The two largest reinsurance brokers, Aon Benfield and Guy Carpenter, are slugging it out in the fight to win clients and place business. At the Monte Carlo Rendez-Vous, David Sandham met the chief executive of each firm.

Relaxing with a cup of tea in the sumptuous surroundings of the Hotel Hermitage in Monte Carlo, I wait for Andrew Appel, chief executive of Aon Benfield, the world’s largest reinsurance broker, to arrive. It’s not like him to be late. He normally gets into his Chicago office by 6:30am, usually having already been to the gym.

I wonder if he will venture any predictions, as he did the first time we met. That was back in April, when he correctly forecast a flurry of mergers among reinsurers, saying there was a “once-in-a-generation opportunity for players to emerge in the top ten”.

Since then, PartnerRe merged with Paris Re and leaped into fourth place in world reinsurance league; the battle between Validus and Max Capital for IPC had already commenced – with Aon Benfield advising the losing side, Max Capital, in that tussle.

Perhaps Appel has a special affection for mergers because his own company, and his career, were transformed by one. The merger between Aon, where Appel was head of the consultancy arm, and Benfield created a powerhouse with 40% market share in reinsurance broking – way ahead of the competition. The market knowledge and power this has given Aon Benfield cannot be underestimated.

The merger also boosted the already impressive career of Appel. A McKinsey man, like Aon’s chief executive Greg Case, Appel had joined Aon in 2005, running its consultancy side. Three years later, he was promoted to become the first chief executive of Aon Benfield. He now leads 4,100 staff and oversees $1.5bn revenues. He is just 44 years old.

As I finish my tea, Appel arrives, apologising for being late. It seems he was up late last night entertaining clients. He often spends his evenings with clients, and this is Monte Carlo during the Rendez-Vous, so I assume the occasion was prodigious. His voice has temporarily evaporated to a croak, but he has lost none of his trademark charm.

We go outside and sit on a balcony overlooking the tranquil blue of the Mediterranean, which leads me to ask a question about scuba diving, which I know is a hobby of his. “Who are you writing for, Scuba Monthly?” he jokes, but tells me his last time in the water was last summer in Hawaii, where he swam with turtles and explored caves.

Moving on to the business questions, I throw him what I hope is a tough one: hasn’t the merger with Benfield been difficult, given the task of melding two quite different cultures? The London-based Benfield was known for its open, collaborative culture and strength in marketing, whereas the Chicago-based Aon was said to be technically deeper and more academic.

Appel reclines comfortably in his chair and bats away my question with ease. “The two cultures of Aon and Benfield were more similar than different,” he says. “Both were heavily client-focused and both were analytics-focused. The Benfield analytics were UK-based and those at Aon were US-based.”

He sees less of a culture difference between the two firms as a difference between the US and the “London broking culture”. As an illustration of Aon Benfield’s size relative to smaller brokers, Appel mentions that there are 500 people in the Aon Benfield analytics group. “We spend more on analytics than the fifth-largest reinsurance broker and beyond have in revenues,” he says.

But what about the inevitable doubling up of sales effort post-merger – hasn’t that led to business being lost? “Our client retention has been extraordinary,” he says. “We carefully tracked lost business through the integration. We have a database of 100 individual situations and the lost business is slightly better for us than we expected.”

One challenge was the two different technology systems at Aon and Benfield. They are moving to the Benfield system, he says.

Prior to the merger, Benfield was turning over about £310m, which at the weakened exchange rate at the time was equivalent to about $575m. Aon Re’s revenue was $950m, so the combination gave around $1.5bn – not far off what it is today. The figures show then that the combined entity has not lost much business, but equally that there has not been significant organic growth. Appel will not be drawn on a revenue projection for 2009.

So I try to tempt him to make a general prediction for the future. “We want to redefine the broker of the future,” he says. “Over the next five to ten years – and it will involve that length of time – we will be adding value in the context of a transaction, adding value as a capital adviser not an asset adviser, and potentially as a profit growth adviser.”

By way of illustration, he refers to recent proprietary Aon Benfield research which indicates that buying reinsurance can help cedants’ stock prices by smoothing their earnings. “Those insurers that successfully manage volatility can help to increase their relative market valuation,” he says.

How about a prediction on future reinsurer mergers? “There is room for additional consolidation,” he says. He gives two reasons: one, “larger players can commit more capital”; and two, “most reinsurers are looking to diversify their business mix”.

But he qualifies the prediction. “It’s good in theory. It may not always work in practice,” he says.

Is there a danger that mergers will mean cedants have less choice? “Cedants are more worried about the quality of the capital,” he says. But he is vigorous in distinguishing the reinsurance industry from the financial crisis. “The reinsurance industry has held up by far the best of any of the financial services.”

Another risk now looms. “One risk on reinsurance balance sheets now is inflation.” How high will

inflation be? “The best predictor of future inflation is the forward yield curve,” he says.

In the end, I am unable to persuade him to make any high-risk predictions. Clearly Appel has learned a lot about public relations. >

Later the same day I go to the Hotel de Paris, Monte Carlo, where I have arranged to interview Peter Zaffino, president and chief executive of Guy Carpenter, the world’s second-largest reinsurance broker with a 23% market share. He is ready and waiting in the meeting room when I arrive.

