Convergence in wholesale financial services: Reinsurance and investment banking

Abstract

One of the most significant economic developments of the past decade has been the convergence of the previously separate segments of the financial services industry particularly the banking and insurance sectors. Convergence has been driven by increasing globalization of the financial services sector, the deregulation of financial markets, and advances in computer and modelling technologies. The shift in focus towards enterprise-wide corporate risk management solutions has created a growing demand for new risk management products. These developments provide opportunities for the traditional wholesalers of risk management products, particularly investment banks and reinsurers. The paper discusses the core competencies of banks and reinsurers and the factors needed for success in the evolving market. The discussion considers the merits of unbundling the traditional insurance value chain to create more responsive organizations and de-emphasize residual risk bearing by (re)insurers. The paper focuses on opportunities in innovative wholesale risk management products, including products that modify classic (re)insurance product models but do not access broader capital markets and risk-linked securities that access capital markets directly. © 2005 The International Association for the Study of Insurance Economics.