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MIAMI BEACH — Consolidation among insurance brokers is reducing choice for cedents in the reinsurance market, a panel of reinsurance buyers and sellers said.
There are still likely enough reinsurance intermediaries trading, however, to encourage innovation, and smaller firms still are able to compete with larger brokers, they said during a discussion at the Property Casualty Insurers Association of America’s annual meeting in Miami Beach on Tuesday.
After Marsh & McLennan Cos. Inc. completes its acquisition of Jardine Lloyd Thompson Group PLC and merges the two brokerages’ reinsurance operations, the largest three reinsurance brokers — Aon Benfield, Guy Carpenter & Co. LLC and Willis Re — will control more than 90% of the market, said Steve Levy, president and CEO of the reinsurance division at Munich Reinsurance America Inc. in New York.
“On the surface, most people would think that’s probably an unhealthy level of concentration, bad for both clients and reinsurers” he said.
Reinsurance broking, however, is a relatively small industry with less than $5 billion in annual revenue and reinsurance brokers need a degree of scale to offer the services that cedents require, Mr. Levy said.
“I do think the big three … are fairly effective at competing with one another, not resting on their laurels or getting complacent,” and smaller firms are providing competition, too, he said.
“It doesn’t really concern me. I think what we are seeing is almost inevitable and is probably the sign of a healthy market,” Mr. Levy said.
Broker consolidation has positives and negatives for reinsurers and cedents, said Jonathan M. Colello, New York-based president of Axis Re North America, a unit of Axis Capital Holdings Ltd.
“It’s a double-edged sword. I think that any consolidation that brings new capabilities and new insights to customers, thus making their lives and businesses better, is good. I think any consolidation that reduces choice ultimately in the long term can be dangerous,” he said.
Ceding insurers can see benefits from reinsurance broker consolidation, said Richard Bessinger, chief underwriting officer at Starr Cos. in New York.
“Consolidation that adds services, capabilities and creates efficiencies is always positive and welcome; general competition frankly keeps everybody focused on delivering the best product at the end of the day to the customer, so what’s really critical is working with a broker who understands the business, understands the needs of clients, helps them structure solutions,” he said.
“As long as its not one broker or two — it’s not a monopoly or oligopoly — the bottom line is who can bring value to the client,” said Julia Chu, New York-based chief global ceded reinsurance officer at Markel Corp.
Consolidation can eliminate market participants that don’t add value, she said. “I actually like consolidation.”
Business Insurance covers the latest issues affecting the industry from the Property Casualty Insurers Association of America annual meeting in Miami Beach, Florida, where insurance and reinsurance executives are meeting to discuss market trends and upcoming renewals.