He has brought with him one of his top new hires – president and chief executive of international operations, Henry Keeling – to join in the interview. I am reminded of Zaffino’s style at press conferences, where he likes to ensure that his colleagues get as much time at the microphone as he does.

Though Keeling is a wonderful man to interview – talkative and robustly opinionated – it’s Zaffino I have come to see. I want to see how his approach contrasts with Appel’s style.

At 42, Zaffino is even younger than Appel. And for both, it was corporate change that thrust them to the top. A management shake-up led to Zaffino being promoted in February 2008 from executive vice-president and head of US treaty operations to chief executive, replacing David Spiller.

At the beginning, things were not easy and, as the accounts of Marsh & McLennan Companies (the parent) reveal, Guy Carpenter’s 2008 revenues fell 6% in 2008 to $803m from $854m in 2007. So why were results so poor in Zaffino’s first year in the job?

Zaffino leans forward slightly in his chair, and looks me straight in the eye. “2008 was a function of what was going on in 2006-2007,” he explains, his voice calm and earnest. “Renewals retentions dropped below historical norms. And there was not the greatest new business. There were a number of changes. Brian [Duperreault, president and chief executive of Marsh & McLennan Companies] was on his way in. So there was a confluence of events.”

Zaffino took tough action to sort out the problems. The company tightened its belt and made difficult job cuts, shedding about 360 staff. “In 2008, the first thing we did was look at how we wanted to take the company strategically forward. How to energise staff and get better sales, as well as looking at the cost base,” he says.

“We decided to go through a restructuring, affecting every geography, and to reorganise around sales. Several of our best sales executives were in operating roles. We changed that.”

The cuts made were across the board, affecting brokers as well as back office staff.

“Once we acquired Collins, there were some overlaps,” he says, “So there was some reduction in staff as a result of the Q2 acquisition event.”

The cuts resulted in the company showing marked improvements in profitability, though Zaffino – like Appel – will not be drawn on future revenues or profits. So I throw a figure at him – $1bn revenues? That “would be a good target for 2010,” he says. But not for the year 2009 it seems, even taking into account the acquisitions of broking firms Collins and Rattner Mackenzie.

Like Aon, Guy Carpenter has also been acquisitive, though on a smaller scale than the Aon/Benfield merger. Although Collins was the fifth-largest reinsurance intermediary in the USA and seventh-largest in the world, its revenues are only $70m – testimony to how quickly size tails away once you get below the largest three brokers. Willis Re is the third-largest reinsurance broker, with $606m revenues in 2008. Towers Perrin is fourth with $156m.

In addition to corporate acquisitions, Zaffino has also been on a top-level hiring spree. As well as Keeling, who was at XL Capital for many years and was tipped for the top job there (“I wanted nothing more than to be the chief executive of XL,” Keeling says), Zaffino has also brought in Richard Booth as vice-chairman, from AIG, and Chris McKeown as his new chief executive of global analytical and specialty practices. Previously, Zaffino was handling many of these functions himself.

Keeling has fulsome praise for his new employer. “Guy Carpenter is the most professional broker in the marketplace,” he declares, adding: “I said that before I joined.”

Zaffino says: “We feel we are well-positioned,” though he does agree that size is of some importance. “There needs to be a certain scale.”

But Guy Carpenter has that scale. Zaffino believes that being second to Aon Benfield in terms of size is not as great a disadvantage as it might appear.

“[Market share of] 23% of reinsurance does not mean 23% of clients,” he says. “We have a wide distribution of clients in every type of geography.

We are the largest reinsurance broker in China, for example. We cede over $15bn into the market.”

Zaffino says that a key difference between Guy Carpenter and some other brokers is that “in [some brokers] you have separate silos. At Guy Carpenter that does not exist”. Will he make any predictions about the reinsurance market for 2010? “Generally speaking, revenues are adequate. We are not going to see substantial growth in reinsurance premium. Reinsurers will look to partner with each other,” he says. “Strategically, it would be prudent for them to align themselves with others.”

I note that he is in broad agreement with Appel here. “For cedants, the stronger the balance sheets and rating, the better. Also there is a focus on diversification,” he says. Like Appel, Zaffino is full of praise for the insurance world. “We as an industry are doing the best job of assessing risk,” he says.

His father Sal Zaffino was chairman of Guy Carpenter from 1999 to 2007, but it was by no means set in stone that Peter would enter insurance.

At university, where he took a Bachelors in economics, he was “looking at banking or the financial sector”. But he graduated in the late 1980s, when due to the 1987 stock market crash “banks were not hiring”. He says: “I wanted to get into a strong company.”

He was interviewed by various banks and insurance companies, and was impressed by

The Hartford, which offered six months of training.

He has been in insurance ever since. He joined Guy Carpenter in 2001, and quickly started making his way up the corporate ladder. About insurance, he says that “it takes a while to learn the breadth of the industry”. “I have no regrets,” he adds.

So having met Appel and Zaffino, which man will win the battle of the brokers? Zaffino has more experience of insurance, and people instinctively trust him. Appel has immense energy and charm, and commands the larger firm.

But which will win? Only time will tell.

David Sandham is editor of Global Reinsurance