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MONTE CARLO, Monaco -- The steady pace of consolidation that has roiled the reinsurance industry over the past several years is showing little sign of slowing.

Numerous reinsurers and brokerages represented at the Rendez-Vous de Septembre this year have bought out rivals or sold to other companies over the past year. And many of the name tags that delegates wore at this year's meeting will likely carry new company affiliations next year, too.

While the consolidation among brokers may have come to its natural conclusion, there is still some way to go before the wheeling and dealing of reinsurance companies comes to an end.

In the United States, especially, numerous broker market reinsurers either are, or should be, up for sale, many reinsurer executives say.

As cedents retain more risk and search for highly capitalized reinsurers to take on the less predictable portions of their portfolios, the need for numerous medium-sized and small reinsurers diminishes.

And as the larger reinsurers seek to gain positions in other markets, their appetite for acquisitions increases.

Although the largest two brokers may now have finished their major consolidation efforts, the effect that those deals have had on the market was a central talking point of the Rendez-Vous.

In the reinsurance industry, mergers and acquisitions will increasingly occur in the middle segment of the industry rather than among the largest companies, Michael A. Butt, a director of X.L. Mid Ocean Reinsurance Co. Ltd. of Bermuda, said during a presentation at the Rendez-Vous. Among the mid-sized reinsurers, consolidation will occur as companies face increasing losses on their own, he said.

"We are into 18 months of negative cash flow. How long can that continue?" Mr. Butt asked.

The number of reinsurers and insurers in the U.S. market will likely shrink further, said James Dowd, chairman and chief executive officer of Odyssey Reinsurance Corp. in New York.

"There's a long way to go in the U.S. because there are still so many companies operating," he said.

Odyssey itself has been part of the reinsurance consolidation with the purchase last year of Cie. Transcontinentale de Reassurance of Paris and Sphere Drake Holdings Ltd. in Bermuda and London.

And Odyssey's parent, Fairfax Financial Holdings Ltd. of Toronto, has been part of the consolidation among insurers this year with its purchase of Crum & Forster Holdings Inc.

While Odyssey will continue to look at other available reinsurers, it does not have an urgent need to make another purchase, Mr. Dowd said.

"We are pretty well spread on the reinsurance side and we have a global network that we are comfortable with," he said.

There are still reinsurers outside of the United States seeking to access the market.

Shortly before the Rendez-Vous, Bermuda-based Partner Re Ltd. announced plans to buy the reinsurance department of Winterthur Group for $750 million, in part to gain greater access to the U.S. market, said Herbert N. Haag, president and chief executive officer (BI, Sept. 7).

Both Partner Re's and Winterthur Re's operations in the United States were not big enough by themselves to compete effectively with bigger reinsurers in the market, but the combination will create a U.S. reinsurer with more than $500 million in capital and more than $250 million in gross premiums.

The senior management and the majority of the staff of Winterthur Re will be kept on with Partner Re in the United States and with a planned Partner Re branch in Winterthur, Switzerland, Mr. Haag said.

"This is not a cost-cutting exercise," he said.

Gerling-Konzern Globale Reinsurance Co. is another European reinsurer that has been part of the consolidation process in the United States, as it has wanted to gain greater access to the world's largest insurance market, said Norbert Strohschen, chairman of the Cologne, Germany-based reinsurer.

Earlier this year Gerling announced plans to buy Constitution Reinsurance Corp. in New York. Constitution is a medium-sized reinsurer with a good book of U.S. business that will greatly enhance Gerling's existing U.S. operations, Mr. Strohschen said.

Although Gerling has long wanted to increase its size in the United States, it had been limited in what it could do by the Glass-Steagal Act, which limits ownership of insurers by banks, as Deutsche Bank is major shareholder of the reinsurer, he said.

However, after discussions with U.S. regulators, Gerling was permitted to make a moderately sized purchase, Mr. Strohschen said.

Gerling was eager to get the permission to make a purchase as it realized it needed to grow in order to compete with larger rivals in the U.S. market, he said.

"Gerling was very small in the U.S., but the market has changed, and we were missing on opportunities that were being taken by our competition," Mr. Strohschen said.

Other reinsurers not participating in the consolidation movement say they see opportunities for themselves arising from mergers and acquisitions.

"For several years now, we have seen a race for critical size among reinsurers. We don't know where the starting blocks or finish line are, because the race is for recognition, not results," said Alexis Ruset, chairman and chief executive officer of SOREMA S.A. of Paris. Given SOREMA's ownership by French mutual insurer GROUPAMA S.A., "We feel we can take a long-term view, take the time to catch our breath and build a quality, profitable reinsurance operation," he said.

