CONVERGENCE IN FINANCIAL SERVICES

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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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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.
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Benedetto Zaccaria the silk traders 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
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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
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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
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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?