With the market dominated by the three big groups, smaller outfits have to carve out specialised niches for themselves to stay afloat

The domination of the Swiss market by three insurance groups - Swiss Life, Winterthur and Zurich Financial Services - is increasingly marginalising the smaller groups, forcing them to merge or to create strong co-operative links with former competitors - a prime example being the amalgamation of the Helvetia and Patria groups.

The only exceptions are proving to be companies with a niche market or those acting as the Swiss presence for larger multinationals, according to S&P research.

However, Kishore Banger, pan-European insurance analyst at Credit Suisse First Boston, says the small to mid caps groups are holding their own and doing well in generating new business: Distribution networks and business margins are being managed much more efficiently than before, as accountability to shareholders has in-creased. Helvetia Patria has set up a strong sales link through Bank Vontobel and Generali Switzerland is now using its large agent force from the non-life side of its business to actively pursue the life market."

The Helvetia Patria venture is also a potent example of the complementary mergers presently occuring in Switzerland, with both groups sharing substantial property interests as a common tie to strengthen their operations.

"Small to mid cap groups may not be able to reach critical mass in the market, but they are certainly trying to shore up their positions by buying or joining with suitable companies," Banger says.

He adds that further driving forces behind the consolidation trend include deregulation, historical market inefficiency and the disappearance of opportunities to diversify outside Switzerland.

Current sluggish economic growth and higher than usual unemployment in Switzerland have merely accelerated this process.

Swiss Life's demutualisation after 97% approval from policyholders was considered to be the company's only route to attaining sufficient capitalisation and financial flexibility to compete in today's Europe of transnational giants.

Post demutualisation signs have been good, with share prices soaring and the group further pursuing interests abroad, including UK group NPI, to compliment an already strong European stable of operations.

And in April the company also launched a Sfr3bn ($2.3bn) bond exchangeable for shares it owns in six leading European companies as a sign of the serious intent behind its proprietary company role. The move was made to enhance shareholder value by permitting Swiss Life to restructure its balance sheet, borrow cheaply against high-priced assets, defer capital gains tax and diversify its investment portfolio.

Banger says many other Swiss companies are looking closely at the demutualisation results of Swiss Life before they make any similar moves, but he believes many are on the verge of following suit.

Winterthur, acquired by Credit Suisse in 1997 is hoping the combined bancassurance muscle of the two groups will increase distribution efficiency, reduce service costs and boost competitiveness. Zurich's merger with the financial services arm of the UK's BAT has created one of Europe's largest groups, alongside Germany's Allianz and France's AXA-UAP. The new ZF group hopes to benefit from increased access to the US market, from where a third of its business already originates.

Nevertheless, Swiss companies such as the number four insurer Basler, have expressed preferences for co-operation and merger with domestic groups only, as opposed to absorption within large European conglomerates.

However, analysts believe that given the diversification trend of the other large Swiss players, Basler will not be able to stay out of the clutches of foreign predators and retain its patriotic and independent stance for long. Hugh Wheelan"