you have a single entity with a larger—and possibly more global—aggregation of risk than either of its component parts.

"It provides an opportunity for the larger, new insurers to be more innovative in creating new products with their bigger balance sheet. As we are a large broker with a worldwide network and varied capabilities, this situation presents us with enormous opportunities to work with the new entity on its approach to risk management. It allows us to bring value to the table that we can be paid for, and really differentiates us from the smaller brokers and the transaction-only brokers.

"In terms of the wider industry, I do not believe that consolidation will reduce choice to the extent that there is a lack of competition in the marketplace. Firms choose to consolidate generally to gain efficiencies, capabilities, and global or regional reach, all of which are beneficial to the end client. I also think that the specialty insurers will continue to compete on innovation, creativity and service in the market, which is good for our clients."

Dr Arno Junke, CEO, Deutsche Rück: "The reinsurance market is and remains a heterogeneous market with many players on each side of the table. Without a doubt we are currently experiencing a period of consolidation. This primarily affects small market participants who—often due to their lack of diversification and increasing demands in risk capitalisation—are experiencing significant yield pressure.

"Some see their business strategy as no longer expandable. Because most of these not-so-well-diversified business models are also frequently burdened by high cost structures, for many of them searching for quick bolt-on synergy effects promises relief. But these developments are by no means disruptive to the industry.

"Reinsurance is a business segment with relatively low barriers to entry, and the influx of capital will remain unbroken. We are further away from a market oligopoly now than we were 15 years ago."

Nick Frankland, CEO, Guy Carpenter, EMEA operations: “Consolidation will continue as long as margins are tight and scale provides an opportunity for improved positioning and operating efficiencies. The fact that recent moves have been among larger rather than smaller players, which may have been more expected, is perhaps significant. It could create a new order in the reinsurance space as those outside the top five combine to mount a challenge to the established giants.

"Rather than reducing the available capacity this could create greater competition, especially in the much alluded-to battle for ‘relevance’, and fuel further consolidation among smaller competitors. However, increased exposure to counterparty credit risk concentration among a few very large reinsurers will undoubtedly lead clients towards expanding reinsurer panels in the interests of greater spread. These two competing but ultimately complementary influences will continue to ensure a highly competitive market place.

"On the downside, consolidation clearly reduces an already limited client pool and provides stronger balance sheets against which to retain more risk. So the outcome will continue to be more competition for less business, which will require us to continue expanding our knowledge and skillsets into wider advisory and delivery services as well as new forms of protection.”

Torsten Jeworrek, CEO, reinsurance, Munich Re: “The trend of consolidation is likely to continue in the coming years. The reason for this is that there is significant overcapacity and additionally hardly any growth in the market. Retentions are increasing and competition remains fierce for a smaller pie.

"This situation has consequences particularly for smaller reinsurance companies. Because there is so much capacity in the market, smaller companies definitely have fewer chances of renewing their shares on the programmes.”

Ulrich Wallin, CEO, Hannover Re: “For the industry it reduces the number of players, which should also reduce the competition a little bit. However, at the same time, we are seeing new reinsurance underwriting units being formed, so overall the market will continue to be as fragmented as it is currently.

"At the same time, these merged entities demonstrate the conversion between insurance and reinsurance. Often the motivation of the merger is that the company dominated by reinsurance is looking to grow into the specialty and commercial insurance field.

"For us, mergers between two reinsurers is a positive thing as it reduces the competition somewhat, and with our size, we are still a larger entity than the converged entities.

"When it comes to the insurance part, then it’s quite the opposite as we are not losing a competitor, we are losing a client.”

Ingrid Carlou, CEO, Patria Re: “In terms of reshaping the industry. We believe most of the initial impact will happen in the second tier. This will have little if any impact on the very large reinsurers since the distance between the two groups is so important, that mergers among middle-sized reinsurers will be unlikely to create a large enough carrier that could challenge the position of the top 10 players. As we have stated before, the situation for reinsurers today is not really about size but about relevance.

"In our opinion consolidation will create two fundamental groups, the first being those that will be basically wholesale carriers. They will inevitably move further and further away from the markets in spite of trying to maintain local offices and despite their efforts to reach out to the specificity of risk assessment. Technical analysis, big data, centralised procedures and operations will dominate their decision-making process.

"The other group will have to concentrate on niches, specialty segments and boutique operations, where fundamental analysis is still a relevant factor and where specific risk assessment and tailor made solutions are indispensable.

"It is likely some sort of symbiosis will develop among the two segments as it has already started to happen.

"The same is true for reinsurance broking. Consolidation will not change the dominance of the two or three larger players. However, at some time it could happen that the regulatory spree starts to consider that the role of the broker is not disconnected to the risk that the carrier takes, and that such a high concentration of brokerage needs to be considered.

"Already the three larger players are taking very different strategies in their development. The weight they will have on the underwriting decision process will probably increase.

"We have carefully considered these macro tendencies in term of what is going on in Latin America. We are convinced that in order to remain relevant as a specialised reinsurer in Latin America we need to have a foot in the world market and that is why we have repositioned the company.

"Latin America is not an isolated appendix of the global market but an integral part of it, and in order to play our part properly we need to keep our heart and mind in what we are about, but we also have to step back and look at things with perspective, while we test the waters in the larger picture.

"As a result, we have increased our interaction, transactions and strategic alliances with international reinsurance brokers and reinsurers both in the first tier and with those that operate specialty lines and need a partner to develop Latin America.”

Denis Kessler, CEO, SCOR: “The overall market conditions are fuelling the consolidation movement we have observed over the last 12 months. Our industry is undergoing long-term structural consolidation, with industry players seeking sufficient scale and diversification to absorb pricing pressures as well as the consequences of the low investment yield environment and increasing regulatory requirements.

"In parallel, the risk universe is expanding, particularly in terms of extreme risks. With the aim of becoming a tier one reinsurer with access to business throughout the world, SCOR began consolidating early, starting back in 2006 with Revios, followed Converium, Transamerica Re and Generali USA.

"Today, SCOR is a global and well-diversified group, with a very strong franchise. The consolidation to date has primarily involved Lloyd’s platforms and Bermuda-based reinsurers that entered the market post-9/11, and are attempting to diversify away from their concentrations in US-based commercial insurance and reinsurance business.

"Many of these companies will soon realise that size alone will not meet the innovation and service levels requirements of their growing insurance clients.”

Michel Liès, CEO, Swiss Re: “As the trend of consolidation continues, how do you believe this will reshape the industry? How will it affect your business?

"Consolidation, especially among smaller and mid-sized reinsurers, will continue, as players need to be larger and better diversified in order to compete. The small-focus specialised underwriter business model is losing its value proposition. Top-tier reinsurers are comparably better positioned, but will need to further strengthen their value-added product offering while running their dual distribution (broker and direct) model.

"Their strategy will be to monetise their lead underwriting services, leverage their additional services (know-how transfer, support in entering new products and markets, strategic initiatives) and innovate to circumvent and complement commoditisation.”

John Cavanagh, global CEO, Willis Re: “The consolidation trend is certainly set to continue. The outcome will result in fewer larger players with more substantial relationships with clients. We are great believers in syndication and the ability to spread our clients’ risk, so in some respects this trend is contrary to that philosophy.

"However, we expect a sufficient spread and balance of options for our clients to be maintained. Choice is a very important component of the reinsurance delivery chain.”

Click here to read part two of the CEO forum on 'new capital'.