‘Anybody pretending that you can grow profitably needs a tap on the shoulder’

François-Xavier Boisseau does a quick calculation: the average life span of a UK general insurance chief executive is around two and a half years, he estimates.

This makes the Frenchman, with his four years apiece as chief executive and managing director of Groupama UK, an industry veteran already.

“Are you suggesting that my time is nearly over?” he says with a characteristic booming laugh, swiftly adding that he has no plans to move on. Underlining the continuity at Groupama, his managing director Laurent Matras has been at the company for nearly three years.

The two men have a lot in common. Both are ex-AXA senior executives and both are steeped in the UK insurance market. The outspoken FXB retains a strong French accent. The softly spoken Matras, who naturally defers to his chief executive, sounds distinctly mid-Channel by contrast.

In their first ever joint interview, Groupama’s chief executive and his managing director Laurent Matras talk to Insurance Times about Boisseau’s grim prognosis for the UK commercial lines market, how its broker businesses are not for sale and about a controversial offer from Matras that the rest of the industry refused.

To start with, though, it’s the first chance to grill the pair about Groupama’s first-half results: being true Frenchmen, neither was around in August when they were published.

Pre-tax profits were up 34% to £18.5m compared to the same period in 2010, while total revenues were up slightly from last year’s H1 figure of £237.7m to £239.8m.

This recovery was underpinned by the wider rebound in motor rates, which helped hike Groupama’s personal lines revenues to £148.4m from £144.4m.

“This is the first time that I have been happy to have such large personal lines,” Boisseau says. “The last year, I was crying about it but now I am not.”

Less happy reading for Groupama was the 5% drop in commercial lines revenues over the same period from £65m to £62.5m.

Boisseau pins the blame for these results on a wider malaise in the commercial lines market. “If you look at the combined ratio on commercial, fleet is starting to get very close to crisis point. I wouldn’t be surprised if in 2011 the combined ratio on fleet is 110% – it was 107% last year.

“For all liability classes, property class and fleet, we are now in a COR of more than 100% if you exclude reserve releases. We are starting to shift into a territory where the combined ratios are not sustainable.”

But he remains “sceptical” about the capacity of the UK commercial lines market to correct itself. “This market only reacts when you have blood on the carpet,” he says. The “great illustration” of this, he notes, was last year’s turn around in private motor.

“We had to wait until the market reached 120% COR before it said maybe we should stop bleeding that much. You would have expected that to happen earlier. I am afraid that on

commercial lines, despite the fact that we are now into underwriting loss territory, it’s still not bad enough. We still have huge capacity in the market,” he says.

But recent weeks have seen some of Groupama’s bigger rivals – notably AXA under its new commercial lines chief executive and erstwhile Boisseau lieutenant Amanda Blanc – set ambitious growth targets.

“Anybody pretending that you can grow profitably needs a tap on the shoulder. You can’t grow profitably in commercial,” says Boisseau, suggesting that such growth targets are crafted principally for the consumption of impatient shareholders.

Adopting a satirical tone, he says: “It’s good to be optimistic – it’s an approach your shareholder wants to hear. But we are not in this camp. Our shareholders are very realistic about the prospects of the UK market and if I was in front of my shareholders with this growth plan I would have the average life span of a chief executive, because it is not credible.

“I can’t comment about others but from where I am sitting, I can’t see how you can combine growth and profitability.” Boisseau believes that the next year will see zero growth at best in the commercial lines sphere.

“You have a depressed environment with plenty of overcapacity – 0% is probably optimistic. The pie is at best stable and probably it will get smaller.” Things are unlikely to improve much until 2013, he adds.

Despite grumbling about brokers still wanting unrealistic levels of commission, Boisseau rules out going down the direct route.

“It is quite simple. If you want to be direct you have to splash millions of pounds over three years. For a business of our size, it doesn’t make any sense.”

The company, which was ranked a relatively humble 24th in last year’s Insurance Times Top 50 Insurers table, lacks its bigger rivals’ economies of scale.

Instead of being the mini-composite that it has traditionally been, the Groupama UK game plan is to become a provider of specialist products. “It makes no sense for Groupama to compete against RSA or Aviva on the same ground,” Boisseau says.

The company has so far rolled out two of its Exclusively range of products, targeting the niche areas of recruitment and security. Another two are in the pipeline, says Matras, who adds that Groupama’s broker acquisitions have also contributed to this specialisation strategy.

“It’s allowed us to move into new areas that we were not doing before,” says Matras, giving as an example the motorbike market where the company has built on its relationship with Carole Nash to develop a range of specialist products.

As for its own brokers, Boisseau insists that he is happy with the performance of Bollington, Carole Nash and Lark. “Brokerage is flat, which is great because a lot of brokers have lost income so it’s a quite a stable situation in the brokers.”

But, while turnover may be flat, the three firms have cut their costs, enabling margins to improve to the tune of 5%.

Insurance Times understands that when it bought the three companies in 2007, Groupama gave the vendors the option of performing a buy-back after three years. So, does Groupama have any plans to sell back any of its broker businesses?

“Absolutely not,” Boisseau replies. “They contribute to the profit stream and they are stable for the group; they are very good teams.” But he adds: “It is quite natural, when you have minority shareholders, that they want to have a benefit at some stage to take their share.”

Any acquisitions in the pipeline then? Boisseau’s answer is a guarded ‘yes’. “If it’s a small acquisition that can bring some value to our broker, then I am happy to support it, but we are not going to make an acquisition that is as significant as the ones we have already bought. I don’t want a fourth one – no more big acquisitions but just small brokers.”

And, Boisseau says, there are still no plans to integrate the businesses à la Bluefin, insisting that he would not dream of robbing the three businesses of the operational independence that he describes as the hallmark of a successful broker. “When we built a broking arm, I was very keen not to integrate it, like other models,” he says.

While such a move would make accounting sense, Boisseau believes it would undermine the businesses. “It would destroy value. I might save a few £100,000 in management costs, but I would lose far more.” The same applies to turning the companies in question into funnels for Groupama products.

“The last thing we would want is to destabilise the brokers’ value because the value of the broker by definition is its capacity to attract a certain range of insurance companies. It would be a short-term gain for long-term pain,” he adds.

But, as the company’s most recent set of results demonstrates, Groupama’s fortunes remain intertwined with the fortunes of the broader motor market.

On the underwriting front, the biggest buzz surrounds the potential for telematics technology to enable premiums to be far more accurately priced.

Matras says Groupama UK is participating in a telematics pilot project, which is being co-ordinated by a leading broker.

But telematics does not make financial sense, at least for Groupama, with its limited exposure to young driver market.

Nevertheless, he is a fan of the technology. “I’m convinced that they are the future, but I was convinced they were the future 12 years ago,” he notes with a hint of self-deprecation. “Maybe it will be standard in five or 10 years’ time. It will change when every manufacturer integrates telematics in their cars.”

A more immediately pressing question for Groupama is how to tackle claims inflation. Nearly three years ago, Matras put himself well ahead of the curve when he laid down a challenge to the rest of the industry in a column for Insurance Times. He told his fellow insurer bosses that the company would declare its referral fee income if they reciprocated. “I’m still waiting for a reply,” he says.

“Referral fees will be an amazing textbook example of how an industry can shoot itself in the foot by being focused on the short term,” Boisseau says.

“There are too many whiplash claims that are the work of fiction,” says Matras, who is optimistic that the current furore surrounding referral fees will result in a ban on the practice. Boisseau is slightly more pessimistic, expressing concern that wider events, like the Libyan war, will divert governmental attention from the isssue.

But they agree that a referral fee ban is only part of the equation for fixing the motor claims industry. What’s needed in addition is a clampdown on legal costs and what Matras describes as the “long-term Holy Grail” – a new set of criteria that would determine whether whiplash claims are genuine or not. But Boisseau notes ruefully: “It’s a shame that Groupama was not heard.”

He has carved out a big profile for himself in the UK general insurance market, but doesn’t the ex-AXA senior insider ever wish that he could speak from the bigger platform that he would enjoy at a bigger company? “For our egos it would be good,” jokes Boisseau. But he doubts whether even being at the helm of a bigger company would give him the opportunity to lead the wider market.

He says: “This market is totally indisciplined. Even if you are a big company, there is no guarantee that your voice will be heard because it’s a very mercenary market. ”