The French Exception

In the Paris headquarters of Axa insurance, just around the corner from the presidential palace, there is an old poster hanging on a wall outside the office of chairman Claude Bebear. The text reads: L'EQUITABLE DES ETATS UNIS, COMPAGNIE D'ASSURANCE SUR LA VIE LA PLUS PUISSANT DU MONDE--EQUITABLE OF THE UNITED STATES, THE MOST POWERFUL LIFE INSURANCE COMPANY IN THE WORLD. A hundred years ago that boast was plausible: Equitable had offices in dozens of countries and a strong presence in Europe. Today the poster brings an ironic smile to the face of Bebear. Equitable is once again powerful--but Axa owns it. And Bebear's 1991 decision to purchase the U.S. company is one big reason that the list of top powers in the global insurance game is dominated not by American firms, but European ones.

At the top of that list, by one important measure, is Axa. At a time when France is witnessing a pair of free-swinging takeover fights intended to form world-class companies in banking and oil, Axa is the national champion the country already has. Axa is also, appropriately enough, a power broker in the two ongoing struggles: the effort by Banque Nationale de Paris to supersede merger plans between Paribas and Societe Generale by buying both banks, and the hostile bid that oil company TotalFina mounted for its rival, Elf Aquitaine, just last week. Axa is the largest single shareholder in Elf, and the company owns substantial stakes in both BNP and Paribas. In the bank battle, which is likely to be resolved by the end of the month, Bebear is backing BNP. In the oil imbroglio (following story), he has yet to show his cards. But as the combatants in both fights plot the way forward, they might want to start by reflecting on what Bebear, now 64, has accomplished with his company.

Lesson one? Know what you need--and when you see it, pounce. In 1991, Equitable struck many folks as just a big, sick mutual life company, in dire need of capital. To Bebear, though, the company represented an entry into the crucial U.S. arena. The Axa CEO invested $1 billion and obtained majority control. Today Axa's stake in Equitable is worth roughly 15 times what the French paid for it. Thanks to that and other savvy acquisitions around the world, Axa has become the world's largest insurance group by premiums written. Moreover, the company's assets under management now exceed $650 billion, making it one of the world's top money managers. The insurance competition is tough: America's AIG and Germany's Allianz have a higher market capitalization; Dutch Aegon and Swiss Zurich Financial are more profitable. But no company is better positioned to exploit the worldwide boom in personal savings and investment than Axa. In May, Salomon Smith Barney published an analysis of the global insurance industry, listing the five firms with the most investment potential. Both Axa and Equitable, its U.S. subsidiary, made the list. "They are on a roll," says Colin Devine, one of the authors of the report.

Axa's chief has been on a roll for most of his life. Like much of the French elite, Bebear studied at the Ecole Polytechnique; but unlike many of his peers he went straight into business, not government. With good reason--when he joined Ancienne Mutual (the forerunner of Axa) in 1958, he was told that he would eventually run the firm. "People said to me at the time, 'You are too good to do that. It would be better to be a civil servant for 10 years.' But I was more interested in working for a small company in which you are close to the top and can see everything."

The view is even better from where Bebear sits today. Yet he downplays his role as a power broker for corporate France, insisting that his part in BNP's tilt at SocGen and Paribas has been exaggerated. Bebear at first supported SocGen's offer to merge with Paribas, but then BNP came along with the idea of melding all three companies, and the Axa chief changed his allegiance--much to the annoyance of Paribas and SocGen. "What we do will be important," Bebear says, "but we're not operating behind the scenes for BNP. What happened was simple: the market reaction to the merger of Paribas and Societe Generale was not very positive, so BNP made a counteroffer. We think it is better than the other one, and that's it." One analyst familiar with the deal doubts that things are quite so simple. "BNP would not be bidding were it not for Bebear's support," he says. "As a founder-creator of the combined triple bank, the role of Axa would be significant. Axa would secure for itself a substantial distribution system for its products."

This, at a time when the market for savings and insurance products is booming as never before. Sales in Axa's industry are growing between 10 and 20 percent annually, because people around the globe are growing older and richer (and presumably wiser). What's more, the European savings industry is being deregulated, sparking a boom in personal investment. And the euro is helping insurers cut costs by unifying their operations across borders.

