Union Des Assurances de Paris
Union Des Assurances de Paris
9 Place Vendôme
75052 Paris Cédex 01
(1) 42 8671 71
Fax: (1) 74 54 30 26
Wholly Owned Subsidiary of Société Centrale Union des Assurances de Paris
Assets: FFr52.40 billion (US$9.07 billion)
Union des Assurances de Paris (UAP) is 75% owned by the French state, and is France’s largest insurer, active in all major branches of insurance: accident, motor, reinsurance, life, and in personal savings and investments. The recent history of UAP has been one of large-scale changes, since the group was formed by the state-decreed merger of three nationalized insurance groups in 1968. The theme of change looks set to continue. Apart from the possibility that ownership of UAP will be transferred increasingly to the private sector, there are challenges to be faced as insurance companies in France redefine their role, expand into new business areas, and prepare for the abolition of trade barriers in the single European market on January 1, 1993.
The three nationalized insurance groups which were merged to form UAP—l’Union, l’Urbaine, and la Séquanaise—were all established in the 19th century. The first group to be founded was l’Union-Incendie, which opened its doors in 1828 to offer insurance against fire risks. L’Union-Incendie—and in 1838 l’Urbaine-Incendie—were among the first insurance companies to be founded in France after the Napoleonic period ended with the restoration of the monarchy in 1815. The new regime lifted the ban on all forms of insurance which had been imposed during the revolutionary period. Maximilian Robespierre’s government had denounced insurance as immoral speculation on the pain and suffering of others, and as being against the public interest. This mistrust of insurance was shared by Napoleon Bonaparte, who maintained the ban. Even after insurance companies had been granted the right to do business, companies such as l’Union-Incendie faced a struggle against public mistrust throughout the 19th century. Successive French governments entertained the idea of bringing the insurance industry under state control through nationalization, but insurance remained in the hands of private entrepreneurs until well into the 20th century. In 1889 both l’Urbaine-Vie and l’Urbaine-Accident were exhibitors at the Universal Exposition in Paris, with the aim of demonstrating the benefits to individuals of insuring against risk.
The basis for public mistrust of insurance companies was the fear that economic power and the assets of many policyholders would fall under the control of wealthy individuals— universally decried as speculators—if those people were allowed to take charge of an insurer. To prevent such an eventuality, the FFr10 million share capital of l’Union-Incendie was divided into 2,000 shares with the high face value of FFr5,000. In this way it was thought that the company would be able to keep track of its shareholders.
The company was founded by a combination of bankers, merchants, stockbrokers, public officials, and liberal politicians. Its first director was Myrtil Maas, a young mathematician who earlier had been involved in the founding of the Compagnie d’Assurances Générales, in 1819. These were the very early days of the actuarial profession in France. The following year saw the birth of l’Union-Vie, which offered life insurance contracts for individuals.
An even more distinguished group came together at the foundation of l’Urbaine-Incendie in 1838; including, among others, a former director of the Bank of France, a mayor of Paris, a deputy to the National Assembly, the director-general of the Paris-Orléans railway, and a leading industrialist in the sugar refining trade. During the course of the century, the company was to expand both through internal growth and by absorbing other insurance companies. In 1843, for instance, l’Urbaine-Incendie took over the business of le Dragon, and in 1848 two further companies came under its wing, l’Indem-nité and la Bienfaisance. Insurance was a high-risk business; five out of every six companies to be formed failed to survive into the 20th century. Intense competition led to premium-cutting wars. L’Urbaine-Incendie was not immune; in its first 50 years of operation the company suffered eight annual losses. L’Urbaine-Vie, the life insurance company formed by the directors of l’Urbaine-Incendie, had an even more tempestuous history: founded in 1844, it was liquidated in 1851, only to be re-created by l’Urbaine in 1865. An accident insurance company, l’Urbaine-Accidents, was launched under the banner of l’Urbaine in 1880. The following year it merged with la Seine, an accident insurer set up in 1838, to form l’Urbaine et la Seine.
