MONTE CARLO, Monaco-Consolidation in the reinsurance and brokerage industries is likely to continue, though not without ramifications for those that remain, reinsurance executives say.

The benefits of consolidation most often cited are a reduction in costs, diversification and instant global reach. At the same time, some reinsurers warn of the risks of concentrating market share in the hands of fewer brokers or reinsurers.

Others see consolidation as an opportunity to win business from their gigantic rivals and a chance for swift, specialized brokers to sparkle.

Those were some of the views of reinsurance executives attending the annual Rendez-Vous de Septembre meeting in Monte Carlo, Sept. 8-13.

"Among lower-capitalized reinsurers, history indicates there will be more consolidation," said Bruno Porro, a member of the executive board of Swiss Reinsurance Co. of Zurich, Switzerland. "Among large companies, SAFR was the last really attractive big company. In Europe, consolidation has progressed very far," he noted.

One possible remaining acquisition target in Europe will be Groupe des Assurances Nationales, which is due to be privatized by the French government, said Mr. Porro.

Assurances Generales de France, Allianz A.G. Holding, Fortis A.G. and at least two consortiums have been cited as possible bidders for GAN (see related story, page 2).

During the week of the Rendez-Vous, another French reinsurer, Cie. de Reassurance d'Ile de France, or Corifrance, was bought by Terra Nova (Bermuda) Holdings for an undisclosed sum. Corifrance's 1996 premium volume was 153 million French francs ($30 million).

Consolidation likely will continue as the intense competition in the reinsurance market continues, said James Duffy, president of St. Paul Re in New York.

"When you have so much capacity in the market, there are certain players that underperform others and the ones that underperform will have to do something different," he said.

That scenario would only be changed by a significant event that drains the capital of the market, Mr. Duffy said.

"Consolidation is justified by the need to reduce costs and perhaps to offer better service," said Benito Pagnanelli, deputy general manager of Assicurazioni Generali S.p.A. of Trieste, Italy. "You can become a global company by 20 years of work or by an acquisition," he noted.

The concentration of risks with just a few mega-reinsurers also may create opportunities for other reinsurers, said Norbert Strohschen, chairman of Gerling-Konzern Globale Reinsurance Co. in Cologne, Germany. "So many companies have merged, and a lot of clients have changed their reinsurance programs as a result. They are happy to place a certain amount of business with Swiss Re or Employers Re but not everything," he said.

Companies such as Gerling can put themselves forward as an alternative to the biggest reinsurers, said Mr. Strohschen, who estimated its premiums would gain 8% to 10% as a result of such defections.

Strong reinsurers also will be able to win business from small competitors, said James Dowd, chairman and chief executive officer of Odyssey Re Corp. in New York.

Odyssey Re is a product of consolidation through its parent company's purchase of several reinsurers. Fairfax Financial Holdings Ltd. purchased Cie. Transcontinentale de Reassurance of Paris last year, and its purchase of Sphere Drake Holdings Ltd. is pending. CTR will continue to trade under its existing name in France, but Sphere Drake likely will become Odyssey Re U.K., he said.

Increasingly, cedents are looking for large, secure reinsurers and the strength of the larger reinsurers will give them a benefit over smaller competitors, Mr. Dowd said.

"Rapid-fire consolidation among direct writers you've heard of. Most deals are considered a success for buyers and selling organizations," said David Jarvis, global head of financial institutions for Salomon Brothers Inc. in New York. "The spillover to the broker market, though, did not occur as expected."

One reason, he said, is there is less opportunity for expense reduction in mergers of broker-market reinsurers, compared with direct writers. Broker-market companies have relatively lower general and administrative expenses, with an external distribution system for their products, he explained.

There also are questions about the value of the "broker-market franchise" and their ability to control their book of business, Mr. Jarvis said.

Today, there are fewer reinsurers on most treaties, so there is less of a need for multiple brokers, he noted. Bigger reinsurers also increasingly will demand a bigger slice of profitable treaties, he added.

"The more the reinsurance market consolidates, the less you need brokers," agreed Mr. Pagnanelli.

Broker consolidation is not without its benefits, though, some reinsurance executives say.

"We see a lot of benefits of broker consolidation," said Steven J. Bensinger, president of Chartwell Re Corp. of Stamford, Conn. "It allows us to become closer to a small number of brokers."

At the same time, broker consolidation can create a business risk in that a greater percentage of an underwriter's business is coming from a few megabrokers, said Richard E. Cole, chairman and CEO of Chartwell Re.

That is why it's important for reinsurers to increase in size themselves, he said. "In a way, broker consolidation is a factor that drives reinsurer consolidation."

"One also mitigates the business risks of this concentration by building stronger relationships with fewer intermediaries," noted Mr. Bensinger. In turn, the brokers will become a more efficient distribution system, he said, by knowing their markets better.

Consolidation also is making the brokers more efficient, according to Mr. Bensinger. "There's too much cost in the current distribution system."

The large brokers will be able to offer more resources and better services to their clients, said Hady Wakefield, chairman of Guy Carpenter & Co. Inc. in New York.

"Clients look for and expect far more sophisticated financial advice than reinsurance brokers have previously given," he said.

Guy Carpenter, the reinsurance arm of Marsh & McLennan Cos. Inc., grew significantly bigger through its merger earlier this year with Willcox Inc., the reinsurance arm of Johnson & Higgins.

During the week of the Rendez-Vous, it was rumored that Guy Carpenter would become even bigger through M&M's purchase of both Jauch & Huebener KGaA in Hamburg, Germany, and G.J. Sullivan Co. in Los Angeles.

However, late last week Aon emerged as the apparent winner in the bidding for the German broker.

The consolidation among reinsurance brokers will give more clout to the brokers that remain, Mr. Wakefield said. "In a soft market like this, clout is very helpful, but it would be wrong to take irresponsible advantage of that," he said.

The large reinsurance brokers will have greater influence in the market, agreed Ronald A. Iles, chairman of Aon Re Worldwide Inc. Aon also grew over the past year through the purchase of Alexander & Alexander Services Inc. and Minet Group.

"It gives us a good entry to clients and it gives us a certain leverage potential," Mr. Iles said.

Aon has become stronger and the companies it has bought now have more resources available as a result of the mergers, Mr. Iles said.

Additional broker consolidation likely will continue, he added. "We are still looking at consolidations in a small way," Mr. Iles said.

Small brokers that remain independent may prosper, but they will have to be sharp and efficient, said Mr. Duffy of St. Paul Re. "The small brokers will have to specialize and they will have to understand what they bring to the market. They will have to be small and swift," he said.

Significant future broker consolidation would be detrimental for reinsurers, said John Berger, president of F&G Re Inc. in Morristown, N.J.

The remaining few brokers would control so much business that their negotiating position would be greatly enhanced, he said.

"The company consolidation, I think, will continue, but on the broker side, I hope not," Mr. Berger said.

Currently the relationships between individual brokers and underwriters will help prevent a serious imbalance of negotiating power, said Mr. Dowd of Odyssey Re.

"In the reinsurance world there is some direction from head office but the day-to-day decisions are made by the individual brokers and they are based on their relationships with underwriters," he said.

Small broker-market reinsurers may be affected by the broker consolidation as the large brokers will "turn the tap," said Dirk Lohmann, chief executive officer of Zurich Re, a unit of Swiss-based Zurich Insurance Co.

"But it won't have a great impact on the large reinsurers because those reinsurers have a relationship with the client even if it's through a broker channel," he said.

Consolidation among reinsurers also may have its downside, some executives say.

The concentration of the market in the hands of a few companies was likened to an oligopoly by Mr. Pagnanelli of Generali.

"Maybe 60% to 70% of the market is in the hands of four or five reinsurance groups. This presents a concern for buyers," he said. With so few companies controlling so much business, there may be a risk that they could dictate terms that the rest of the market must follow, he said.

The planned merger of Credit Suisse Group with Winterthur Group also may have negative implications for the market, Mr. Pagnanelli said. "It is the first, but there will be others," he said of bank/insurer mergers.

"Finance and life insurance have some similarities, but finance and the P/C business does not make sense-it's perplexing," he said.

Such a merger raises questions about the influence of the banking side on the insurance operations, said Mr. Pagnanelli. "Who would take responsibility to decide where to invest capital-by buying shares or taking more risk?" he questioned.

A bank/insurer combination also risks exposure to losses on two fronts, he said, pointing to a commercial business that borrows from the bank/insurer and is insured by it.

Industry consolidation may create concern "about displacement that takes place and disruption of relationships," said William J. Adamson, chief executive officer of CNA Re in Chicago. "When change happens, it's either an opportunity or you're under fire, because clients like stable support."

"Lots of good people are on the street due to consolidation. So many people and a lot of talent," observed Michael J. Caley, chief executive officer of reinsurance broker Kininmonth Lambert Ltd. of London. The silver lining from this situation, though, is that "it's fertile" for recruiting new people and teams, he added.