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CONVERGENCE IN FINANCIAL SERVICES

CONVERGENCE IN FINANCIAL SERVICES. A medieval example or - ‘solutions first’ R. Kellenberger, Deputy CEO Swiss Re Monte Carlo, September 11, 2001. Insurance Regulation. Banking Regulation. Broker/ Dealer. M&A Advisory. Property insurer Life and Health insurer. Commercial

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CONVERGENCE IN FINANCIAL SERVICES

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  1. CONVERGENCE IN FINANCIAL SERVICES A medieval example or - ‘solutions first’ R. Kellenberger, Deputy CEO Swiss Re Monte Carlo, September 11, 2001

  2. Insurance Regulation Banking Regulation Broker/ Dealer M&A Advisory Property insurer Life and Health insurer Commercial Banks Asset managers Global custodian What is bancassurance or convergence? Taking an institutional view it is the the combination of banking and insurance capabilities under one roof driven by the fading barriers of regulation But is this the right perspective? Let us go back into medieval times….

  3. Benedetto Zaccaria: the silk trader’s dilemma 1. A bale of silk costs in Genoa 100 2. A bale of silk, quality checked by Zaccaria, sells in Amsterdam for 200 3. The transport takes 2 months 4. There is a risk that the ship may sink and using several ships is cost wise not an option The possibilities are to either win 100 per bale or to loose everything 200 100 Source: Bryis et de la Varenne 2001

  4. Benedetto Zaccaria: the solution Zaccaria arranges with two Genoa financiers, Suppa and Grilli, the following transaction: 1. Zaccaria sells for 110 spot in Genoa to Suppa and Grilli 2. Zaccaria commits to repurchase from Suppa and Grilli in Amsterdam ex harbor for 180 Zaccaria has an upside of min. 10 and max. 30. He is hedged against a total loss by transferring the transportation risk. Zaccaria can duplicate the trans- action with his freed up cash the next day. Zaccaria can focus on where he is best. 180 200 20 100 110 10 Source: Bryis et de la Varenne 2001

  5. Zaccaria: the conclusion Were Suppa and Grilli now bankers, insurers or derivative traders? Did it matter to Zaccaria? He got the solution which fitted his needs, at a good price and he knew he was dealing with business partners with financial strength and an excellent reputation In a converging Financial Service Industry, where institutional barriers come down, historical starting points have little relevance Functions are always senior to institutions Organizations will realign themselves along the value chain Client needs and economies of scale will determine final structure of the industry NO

  6. Questions • For Lukas Mühlemann: • Where do you see the main difference between retail and wholesale convergence? • Do you see convergence in retail as more difficult than in wholesale? • Why should bancassurance attract investors? • How will the convergence of insurance and banking regulation impact the strategic development of the industry? • How will Basle II impact the convergence? • For Joe Plumeri • Which will be the future competitors of insurance brokers? • Does the broker community have the means to invest in people and systems like the Investment Banks? • Upon which services does the future of the broker community in a converging market base and what makes a broker a winner in his field? • How good is the understanding of the other side of the fence within Willis? • Are there natural convergence players? • For ………………………………. • Where do you see the regulatory challenges for a bancassurer moving forward? • What are the chances for one global FS regulator in your country? • Where have you experienced difficulties due to your strucure in communicating to the stock market? • May not convergence be just an intermediate step to divergence (spinning off) of consolidated entities?

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