The third constituent part of UAP, la Séquanaise, was formed in Besançon in 1889 as a mutual insurance society— that is, an insurance company owned by its policyholders. Not venturing at first into traditional life insurance, the initial growth of la Séquanaise was based on establishing a dominant position in the personal-savings market. This area, known as capitalization, was to remain the core of the company’s business. The first policy issued, which soon became a major success, was the Titre A contract. For a single FFr5 premium, the holder received the right to a maturity value of FFr100 on expiry—99 years in the future. The appeal of the contract was enhanced by the fact that policyholders’ names were also entered in monthly lotteries, the winners of which received the FFr100 payout immediately. The success of contracts like this made la Séquanaise the second-largest player in the capitalization market by the end of the century. Around the turn of the century, 99-year Titre A contracts gradually were superseded by policies with shorter terms to maturity, including the variable-term contracts, which were to become the sector’s staple product. Other companies were launched by la Séquanaise, operating in different fields of insurance, such as life insurance—la Séquanaise Vie, 1906—and fire and accident insurance—la Séquanaise IARD, 1924.
The early part of the 20th century proved to be a golden age of growth for insurance companies, helped by legislation in the late 19th century that obliged employers to compensate industrial workers for injuries sustained at work. The need to insure against potential liabilities brought huge amounts of new business to the insurance sector, which gained added respectability from being seen to fill a socially useful function. The importance of reliable cover being made available to industrial employers forced governments to take a more active interest in insurance companies. This led both to tighter state control, and a certain degree of state guarantee against failure.
As a result of the legislation in 1898 regarding compensation for industrial accidents, the period before World War I was marked by signs of increasing prosperity and self-confidence among UAP’s forebears. In 1899, l’Union-Incendie purchased offices in the Place Vendôme in Paris, which were to become the headquarters of l’ Union and later of UAP; in 1904 la Séquanaise also moved, from Besançon to a more prestigious location in Paris; l’Union-Vol, offering insurance against theft, was formed in 1909, with the addition of a personal savings arm, l’Union-Capitalisation, in 1912. From 1914, l’Union tried to make the best of wartime conditions. Instructions went out from l’Union-Vie to its network of distributing agents to press home the need for adequate insurance in such uncertain times. For a surcharge, policies could be tailored to cover risks associated with war, but l’Union-Vie undertook that any profit made on such policies would be redistributed to surviving policyholders after all claims had been met, rather than serving to enrich the company’s shareholders.
Personal insurance provided much of the stimulus for growth in the period between the wars. The meager nature of the benefits on offer from the state-sponsored social security system created significant opportunities for growth in volume of life and illness insurance contracts. Life insurance showed the fastest growth in the combined business of l’Union, l’Ur-baine, and la Séquanaise in the period from 1913 to 1938: total life insurance premiums of the three groups rose by 142% over the period, while fire and accident premiums grew by 106% and capitalization by 87%, after allowing for inflation. The overall premium total for the three groups grew from FFr167.5 million in 1913 to FFr352.5 million in 1938, adjusted to 1913 values.
The most important change in the history of French insurance came with nationalization in April 1946, when 34 companies—approximately half of the entire insurance sector— were taken into state control, among them l’Union, l’Urbaine, and la Séquanaise. At this stage, the nationalized companies were left to function as separate entities. Further upheaval resulted from legislation later the same year by which the government, committed to the creation of a welfare state, took over management of industrial accident compensation under the wing of the social security system. This closed off a major field of activity for the insurers—l’Urbaine et la Seine, for example, lost around half of its total business from this one change.
Nonetheless, the 20 years from 1947 to 1967 saw a sixfold increase in real terms in the combined income of the various branches of l’Union, l’Urbaine, and la Séquanaise, as French society grew richer, consumed more, and needed more protection. The life insurance branches of all three groups introduced with-profits contracts for the first time after World War II. State legislation added new business opportunities as well as taking them away: from 1958 onwards, French motorists were bound by law to cover themselves against third-party damages claims. Far from being a moneyspinner, motor insurance turned out to be a lossmaker for the insurers, partly because of the state-imposed cap on premiums, abandoned in 1962. Two years later the principle of no-claims bonuses was introduced.
