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Gras Savoye S.A.

2-8 Rue Ancelle, 92200 Neuilly-sur-Seine, France; 331/41/43-5000;

fax: 331/41/43-5555.

Internet (pending):

1996 1995

Gross revenues $226,968,000 $204,376,800

Brokerage retail 81.5% 78.4%

Reinsurance 1.2% 1.4%

Personal 9.4% 10.2%

Services 2.2% 2.2%

Investment income 5.2% 7.2%

Other 0.5% 0.7%

Employees 1,793 1,710

Rev./Employee $126,586 $119,519

Offices 76 73

Converted at applicable exchange rates.

Patrick Lucas, chairman and chief executive of Gras Savoye S.A., France's largest insurance brokerage, is not in favor of the megamergers that have swept through the brokerage industry since last fall.

His 90-year-old company, Mr. Lucas said, prefers "steady and strong progression" rather than a single high-stakes move.

Just over a week ago, Gras Savoye announced that it would sell a one-third stake to London-based Willis Corroon Group P.L.C., pending approval of Willis shareholders. Both brokers said the arrangement will allow them to "create a very powerful combination in the French marketplace," and enhance the service they provide their multinational clients.

Details of the deal were not known early last week, though Gras Savoye emphasized that the terms of the agreement called for Gras Savoye to retain its existing management structure and French majority ownership for at least the next 12 years.

Gras Savoye is owned 70% by the Gras and Lucas families and 30% by three French insurance companies: AXA-UAP Group, Assurances Generales de France and Athena Assurances. As of early last week, it was not announced who was selling to Willis Corroon.

Insurance analysts' views were mixed when the deal was first announced.

Julianne Jessup, insurance brokerage analyst at London-based UBS Ltd., said it was a "logical" step for both brokers. She pointed to their historical relationship as partners in the UNISON brokering network before Willis left it in 1990. Ms. Jessup also said it was a sound move for Willis in building up its international operations.

But Nick Bunker, an analyst with London-based HSBC James Capel, said he was not impressed by the agreement. He thinks Willis gains little by having only a one-third stake in Gras Savoye, as Willis will gain neither control nor a dividend. Mr. Bunker also claims there is a long history of outsiders buying minority stakes in French brokers, "and it has never worked" because a small stake does not render enough control to be effective (BI, July 14).

However, Willis is gaining a stake in a company whose growth in 1996 includes a 13.9% increase in gross revenues to almost 1.16 billion francs from 1.02 billion francs in 1995.

In U.S. dollars converted at average exchange rates, Gras Savoye's revenues reached $227 million last year, up 11.1% from $204.4 million in 1995.

That performance, along with consolidation among brokers, pushes Gras Savoye up five notches to become the world's ninth-largest broker, up from No. 14 a year ago.

Revenue growth was achieved largely by winning new business. Gras Savoye's clients fall into four primary categories: large and multinational companies; mid-sized companies; personal lines; and municipalities and public authorities. Last year's revenue improvement was achieved across all these lines and in all geographic areas where Gras Savoye operates.

Gras Savoye has 19 regional commercial retail branches in France and 29 overseas subsidiaries, spanning Europe, Africa, Asia and the Middle East.

As he did last year, Mr. Lucas continues to praise Gras Savoye's Department of Development and Innovation for being instrumental in attracting new business and retaining existing clients. The department sets up a dedicated committee each time Gras Savoye is marketing itself to a potential client or preparing to renew an existing client's business. These special panels consist of people from different areas within the brokerage that bring together varying points of view and skills in the development of proposals to meet a client's or potential client's needs.

During renewal periods, new members join the committee to offer a fresh approach and assess Gras Savoye's performance on given accounts over the previous year.

Mr. Lucas said that as a result of the department's activities, there "are a large number of people wherever they are, whatever their function, which have been involved in getting new accounts."

Gras Savoye's involvement in brokering all lines of insurance and reinsurance and providing risk management services also is a factor in the company's growth, according to Mr. Lucas. "There are not many brokers who are really in each line of insurance in a real way. So that gives us a lot of opportunities" to work with clients on additional lines of insurance, he said.

In 1996, Gras Savoye's business was 81.5% commercial retail, generating revenues of 943.8 million francs ($185 million). Reinsurance brokerage accounted for 1.2% of revenues, personal lines accounted for 9.4%, and 2.2% of its revenue came from services.

The roster of new business includes placing property insurance for the Caisse des Monuments Historiques, the state institution that owns historical monuments across the country; arranging property coverage for a variety of municipal monuments; and handling the liability and personal accident coverage for all members of the French swimming, riding and petanque-a type of lawn bowling-sports federations.

Other clients signing on with Gras Savoye last year include: French bank Credit Mutuel du Centre, for which the broker places all property/casualty coverages; another bank, Credit Agricole, for liability coverage; Optorg, a large distribution and wholesale group; and Havas a major Paris-based advertising agency.

Car manufacturer Peugeot Citroen S.A., which already has used Gras Savoye for its foreign operations, also turned over the property/casualty insurance program for all of its French operations to the broker last year.

The stream of new business is continuing this year. The 1997 list of new clients includes: property insurance for Chargeurs, a major Paris-based diversified industrial group; creditor insurance for bank Societe Marseillaise du Credit; the property/casualty insurance program covering all high schools for the municipality of L'Aquitaine; and the professional liability program covering attorneys in the province of Isle de France.

