Dear Baden-Badener
For anyone who has studied the ebbs and flows of the global (re)insurance market for the past 20 years, the news that Generali is to centralise outwards reinsurance spending at its Trieste headquarters should come as no surprise.
In fact, the only surprise should be that it has taken Generali so long to catch up with a process that others have been pioneering for the best part of two decades.
Global programmes are nothing new - Axa, Allianz and RSA were the pioneers, and the process of rationalising reinsurance spend and reduction of "leakage" has continued inexorably among their peers.
The immediate market fear is that such a move will inevitably lead to increased retentions and a sharpening of pricing in response to another hefty aggregation of buying demand.
In the short term this is true, but ultimately we would argue that there is less cause for concern.
For one, as insurers have consolidated and gone global, so too have their reinsurers. It is logical that global insurers increasingly need global reinsurers with the licensing and capital to partner with them in all territories.
And if we think insurers and reinsurers have globalised, then their reinsurance intermediaries have been way, way ahead of the game.
It has been effectively "game over" in the global reinsurance broking space since Aon took over Benfield in 2008 in its $1.4bn coup.
Twenty years ago for an independent Spanish, German or French reinsurance broker, the loss of the Generali account to Trieste would have been a disaster.
These days that broker is almost certainly part of one of the "big three" and running as a component of a global profit and loss account.
Of course, there are always winners and losers - the holding brokers in Paris, Berlin or Madrid may not have a comparable relationship with headquarters than with their national subsidiary, but such is collateral damage of day-to-day commerce (and you can bet your bottom dollar that the road to Trieste will be clogged with relationship directors and business producers of all colours looking to turn the change in the balance of buying power to their advantage).
It is also worth noting that generally the bigger a carrier becomes, the more its relationship with its best brokers deepens.
A global carrier that still operates a fragmented territory-by-territory reinsurance buying strategy is far more likely to see its small individual operations buy direct from the usual sources.
In contrast, a more sophisticated centralised buyer is almost bound to bring in the top intermediaries to bring analytics to bear and quote and place the major limits that only a syndicated placement can provide.
The other cause for comfort is that global programmes always create gaps for enterprising fac and treaty brokers to fill. One territory might have specific needs - a major local mining industry, for example - which are likely to be excluded from a one size fits all global treaty.
And let us not forget that in business the process of consolidation is as cyclical as the rest of the market. Consolidation ultimately leads to fragmentation and new capital formation as entrepreneurs exploit high-growth gaps in the market that the industry giants are too unwieldy to exploit.
At the same time, increased retentions at the bottom of a soft market usually only lead to repentance and greater demand when the market turns.
In short, there is no need to panic or fret about the future relevance of the reinsurance product.
But for now all roads certainly lead to Trieste...
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