Diversification went beyond insurance-related activities. LʾUnion became the majority shareholder in SEMICLE, a housebuilding consortium founded in 1954 in partnership with several other public-sector businesses such as Renault and Banque Nationale de Paris (BNP), with the aim of meeting the growing demand for new accommodation in Paris and elsewhere. In the insurance sector itself, expansion into reinsurance continued with the acquisition by l’Union’s nonlife insurance branch of a majority stake in les Reassurances. Abroad, the nationalized insurers spread their operations far and wide: in 1961, the life and nonlife branches of l’Union did more than FFr100 million of business in 64 territories outside France. By then political change had already put paid to subsidiaries in some countries: la Séquanaise liquidated its 20-year-old subsidiary in Saigon in 1952, when war broke out in Indochina, and offices in Egypt were lost in 1956 when President Gamal Abdel Nasser nationalized all insurance operations on Egyptian territory. The following year, l’Urbaine-Capitalisation abandoned North Africa altogether, and in 1962 Algerian subsidiaries ceased operation when that country achieved independence.
Despite the growth experienced by l’Union, l’Urbaine, and la Séquanaise in the postwar period, the French insurance industry had not progressed with anything like the speed or vitality of insurers in other countries, such as West Germany and the United Kingdom. In 1968 secret discussions on the future shape of the nationalized insurance sector led to the reorganization of the many state-run companies into four major groups, the largest to be known as UAP, incorporating the previously independent groups of l’Union, l’Urbaine, and la Séquanaise. At that time, l’Urbaine, with four different presidents between its five branches, most typified the inefficiency and duplication that the restructuring was designed to circumvent. La Séquanaise, by contrast, had placed all of its four branches under the authority of a single president and board of directors as early as 1949. As for l’Union, its financial position was healthy but this still left it a long way short of commanding the kind of resources available to its major foreign competitors.
Together, the three constituent parts of UAP accounted for 11% of France’s nonlife market in 1967, 20% of life insurance, and 70% of insurance-linked personal savings. Between them, they held investments worth FFr7.5 billion. Overnight, UAP became the second-largest insurer in Europe, after Allianz of West Germany.
The constituent parts of UAP were placed under the direction of a single president—Dominique Leca, formerly president of l’Union—and board of directors, but otherwise retained separate management and separate identities. This was a temporary arrangement: Leca’s task was to merge the parts into a unified whole. This was not without problems, since the companies had operated in competition with each other until the enforced merger.
Major restructuring took place in 1969, with the creation of UAP branches for nonlife, life assurance, and savings. The nationwide distribution networks established by the three earlier groups were not, for the time being, forced to integrate. At the same time, UAP came under pressure from the government to decentralize operations, and between 1969 and 1975 the number of staff employed outside Paris rose from 900 to 2,700. Along with rationalization, the application of modern information technology (IT)—introduced by Leca into 1’Union in the late 1950s—was pursued throughout UAP. Within a few years, the insurance sector became one of the largest users of IT in France. In 1970, UAP expanded further with the acquisition of two insurers, la Vigilance-Vie and 1’Avenir.
Before Leca reached the end of his presidency, the legal status of UAP changed. In 1973, the UAP holding company, Société Centrale, was reincorporated as a limited company with capital of FFr168 million, divided into 1.68 million shares of FFr100 each. The state retained 95% of the capital, with the other 5% being distributed free to UAP’s 8,000 staff.
When Leca retired in 1974, his successor as president, Rene Delestrade, inherited a company whose commercial prospects were hampered by generally worsening economic conditions in France and the rest of the world. Other problems were peculiar to UAP’s situation as a state-controlled entity: premiums in some business areas were still subject to state guidance and, having been protected for nearly three decades from the need to be entrepreneurial, UAP found that its costs were measurably higher than those of its private-sector rivals. At this time, the invasion of UAP’s traditional businesses by mutual assurance companies, particularly in motor insurance; by banks, in life insurance and savings; and by foreign insurers, in all areas, led to progressively fiercer competition. Meanwhile, industrial relations went through a confrontational period, with unions accusing management of acting against workers’ interests, and losses continued to pile up in UAP’s motor insurance operations. However, the life insurance and savings divisions continued to thrive.
The drive into new territories and new businesses resumed. Leca had renewed UAP’s expansion into French-speaking African states—Cameroon, Morocco, Gabon, Tunisia, and the Ivory Coast—in the early 1970s, and Delestrade’s presidency saw significant moves such as the acquisition of 33.4% of New Ireland insurance in 1975—UAP became the majority shareholder in 1987—and the takeover of Commerce Group in Canada in 1977. In the following year, UAP Assistance was launched on the domestic market, offering subscribers emergency medical and technical assistance.