"Because we are not in the same race, we can take advantage of critical developments along the way," Mr. Ruset noted. One such development is opportunities created by consolidation.

"When two reinsurers merge, 1 plus 1 rarely equals 2," he said, noting that many cedents are opposed to placing all their risks with only one or two companies and will look for additional reinsurers.

Consolidation in North America also creates opportunities for SOREMA to pick up certain underwriting teams or portfolios of business that the acquiring company does not wish to retain, Mr. Ruset said.

Another opportunity is structural in nature, he said. The big reinsurers created through mergers may not be as flexible as the cedent desires, making smaller reinsurers more attractive.

"Every time one reinsurer merges with another, we open a bottle of champagne, because it creates new opportunities for us," Mr. Ruset joked.

One benefit of consolidation, according to William J. Adamson, chief executive officer of CNA Re in Chicago, is that "aggregation of risk in the new entity creates demand for additional reinsurers."

If one company carries 10% of a cedent's risk and merges with another company that has 20% of the risk, the ceding company may decide that having 30% of its business in the hands of a single reinsurer is too much, Mr. Adamson noted.

While the consolidation will lead to bigger and stronger reinsurers, cedents may not like the reduction in choice of reinsurers, agreed James P. Bryce, senior vp at International Property Catastrophe Reinsurance Co. Ltd. in Bermuda.

"Not everybody is comfortable with a handful of players controlling their destiny," he said.

Reinsurers that remain outside of the consolidation trend may benefit from other strengths, such as consistency in shareholder structure and support, Mr. Bryce said. American International Group Inc. has been a major shareholder in IPC Re since its inception.

Whereas most reinsurers agree that the consolidation of insurers and reinsurers still has some way to go, most say the major consolidation among brokerages has reached its conclusion.

"One could argue that brokering is consolidated as much as possible," said Mr. Butt of X.L. Mid Ocean. If consolidation has run its course among brokers, some predict that spinoffs and startups will follow, as was the case in the 1970s and '80s, he said.

"Today that is unlikely, because there is higher risk to starting up a brokerage," said Mr. Butt. That is because many existing brokers and underwriters are already "aligned," making it difficult for a new broker to win business, he said.

But there still could be room for new specialist brokerages, said Mr. Dowd of Odyssey.

"On the brokerage side the consolidation has almost reached its natural conclusion. It's more likely that there will be spinoffs and boutique firms set up by people who feel constricted at the giant firms, rather than further consolidation of the giants," he said.

But while cedents wait for that to happen, they have far fewer choices, reinsurers say.

"In essence, it means a lack of choice for the industry. While we have extremely good relationships with the largest brokers, it's nice to have alternatives," said Hans D. Rohlf, managing director and chief underwriting officer-North America for Hannover Reinsurance A.G. of Hannover, Germany.

In Canada, about 95% of its business is in the hands of Aon Re and Guy Carpenter, he estimated. "Is that a good distribution for a viable market?"

Just as some insurers have made an investment in Willis Corroon Group P.L.C. and USI Insurance Services Corp. to, among other things, assure an alternative distribution channel, Mr. Rohlf speculated that this could also happen with reinsurance intermediaries.

Reinsurers also are likely to suffer from poorer administrative service from brokers as a result of the consolidation, said Benito Pagnanelli, deputy general manager of Assicurazioni Generali S.p.A. of Trieste, Italy.

"We have faced administrative problems when this has happened in the past, particularly with London brokers," he said.

In London much of the responsibility for the administration of reinsurance contracts lies with the broker- ages, Mr. Pagnanelli said.

"If there are changes, it is sometimes difficult to trace accountability or the issuance of coverage notes. . .there is always additional effort, which means additional costs," he said.

But the consolidation could have some benefits for broker market reinsurers, said CNA Re's Mr. Adamson.

"Broker consolidation has been a benefit to us because we are viewed as someone who will remain on the risks of the surviving brokers," he said.

CNA Re has long-term relationships with both Guy Carpenter and Aon Re, as well as smaller brokers, Mr. Adamson noted. On a global basis, 60% of CNA Re's business still is with brokers other than the top two intermediaries, he said.

"There's still room for small brokers. Some are excellent and provide excellent service. It's in our interest to help them survive," said Francois Chavel, president and chief executive officer of SOREMA N.A. in New York. "Even if they lack technical capabilities, they can outsource those services. The key is their experience, professionalism and relationships," he said.

On the treaty side, about 80% of SOREMA N.A.'s business is placed by Aon Re, Guy Carpenter/Sedgwick and E.W. Blanch, estimated Nicolas Papadopolou, executive vp and chief underwriting officer of SOREMA N.A. On the facultative side, though, those brokers only account for about 40% to 50%, he said.

