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By CYRIL TUOHY, managing editor

For the existing clients of Aon and Benfield, the deal's a good one as Aon had a traditional strength in the casualty reinsurance market and Benfield was entrenched in the property reinsurance markets. The merger also means an analytical powerhouse with economies of scale unmatched in the industry, and Aon said it will save $122 million a year over the next three years.

"It's not the healthiest environment," said Greg Carter, head of European insurance at Fitch Ltd. "Brokers win because their purchasing power is more concentrated."

But can buyers also win now that Benfield doesn't exist as an independent company? Are higher fees in the offing? Will their reinsurance broker be a little slower to respond? Will the merger mean yet another back-end IT integration project likely to slow down the processing of a multimillion-dollar claim? For sure, the merger means less choice and, therefore, less competition.

"We prefer four megabrokers rather than three but if they decide to consolidate down to three we have to live with that," said Wilhelm Zeller, chairman of the executive board of Hannover Re, which relied on Benfield as its No. 1 broker.

He agreed that the merger would create a reinsurance superbroker with more buying power by far than the next largest broker, but added that Hannover Re had good relations with both brokers in the past, and as a result expected that relationship to continue.

Aon Re Global, with $958 million in premiums last year, and Benfield with $657 million, are the clear No. 1, with a total of $1.6 billion in reinsurance premiums. Guy Carpenter is No. 2 with $902 million and Willis Re is No. 3 with $606 million in premiums in 2007.

"Our reaction is no change for us," said Jacques Aigrain, CEO of Swiss Re. "The two firms are excellent firms in the market and we don't see that that changes anything material, at least for markets as diversified as ours."

Jean-Philippe Thierry, president of the French carrier AGF, said the new company formed out of the merger would become the "indisputable leader" in the reinsurance brokerage marketplace. "Does it concern me?" asked Thierry. "It's a fact."

Thierry also said that the merger was evidence of a contracting reinsurance brokerage marketplace, in turn responding to structural changes among the world's 150 reinsurers. The changes among the reinsurers are making them less dependent on brokers.

And one reinsurance broker at an independent, London-based brokerage, was recently quoted as saying "If you had 30 percent of your account at Aon and 30 percent at Benfield, you are suddenly going to find yourself with 60 percent at one broker and that could be an uncomfortable feeling."

But less choice in the marketplace doesn't necessarily translate into less service on the part of an individual company, noted Roger Selleck, managing director of global financial services for A.M. Best & Co. If the new Aon Benfield Re is better than the sum of its halves, then buyers are looking at a bigger, better company.

Other A.M. Best analysis also said that more business could automatically flow to Guy Carpenter or direct writers--reinsurers who don't use brokers--as some cedants may cap the amount of premium they send through any one broker.

While there appeared to be some concern at the Monte Carlo Reinsurance Rendezvous in September about the heft of a newly merged Aon Re Global and Benfield, Aon Re Global executives pointed out that the new company would handle only 15 percent of reinsurance premiums since in Europe the direct sales channel is bigger than the broker channel.

The $1.75 billion deal between Aon and Benfield was announced Aug. 22. Benfield's operations will merge into the reinsurance operations of Aon Re Global.

The merger, according to Aon Re Global executives, is expected to fuse two halves with a distinct client base. "We have been impressed with how little overlap there was in clients and business," said Michael D. O'Halleran, chairman of Aon Re, at a press conference Sept. 7. "There are always people who will be doubters but we believe we can bring it together very quickly. We will be able to do even more for clients."

Aon Re Global CEO Andrew Appel, said he hoped the deal would be completed by the end of the year at the latest.

October 1, 2008

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