In syndicated financial transactions, having larger, higher-status companies on a placement makes a genuine difference in completing it. Generally, a company’s status is closely linked to its longevity and (re)insurers feel this even more keenly. For organizations whose purpose is to absorb economic shocks, the highest achievement is to persist.
Incidentally, I am constantly intrigued by the anthropomorphism. Corporate law aside, companies aren’t persons. It makes as little sense to refer to a conscious entity called “Sony” or “AIG” as it does to say “China” devalues its currency or “America” wages war. Individuals make decisions, not organizations.
Anyway, I get why there are leaders and followers. In the reinsurance world*, where syndicated placements are common, the only accepted competitive advantage is a company’s record of sourcing and selecting risks to assume. Not too hard to copy that, is it. And so you have a relatively homogeneous market with terms usually set by the company longest in the tooth.
The logic here reminds me of an idea I really struggled to understand for a while. I’ll try explaining it with an example from the link.
The number of things we use our eyes for is very large. If all we ever did was look down a pipe, we could get by with lots of configurations: one eye, fifty eyes, etc. But because there are so many tasks for our eyes, there’s really only one solution that works optimally for everything: two eyes.
Systems that need to adapt to many environments tend to converge to an optimal solution. Homogeneity is a sign of progress!
There’s a competing idea that celebrates diversity. This is the theme of Scott Page’s *The Difference*, which taught me two things that I already knew, but always need reminding of: first, diverse problem solving heuristics in cooperation are superior to homogenous ones. Second, that real solid ‘scientific’ proof of a social phenomenon is a stupendously (stupidly?) rigorous affair.
So, diversity or uniformity? I’m not sure which is right, really, and maybe both are. Diverse heuristics get you to the answer faster, no doubt, but once the optimal answer is discovered, the diversity isn’t very useful anymore. Well, until the environment changes, that is.
Some things always work. Until they don’t.
*Insurers tend to compete with different distribution models; reinsurers, for the most part, don’t.