Swiss Re

CONVERGENCE IN FINANCIAL SERVICES

A medieval example or - ‘solutions first’

R. Kellenberger, Deputy CEO Swiss Re

Monte Carlo, September 11, 2001

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Taking an institutional view it is the the combination of banking and insurance capabilities under one roof driven by the fading barriers of regulation

What is bancassurance or convergence?

InsuranceRegulation

Banking Regulation

Asset managers

Property insurerLife and Health insurer

Broker/Dealer

M&A Advisory

Global custodian

Commercial Banks

But is this the right perspective? Let us go back into medieval times….

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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

Source: Bryis et de la Varenne 2001

100

200

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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. 10and 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.

Benedetto Zaccaria: the solution

Source: Bryis et de la Varenne 2001

100110

180200

10

20

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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

Zaccaria: the conclusion

NO

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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?

Questions