Bancassurers make their mark

French banks are making good use of their branch networks to sell insurance and savings products to the public, and the margins are good, says Hugh Wheelan

The French life insurance market is becoming dominated, in terms of market share, by 'bancassurers' - bank subsidiaries that capitalise on their low distribution costs to sell simple tax-advantaged savings products.

Lewis Phillips, pan-European insurance analyst at Fox Pitt Kelton, London-based stockbrokers, specialising in insurance, explains: Insurance policies are a prime tax advantage for investment in France and you only have to have a policy for around eight years to get substantial tax breaks, although there have been slight erosions of the benefits of late. Bancassurers tend to invest in bonds and offer index-linked returns, and the fees are a lot less than you would pay for straight bond investment with tax."

1996 figures from Standard & Poor's show the bancassurers holding 43% of total life premium volume and increasing this figure by almost 20% a year.

Consequently bancassurers such as Predica and Les Assurances Federales Vie are considered by S&P to be among the most profitable insurers in Europe, taking into account risk adjustment. Subsidiaries of large trans-European groups, such as Commercial Union (CU), AXA-UAP and Generali, are also bolstering their positions in the market. This expansion has principally been won at the expense of other French insurers, which are increasingly being absorbed into these larger groups.

A prime example is the acquisition of the AGF group by Germany's Allianz, approved by the French bourse in February. Allianz acquired 78.7% of AGF's capital, but plans only to keep a controlling 51% share, floating the rest on the stock exchange. As part of the consolidation process AGF will purchase Allianz France and Les Assurance Federales IARD, both Allianz subsidiaries, for Ffr7bn.

Similarly, the UK's CU Group acquired France's 17th largest life company, Société d'Epargne Viagere from the Sez group and Union Financiere de France from Credit Agricole. Generali, in turn, acquired the GPA and Proxima groups, ranked 29th and 75th in the market respectively in the S&P life insurance scale.

The traffic is by no means one way, though, with French giant AXA-UAP carving out a major presence in many other European life markets.

And despite the influx of foreign competition, France's CNP, which itself has undergone major structural change following recent partial privatisation, is still very much market leader with around 20% of the market, more than double nearest rival AXA.

Now only two of France's top 20 insurers are neither bancassurers nor European subsidiaries: La Mutuelle du Mans Vie and Groupama. However, both companies are seeking to forge stronger co-operative links outside France, as well as positioning themselves in niche areas of the market, such as increased use of brokers and enhanced quality products to shore up their positions. In July Groupama bought the troubled GAN group, which had been bailed out by EU-approved French government intervention, for Ffr17.25bn.

Premium volume growth for the overall insurance sector this year is expected to slow, following adverse tax charges of 7.5% implemented by French minister of finance Dominique Strauss Kahn in January.

And Phillips at Fox Pitt Kelton says that as a result of the downturn there has been a slight reversal of fortunes, with traditional insurers managing to circumnavigate the slump, at the expense of bancassurers, by offering a more sophisticated range of products.

Prior to these tax changes, life products with eight or more terms were fiscally exempt. Exclusions to the new tax include a personal fiscal allowance of Ffr30,000 a year and life and investment products in which at least 50% of the assets are in French equities and 5% in non-quoted securities.

The Cardif group was the first to take advantage of the tax breaks, targeting high-net-worth individuals with its Cardif Avantages fund.

One of the underlying factors in the increased French interest in equity investments is the need to encourage private pension provision. The French insurance sector may need to adapt itself to this phenomenon, but the prospects, once it has, are extremely good.

"There is no personal pension prize on the horizon at the moment, but the life insurance companies in France are well placed for the current situation and France will still undoubtedly be an important growth market in the future," Phillips concludes."

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