Gras Savoye also has won the risk management and insurance brokering business for the Aug. 19-24 Journee Mondiale de la Jeunesse in Paris, when Pope John Paul II visits France and addresses a gathering of about 600,000 young people from around the world.

Other 1996 developments include setting up a new space, telecommunications and multimedia division and the hiring of a specialist Olivier Jacquinop to lead it.

Last November, Gras Savoye also set up a joint venture company, Ecopass, with Gauntlet Europe and Gauntlet's U.S. parent, ACI Environmental, a Los Angeles-based environmental systems management company. Ecopass, in which Gras Savoye has a 65% stake and Gauntlet a 35% share, started business this year as the first French company authorized to certify environmental management systems. Mr. Lucas is enthusiastic about growth prospects for Ecopass, pointing out that environmental and pollution concerns in France, as elsewhere, are becoming increasingly important for the industrial community. Gras Savoye views any industrial or manufacturing company with production activities that could be perceived as having a potential effect on the environment as potential clients.

Gras Savoye has made two acquisitions so far this year. In January, it beefed up its previously small aviation unit with the purchase of a 40% stake in OAA-GC, France's biggest aviation insurance broker. Then in the spring it bought HIP Cover, a broker that specializes in race horse insurance.

These acquisitions follow the January 1996 purchase of Ami, A Paris-based broker catering to medium-sized clients and CECAP, of Noisy, France, a broker involved in contingency fund insurance.

Globally, Gras Savoye is strongest throughout Europe and the former French colonies in Africa and the Far East. However, last October it opened a representative office in Beijing, which it hopes will follow the normal progression under Chinese insurance regulations to a full license in two years. Also, this year, it opened a small office in Equatorial Guinea to service an existing client, making it the first of 15 Gras Savoye African offices to be opened in a country that was not a former French colony.

Mr. Lucas is confident that in terms of opening further offices, "we'll do more this year in Africa and elsewhere," though he declined to be more specific on potential locations.

A major question mark on the global front is UNISON. Gras Savoye is the French partner for the international broker network, which is active in 70 countries. UNISON partners still are discussing what to do to replace key member Johnson & Higgins, which left the network as a result of its acquisition by Marsh & McLennan Cos. Inc.

Mr. Lucas said it is not necessary to find a partner as big as J&H. "We don't need a name, we need a network. Specifically, we need service in the U.S.," he said.

It is also unclear what Willis Corroon's acquisition of a one-third stake in Gras Savoye would mean to UNISON. Neither party would comment on whether Willis was considering re-joining UNISON or if Gras Savoye would leave it.

Mr. Lucas does not rule out Gras Savoye making additional smaller acquisitions and entering into joint ventures of the sort that have been key to the Paris-based company's recent growth.

While Mr. Lucas does not rule out the importance of size, he emphasizes that he does not think in those terms. "Our main preoccupation is the client," and so any other broker with the right product and geographic spread could be considered as a partner. Given too that Mr. Lucas says clients have expressed concern that the recent mega-mergers are reducing their choices, he believes that any ties that Gras Savoye forms should improve, rather than reduce, options the brokerage can offer to clients.

Mr. Lucas said that while it's difficult to predict the outcome for business this year, results for the first half have been comparable with last year's growth. With the new clients that have come aboard, the picture does look good, though he said it is unlikely Gras Savoye will match last year's near 14% revenue growth.

Gras Savoye has high hopes for an incentive plan for back-office staff that was started earlier this year, Mr. Lucas said. The plan, which operates apart from any incentive programs for brokers or managers, is designed specifically to reward personnel not directly involved in getting new accounts. But by rewarding the good work of technical, communications, accounting and administrative staff, Gras Savoye has improved the morale and performance of the support operations that service customers.

Growth could be slower this year in part due to the state of the French economy, which is hindered by one of the highest unemployment rates in Europe at 12.5%, and uncertainty regarding the consequences on the economy of the recently elected socialist government.

Of unemployment, Mr. Lucas said: "Of course there is an impact on insurance, because the purchasing power of the unemployed people is very minimal. And of course it does affect the employees' benefits."

However, he quickly added that the impact is unlikely to be very significant for any one broker, as none has so dominant a share of the relevant sectors of the market.

Commenting on France's shift to a socialist government in June, Mr. Lucas said he is not expecting any significant changes that would be detrimental to the economic environment. In the mid-term, he said he does not expect much shift away from policies of the previous government, with the emphasis again placed on dealing with unemployment-a problem that he notes no recent government has been able to solve.

Asked if, given the mergers taking place within the global brokering community, he is not tempted to sell his stake in Gras Savoye and retire to the good life in the south of France, Mr. Lucas smiled. "I'm not interested. I like the job. I think there is a lot of potential in this job, because there are a lot of things to be done. So, why should I sell?"

Referring to its main French broker rival, CECAR, which Marsh & McLennan acquired in January, Mr. Lucas said: "We always did it different from CECAR. They asked for their clients to become shareholders to get business. We never did that. They sold to a big giant; we won't do that, either. We've got a different philosophy. I'm not saying they have got the wrong one, it's just a different one."

In addition to Mr. Lucas, Gras Savoye's other principal officers are: Daniel Naftalski, chief operating officer; Emmanuel Gras, chief operating officer; and Jean-Herve Lorenzi, deputy operating officer.