PARIS -- French mutual insurer Groupama Assurances will become the second-largest non-life insurer in France after assuming majority ownership of troubled Paris-based Groupe des Assurances Nationales S.A.

The combined company will generate a premium volume of 78.5 billion French francs ($12.91 billion), Groupama said in a statement.

"In the French market, this places the entity in second position in non-life insurance with combined premiums of 37.2 billion French francs ($6.12 billion), and in fourth position in life insurance with combined premiums of 26.5 billion French francs ($4.36 billion). The international premium income reaches 14.8 billion French francs ($2.43 billion), and assets under management amount to 250 billion French francs ($41.13 billion)," the Groupama statement added.

The largest non-life insurance company in France is AXA Group, which was created by the merger of AXA and Union des Assurances de Paris in the second half of 1996 (BI, Nov. 18, 1996).

Groupama's 1997 premium volume totaled 31.4 billion French francs ($5.38 billion, while GAN reported premium volume of 50.8 million French francs ($8.7 billion).

The Finance Ministry said the Groupama offer included 2 billion French francs ($329 million) to upgrade GAN's computer network. Groupama executives have also said GAN will require up to 5 billion French francs ($822.5 million) in recapitalization.

Groupama and Zurich-based Swiss Life Insurance Co. were the only two bidders for GAN (BI, June 15). French Finance Minister Dominique Strauss-Kahn announced July 1 that Groupama had offered 17.25 billion French francs ($2.84 billion) for the 87.1% stake in GAN, while Swiss Life offered 17.43 billion French francs ($2.87 billion). But Swiss Life had asked for state guarantees against any future losses of 6.9 billion French francs ($1.14 billion) compared with a request of 2.9 billion French francs ($477.1 million) in the case of Groupama.

The two companies had made quite different proposals to develop the business and social interest of the company, but both were of sound quality, a Finance Ministry statement said. Groupama has promised to conserve all jobs in the joint company for a period of five years.

After the decision, Swiss Life Chairman Manfred Zobel said in a series of interviews that Swiss Life had been unable to guarantee jobs would remain.

A Swiss Life spokeswoman said: "We regret the decision (of the French government). This would have been a big step forward in French insurance."

Stock market analysts had long worried about GAN's potential liabilities.

"Swiss Life asked for more guarantees because they felt uncomfortable with the outstanding liabilities," said Michael Lindsay, insurance analyst at Lehman Brothers in London.

"Each company did their due diligence, and (the French government) decided on a purely subjective basis," said Lewis Phillips, an insurance analyst at Fox-Pitt Kelton in London.

Mr. Strauss-Kahn said the offer from the mutual company was "more advantageous to the public sector." "I don't doubt that comment will be made that the government has chosen a French company. As far as I am concerned, that is not the issue. The rules of the game were clear from the outset," he added.