Delestrade’s retirement in 1980 initiated the first of four changes of president in eight years at UAP. Delestrade was followed by Pierre Esteva, who served from 1980 to 1983; Yvette Chassagne, who followed in 1983 and stepped down in 1986; Jean Dromer, whose service lasted from 1986 to 1988, and Jean Peyrelevade, who was appointed in 1988. The frequent comings and goings at the top contributed to the problems of management discontinuity and lack of long-term strategy, aggravated by uncertainty over privatization resulting from the 1987 stockmarket crash.
UAP came under attack in the media for its lack of accountability to clients. A campaign begun in 1982 called for a full disclosure of how UAP employed the billions of francs under its supervision, and condemned the tight-lipped discretion which for years had characterized UAP’s relationship with the outside world. Yvette Chassagne, the first woman to be made head of a national organization of UAP’s size, went on the counterattack with a revolutionary media-based campaign promoting the openness of the company. UAP formed customers’ consultative committees to aid communication between employees and clients. Chassagne’s priority was publicity; she appeared in person in television advertising, and used sponsorship—for example, of an expedition to the North Pole—to raise the company’s profile.
Repeated attempts to change UAP’s inherently bureaucratic mentality met with limited success during the 1980s. Despite the efforts of his predecessors, President Jean Peyrelevade had to make efforts to ensure that more responsibility was given to employees, and to end secretive decision-making. Many in the group had hoped that privatization would provide the opportunity for just such a shakeup. In 1986, parliament had approved an opposition motion to push ahead with privatization, but the worldwide stockmarket crash of October 1987 made flotation impractical. The following year, Peyrelevade announced his wish to float 49% of UAP, with the long-term aim of reducing the state’s holding to 34%. In 1990, no more than 25% of the group’s capital could be floated publicly. In February 1990, however, UAP took advantage of a change in the law allowing foreign investors to own shares in state-controlled companies. As part of a rights issue that increased UAP’s capital by FFr10.5 billion, FFr2 billion of shares was offered to investors outside France, and was received enthusiastically.
A further change in UAP’s ownership took place with the exchange of 10% share stakes with BNP. The share swap was accompanied by agreements on commercial cooperation, including an arrangement to distribute UAP nonlife policies through BNP branches, which would provide UAP with an extensive addition to its sales network. The cross-shareholding was made possible by a change in the law allowing banks to become shareholders in insurance companies.
Having gained a significant presence in the banking sector with its 1984 acquisition of Banque Worms, UAP stepped into personal banking in 1988 by becoming the first insurance company to launch a credit card. This did not herald substantial diversification beyond the core activity of insurance, according to Jean Peyrelevade, who commented on the occasion of the 1990 share issue: “We do not by any means have the intention of becoming a financial conglomerate. We want to be a universal insurer, present in all segments of the insurance business and present internationally, especially in Europe.” UAP’s operations abroad, reorganized since 1984 into UAP International, provide over 40% of the group’s total income, and make it the second-largest insurer in Europe, with a 1.5% market share. Peyrelevade’s stated aim is to double this share.
Significant minority stakes have been built up in other large European insurers, including 31.9% of Royale Beige, number two in Belgium; 25% of the United Kingdom’s Sun Life; and, in France, 34% of Groupe Victoire, which is controlled by Compagnie Financiére de Suez, but which gives UAP a notable interest in major German insurer Colonia.
UAP’s reinsurance business was merged in 1989 with Scor SA, in which UAP holds a stake of 40%. Scor is the world’s fifth-largest reinsurer, and in the late 1980s made significant acquisitions of its own in Italy and Germany. UAP’s personal life and medical insurance business should thrive on the opportunities for growth presented by the French state’s gradual retreat from health-care and pension provision.
The history of UAP and its predecessors has been shaped by government policy; UAP’s future success will depend far more on its ability to perform as a market-driven, quasi-independent company. Large-scale expansion is likely to take the form of equity participation in other providers of financial services. Deals like the share swap with BNP, and a smaller exchange in 1990 with Banco Central in Spain, will open up new avenues of business, give UAP experience of new markets, and forge links with new partners.
UAP Vie; UAP Incendie Accidents; UAP Assistance; UAP International; Navigation et Transports (64%); Banque Worms; Compagnie Financiére de Rombas (80%).
Ruffat, Michele, Edouard-Vincent Caloni, and Bernard Laguerre, L’UAP et l’ Histoire de l ’Assurance, Paris, UAP, 1990.