Along with AIG, a handful of European companies are now emerging as long-term winners in the business: Allianz, ING, Aegon, Zurich Financial, as well as Axa. All of these firms, plus Belgium's Fortis and Italy's Generali, have been growing wildly through acquisitions--expanding their reach from their home countries to the United States and Asia. Last month Aegon announced that it was buying Transamerica, a blue-chip U.S. insurance brand for $9 billion. "The consolidation process has been going on and on and on," says an analyst in London, "and it's not going to stop. Before long you'll end up with a true oligopoly: four major insurance groups, three in Europe and AIG." Why have European insurers flourished? The Japanese are big but weakened by the country's financial woes. A 10-year price war in America has leeched the strength of U.S. companies. Meanwhile, Europe's best firms, cocooned in less-competitive home markets, bolstered their balance sheets--and were then alert enough to seek cross-border deals once the game started globalizing.

Few have played the takeover game better than Bebear. "A bad acquisition can kill a company," he cautions. Lucky for him, he hasn't made any. Ask analysts what is most impressive about Axa, and they all say it is the company's dealmaking. The Frenchman has a keen eye for value, and he has used it to acquire major companies not just in the United States, but in Australia, the U.K. and parts of Europe. Axa just started doing business in Shanghai, through a joint venture with a state-owned partner.

Buying Equitable, though, was the turning point. "Even though the U.S. insurance market was weak in the 1980s, it was clear in my mind that it would explode in the 1990s and for the next 10 years, too," Bebear says. That has happened as baby boomers stash their savings into retirement products like mutual funds and annuities. Equitable is the leading seller of annuities in America, and two of its subsidiaries, Alliance Capital (a money manager) and Donaldson, Lufkin & Jenrette (an investment bank), are thriving. The term "insurance" has become something of an antiquated notion in the roaring stock-market era, especially in the United States. Partly for that reason, and partly because its parent wants to build a global brand name, Equitable is being renamed Axa Financial.

Axa bought Australia's National Mutual in 1995, and with it, a foothold in Hong Kong. A year later the company snapped up the UAP Group--a huge French insurer that had been sold off by the state just two years earlier. "The price for UAP was very, very good," says Philippe Foulquier, European equity analyst for Credit Lyonnais. UAP gave Axa an enhanced presence in the U.K., Germany and Belgium--adding some European heft to Axa's affiliate portfolio. Earlier this year, Axa bought Guardian Royal, one of the leading insurers in Britain. As a result, Axa is now the market leader in France, number three in both Germany and the U.K., and tied for the top spot in Belgium.

The picture is not entirely rosy. National Mutual has not met Axa's high expectations, and more generally, deregulation has spawned more competition. Axa's big challenge is to boost its profitability. How to do that? According to Henri de Castries, Axa's senior executive vice president and the favorite to succeed Bebear as CEO, "We have to attract more customers, sell more products to them and keep our customers for longer periods of time. And we have to make our networks more advice-oriented." There are also plans to put more Axa pins on the world map. Japan and Poland are target markets, and Axa would like to boost its size in Italy and Germany. "The big fight in this business is for distribution," says de Castries. While Axa is certain to make other deals, it is in no hurry to buy, and does not like to overpay. "We are very lazy," jokes de Castries. "If you pay a low price, it is easy to obtain high earnings."

Bebear will be retiring next year as CEO, though he will stay on as chairman. That might allow more time for his favorite hobby. Bebear makes regular hunting trips to Africa, where he tracks and kills "big animals that are slightly dangerous--lions and buffaloes." He adds: "You know that if you shoot and miss them, they will not miss you." Two antelope heads adorn his office, and there is an impressive collection of rifles and shotguns in a cabinet. "When you hunt in a place like Africa," says Bebear, "you are out of the world, and out of time. You don't even know what century it is. It is the best way to relax totally." That sounds boastful. But as the trophies on the walls attest, it isn't just talk.

Who Says Europeans Can't Compete?

The Japanese are financially weak, and the Americans are still mainly domestic. So insurance is one industry where the global players are predominantly European. Ask Axa.