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SYDNEY, Australia -- Is big beautiful?

The debate over whether mergers and acquisitions ought to continue within the insurance industry was a key theme at the International Insurance Society's 34th annual seminar at The Regent Hotel in Sydney, Australia, July 12-15.

Many varied views were expressed. Malcolm M. Jones, chief executive officer of Sydney-based Zurich Australia Group Ltd., said that while there are many multinational insurers, none can claim to be truly global. He defines a global insurer as one that operates uniformly across the globe, selling the same products in every market in which it operates.

Mr. Jones told IIS delegates the insurance industry is not global because each market has its own regulatory regime and home-grown insurance products that meet local markets' needs. There are no strong, global insurance brands, he said.

Mr. Jones said the varied goals of the regulatory environments are partly why no truly global players have emerged. To operate in different countries, insurers and brokers have to have different structures that meet those countries' regulations. "Some regulators wish to protect local companies; others just need to protect consumers," he said.

Because insurance is a product dependent on trust, it is more likely to be provided by a local company selling a local brand, a company people would trust if they had a claim, he said.

Distribution methods are not truly global, either, Mr. Jones noted. "There is no global retail organization that can distribute insurance."

And he said smaller insurers in niche markets are more profitable. "The small insurers do have higher cost ratios, but these costs seem to be a good investment -- they pay off in better loss ratios."

Mr. Jones said research shows that increasing company size hurts the combined ratio and the profit margin.

"The smaller, more focused companies. . .invest in good, cautious underwriting. They know their markets better and are able to cherry-pick the best of the bunch."

For example, in Australia, insurance companies owned by auto clubs are among the most profitable. NRMA Insurance Ltd., the Sydney-based insurance subsidiary of the National Roads & Motorists' Assn., an auto club that provides a breakdown service in New South Wales, is the nation's largest non-life insurer, with 1997 gross premiums of $1.87 billion Australian ($1.16 billion).

Mr. Jones, who was NRMA Insurance's chief executive officer until a month ago, when he resigned and took up the new position at Zurich, said the success of NRMA and other auto club-owned insurers, which write predominantly auto and homeowners policies direct, shows the strength of domestic insurers' at building a strong brand and loyalty with a large customer base.

The auto club-owned insurers have not entered the commercial market, where they would compete with multinationals, he noted.

Jan H. Holsboer, a member of the executive board of Dutch-based ING Group, said that though mergers and acquisitions would continue in the industry, and development of the euro currency would fuel mergers and acquisitions in Europe, barriers to integration of insurers remain and that growth would be long-term, not short-term.

Insurers' attempts to merge or acquire other insurers would be tempered by differences in language, legislation, tax and distribution methods, and by established brands' strengths, he noted.

"Is big better?" Mr. Holsboer asked. "Not necessarily; size as a strategic goal in its own right could be a mistake."

Mr. Holsboer said growth strategies have to be selective. It is more important to have a balance of internal and external growth; patience, particularly in the Asian markets; and teamwork and synergy within a company.

It is not possible to use a single brand across the world, because that could be perceived as arrogant in many markets, he noted. For example, ING does not use the ING brand name in all its markets because the name does not have universal recognition.

Thomas Wellauer, CEO of Winterthur Insurance Co. in Winterthur, Switzerland, told the seminar that while size alone would not deliver improved results, "it can facilitate cost leadership, brand recognition and skill building."

Mr. Wellauer said the largest insurers continue to increase their market share in Europe and that Winterthur is no exception. The company's strategy is to shape its portfolio of businesses, even to the extent of selling profitable business if someone else could create more value.

Winterthur's goal is to achieve underwriting profits in its non-life businesses, "not only in good years, but consistently, over time," Mr. Wellauer said.

Like their non-life counterparts, life companies are following merger and acquisition strategies, including financial convergence with banks and other financial institutions.

Robert M. Devlin, chairman and CEO of Houston-based life insurer American General Corp., said his company had completed nearly $6 billion in acquisitions since 1995 to achieve size and scale in distribution and profit.

For the brokering industry, JohnReeve, executive chairman of London-based Willis Corroon Group P.L.C., predicted more mergers, saying "there is still room for consolidation" among brokers. It is likely midsize brokers will merge to find economies of scale, improved geographic coverage and enhancedplacement power with insurers, he said. "It could lead to a more polarized industry, with fewer participants in the middle ground between niche specialists and larger brokers," he predicted.

Brokers would seek to exploit placement leverage by establishing strategic relationships with insurers and attempts to rid the industry of some of the duplication of broker/insurer roles, Mr. Reeve said. There is potential for faster customer service, with fewer errors and delivered at a much lower unit cost, he added.

But, as brokers get larger, there also are potential disadvantages, including layers of management, lack of responsiveness to market changes and a loss of clear focus, Mr. Reeve said.

Clients are becoming better managers of risk and are increasingly looking to reduce their total cost of risk, of which transactional insurance premiums are only a component, he said. That means sophisticated brokers have to increase their advice services. They have to sell expertise and knowledge, not just insurance, he said.

Mr. Reeve noted that while, theoretically, megabrokers ought to be capable of producing price advantages because of their placement power, in practice, the effect was marginal. The excess capacity in the insurance markets means "enormous downward pressure" on premiums.

While he favors broker/insurer partnerships, Mr. Reeve warned that insurers have to select their broker partners carefully, as some megabrokers may be "aggressive and demanding, contribute less to the relationship and fail to be loyal over the long term."

Rudolph Ficker, a member of the supervisory board of Munich Reinsurance Co. in Munich, Germany, put the perspective on size from a reinsurer's viewpoint, saying "big is beautiful," but "size per se does not eliminate risk."

Mr. Ficker said economies of scale are a key reason for reinsurer consolidation. As the risks become more complex, there are greater demands on underwriters' expertise. "This is costly and only makes commercial sense if supported by large reinsurance shares (of risks)," he noted.

The value of single-risk exposures has increased, and the loss potential from natural catastrophes has increased, too. Climate change, such as global warming, has contributed to an increase in the incidence and severity of some natural hazards, he noted.

Reinsurers are facing competition from other sources, such as the capital markets, Mr. Ficker noted, but he said there is "more smoke than fire, more talk than facts."

However, he sees capital markets not as a threat but as potential partners with reinsurers. He said the sheer size of the capital markets means they can carry some of the risk insurers and reinsurers can't.

"A really large catastrophic event, such as a $100 billion hurricane loss, is even smaller than the average daily turnover in the U.S. capital markets," Mr. Ficker said.

Mr. Ficker said the better balanced a reinsurer's book, the more capacity it could offer, and the better it could calculate adequate prices and conditions. Reinsurers therefore need strong market positions in all potentially profitable geographic regions.

He expects reinsurance to retain its global share of the insurance market at 8% of worldwide premium ($2 trillion), as reinsurance premiums have remained "more or less" stable in the past few decades.

Although some trends pointed to a reduction in cessions to reinsurers, he anticipates little change.