"A concern has been that consolidated brokers will leverage their relationships and the volume of business they bring" to insurers and reinsurers, observed Donald S. Watson, director of reinsurance ratings for Standard & Poor's Corp. in New York. "However, abuses of that leverage would only serve to drive business elsewhere, and there's a relatively low barrier to entry in the brokerage business," he noted. "I haven't seen the impact of consolidation that some fear."

Brian M. O'Hara, chairman and chief executive officer of X.L. Insurance Co. Ltd. in Hamilton, Bermuda, said it is not yet clear whether consolidation would give the megabrokers new leverage with underwriters.

"The only thing you can do is provide such a superior service that they have to use you," he said.

"You like to see more choice, but the market will sort that out. We have good relationships with all our brokers," noted Brian Duperreault, chairman and chief executive officer of ACE Ltd. in Hamilton. "Consolidation must be sorted out by the broker's client," he added.

Brokerages involved in the consolidation still see a lot of opportunities for themselves and benefits for their clients as a result of the consolidation.

If brokers do achieve more leverage with reinsurers, then it will be to the benefit of cedents, said Ronald Iles, London-based chairman of Aon Re Worldwide, a unit of Aon Corp.

"We don't get paid by reinsurers; we get paid by our clients, so if we can do a better job for them as a result of our size we should," he said.

But, the power of the large reinsurance brokers often is exaggerated, Mr. Iles said.

"In Europe probably more than two-thirds of reinsurance premiums are with the direct writers, so the leverage potential may be overstated," he said.

More important to cedents are the enhanced services the large brokerage organizations can provide, according to Brandon Sweitzer, president and chief executive officer of New York-based Guy Carpenter & Co. Inc., the reinsurance brokerage subsidiary of Marsh & McLennan Cos. Inc.

"It's absurd to say that we are disadvantaging our clients," he said.

Instead, cedents will be provided with a much wider range of traditional and non-traditional reinsurance services, he said.

M&M's proposed purchase of Sedgwick Group P.L.C. will do just that, Mr. Sweitzer said.

The amalgamation of Sedgwick Re will provide Guy Carpenter clients with extensive facultative reinsurance expertise in North America; a stronger presence in the Far East; expertise in reinsurance for multiline insurers in the United Kingdom; a stand-alone runoff services operation; a stand-alone analytical services arm; as well as capital markets expertise, he said.

"Our business is becoming more and more akin to investment banking and consulting," Mr. Sweitzer said.

Brokerages are competing more with consultants, agreed Patrick G. Ryan, chairman and chief executive officer of Chicago-based Aon Corp., which has been a leading consolidator in the global brokerage industry.

"There is intense competition for risk management services. A battle is emerging to be the lead provider of these services between brokers and consultants. We believe the broker will be the lead provider and distributor of these services," he said.

That competition and consolidation are driven by the customer, he said.

"If the client didn't want greater investment in technology, more resources and information, we wouldn't consolidate to provide that," Mr. Ryan said. "As the client has greater needs, the broker has to grow to meet those needs," he said, noting that corporate clients have expanded internationally, so brokers have had to follow.

Aon is not exercising its leverage with markets in the way some fear the megabrokers could act, such as demanding contingent commissions, according to Mr. Ryan.

"I say to the markets: 'Let's partner to benefit the client. Let's not worry about how we are paid; the client will decide how we are paid if we do a better job for the client," he said. "We're not costing the client more if they are getting better quality and prices."

The consolidation also is providing more opportunities for other brokers, said David Margrett, chief executive officer of London-based broker Lambert Fenchurch Group P.L.C., which owns reinsurance intermediary Kininmonth Lambert Ltd. "There's a lot of market out there still, even with the megabrokers," he said.

"More interesting to us are the opportunities that come from these changes," such as attracting new people displaced by consolidation, said Mr. Margrett.

Meanwhile, continued M&A activity may be on hold until there is a world stock market correction, noted Mr. Watson of S&P.

He said a handful of reinsurer transactions waiting in the wings are on hold as a result of recent stock market volatility.

"I believe the decision to go forward with these deals will be more a personal one than a strategic one," he said, pointing to how well a deal rewards management in light of diminished stock prices.

Generally, though, the capital resources won't be there for the industry to continue making deals at the pace of recent years, Mr. Watson said. The mergers and acquisitions that are done "will be strategic in nature, with a speciality or geographic target," he said.

An ideal acquisition in this environment would be a company that brings "new synergies" to the acquiring company, such as new products or geographic reach for existing clients, Mr. Watson said.