It was a highly successful year for French based reinsurance companies, who look increasingly across the Atlantic to develop their business. Lee Coppack discusses their results.

French based professional reinsurers had a sparkling year in 1997. They had their healthiest underwriting result this decade - a profit of Frf 549 million on net premiums only marginally higher than in 1995 at Frf 36.526 billion and a 30.6% rise in investment income. The result was a 38% rise in pre-tax profits to Frf 3.319 billion for the nine companies grouped under the Association des Réassureurs Français (ARF).

All companies reported net profits with the largest contributors SCOR (Frf 924 million) and AXA Re (Frf 797 million). Together these two companies are responsible for more than half the premiums reported by ARF. SAFR, acquired part way through the year by Bermuda's PartnerRe, reported a profit of Frf 711 million.

Gross premiums rose from Frf 41.839 billion to Frf 42.699 billion with only a tiny drop in retentions from 86.4% to 85.5%. The picture for individual companies was mixed with three companies reporting significant increases in gross premiums: MMA (+14.3%), SCOR (+ 11.8%) and AXA Re (+9.6%). The state owned Caisse Centrale de Réassurance (CCR) and SAFR were flat or slightly down. Reductions in gross premiums were more marked at MCR (-11.2%) and Sorema (-9.4%).

CTR, owned by Canadian Fairfax Financial Holdings Ltd and part of its reinsurance group Odyssey Re, reported a drop of nearly 50% in gross premiums from Frf 2.608 billion to Frf 1.331 billion between 1996 and 1997, for which the principle explanation is an accounting one; some premiums for previous years were credited to 1996, creating an anomalous year. The true picture was of a significant but not so drastic decline.

In its annual report, Fairfax also noted that in 1997, CTR had a "higher than expected" combined ratio of 109.2% in its first full year as part of the group, but it was expected to reach underwriting breakeven over the next two years.

Home market

Part of the reason for the variations in premium development is likely to be the greater ability of some companies to select opportunities from the wider range available outside the hexagon as the home market is called, since the primary market was nothing like as buoyant.

Figures from the Féderation Française des Sociétés d'Assurances (FFSA) show that direct property/casualty premiums are slowing down. They fell 0.6% between 1996 and 1997 and the trend continued during the first quarter of 1998 with a 0.5% drop against the comparable period of 1997. Since this includes steady growth in the international operations of French insurers, it indicates considerable weakness at home. A large part of this is due to competition in motor business, by far the largest class of direct business, where premiums fell 1.2%, despite a slight increase in the number of cars on the road.

The motor figure is significant, because French professional reinsurers get 16.2% of their business from motor risks, up from 14.0% in 1996, and the trend in direct rates reported by the FFSA is the same in other countries, such as Germany. In its annual report, SCOR commented that there was practically across the board rate cutting in motor business and commercial lines.

In general, property risks of all sorts make up the bulk of the ARF members' books. The two largest classes, fire (36.6%) and various risks (21.4%) were little changed as a proportion of the total in 1997. Besides motor, the most significant shifts were a fall in life business from 11.8% to 9.5% and rise in general liability from 5.1% to 7.0%.


The ARF figures show that as a group, French professional reinsurers are looking outside France and even Europe as a whole for their development. There was a very noticeable drop in the amount of business coming from Europe, down from 62% to 54% (with 34% from France) of turnover between 1996 and 1997 and a roughly corresponding rise in North American business, up from 27% to 36%.

Inevitably, the figures are weighted toward the two largest groups, SCOR and AXA Re, who between them made up 57% of the gross premiums reported by the ARF. For SCOR, France represented 18% of gross written premiums in 1997, down from 19% in 1996. The company's business from North America rose from 30% in 1996 to 40% in 1997 with the first full year effect of its mid-1996 acquisition of the US based reinsurance operations of Allstate Corporation. More notable, however, was a decrease in gross premiums from Europe excluding France, which dropped from 37% to 28%. By contrast, in 1993, France represented 25% of SCOR's business, the rest of Europe 36% and North America, pre-Allstate, 26%.

In the case of AXA Re, European treaty business now represents only 17% of its premium income. The US is 37.5% and what it calls worldwide is 29%. AXA Re is committed to a global underwriting plan, "based on research and the construction of a balanced portfolio, this approach is the best guarantee of independence for the company and regular increase in its profitability."

Groupama's reinsurance subsidiary Sorema decided to pull out of the London market early this year, selling Sorema (UK), which in 1996 wrote premiums of £51 million, and Specialist Risk Underwriters to the US based company, Trenwick Group.

This does not, however, mean that Sorema is withdrawing into a gallic citadel. On the contrary, the company plans to announce further details of its internationalisation at the Rendezvous in Monte Carlo. It sold its London operation on the basis that Groupama was increasingly successful in the UK direct market, which meant that the group was competing with its own reinsurance clients. Sorema is proud to have appointed a Swede, Anders Graber from Skandia, to head the non-US part of its activities.

Three French based reinsurers now have non-French owners, all North American: SAFR is owned by PartnerRe, CTR by Fairfax and the tiny Corifrance by Terra Nova. However, Jean-Paul Nessi, chairman and ceo of AXA Re does not believe this will affect the market. He says: "The French market has historically been reinsured by non-French reinsurers to the extent that the change of ownership of French reinsurers to foreigners does not make a big difference. But the fact that reinsurers are more and more stand alone companies with no link to insurance companies which forces them to be more profit minded and think more about market share will change the traditional purchasing approach of French companies."

North American presence in reinsurance broking is even stronger. In addition to the French operations of Johnson & Higgins, Marsh & McLennan now owns Cecar which has become Guy Carpenter & Company. Aon has bought Le Blanc de Nicolay (LBN), which before its acquisition had been ranked seventh among the world's largest reinsurance brokers and the only French broker to figure in the top 10.

Gras Savoye, which has remained under French control with a 30% participation from Willis Corroon, hopes to distinguish itself as a "French reinsurance broker," says David Rainbow, deputy managing director of Gras Savoye Re.

And as a final demonstration of the global nature of the reinsurance market today, Bahrain based ARIG has set up a new office in Paris, reporting to ARIG UK, which will write facultative and treaty business in France and neighbouring countries.

Structural changes

As in primary markets elsewhere, structural changes in France are affecting the demand for reinsurance. This year, the most significant developments are the French government sale of GAN to Groupama and Allianz's acquisition of 51% of AGF, but Bernard Paul, managing director of Guy Carpenter & Company in France suggests there has been a contraction of about 30% in the company names in the primary market over the last three to five years, although there is also interest from new players.

Discussions at Monte Carlo and Baden Baden may give the first indications how Allianz and Groupama plan to look at the reinsurance programmes of their new subsidiaries, but the changes are likely to emerge over time as the parent companies adjust their strategies.

To what extent reinsurance buying is dictated from the centre varies with the company, says Jacques Blondeau, chairman and ceo of SCOR. "In some companies, it is centralised at least in part. Others keep it reasonably dispersed. It depends on the structure. Some groups operate through profit centres which do not want to lose all their power. At the moment centralisation is the name of the game but the profit centres are fighting back."

It is generally assumed that larger primary companies will retain more risk themselves thanks to their stronger balance sheet and move more toward non-proportional business, although perhaps not quite as dramatically as Axa's German subsidiary Axa Colonia did last year. M Blondeau is relaxed about the change. "We do not have any preference for proportional or non-proportional. We make as much money in either."

Lee Coppack is co-editor of Global Reinsurance and a regular contributor to the French insurance magazine L'Argus. E-mail: