Stephen Lewis takes a look behind the scenes at CGU's latest merger move
In the short term, uncertainty is bound to be the name of the game.
The dust has scarcely settled, after all, on the 1998 merger of General Accident and Commercial Union.
All the signs are, though, that the merger of CGU with Norwich Union to form the UK's largest insurance company could be good news for York.
The city has been chosen as the headquarters of the new, combined life assurance operation of the merged insurance giant - making it at a stroke home to the second largest life company in the UK after the Prudential.
CGU Life development director Graham Berville, who is based at the firm's Wellington Row headquarters, points out that following the merger of General Accident and Commercial Union two years ago, life business grew by 35 per cent, creating extra jobs and forcing the company to expand into extra premises.
The latest merger would see the life assurance end of the business virtually doubled, he said, and 'had to be good news for York.'
Paul Murphy, head of York's Inward investment Board, agreed.
"Obviously it is early days, but the preliminary indications are that this enhances our credibility as one of the leading centres for the insurance industry outside the South East," he said.
The merger doesn't automatically mean extra jobs for York, though. The whole purpose of the £19 billion merger, Mr Berville admits, is to produce a leaner, meaner operation. Across the nation as a whole, up to 4,000 jobs could be shed.
The obvious implication, though, is that those cuts may have to fall elsewhere. That, at least, is what CGU employees and business leaders in York alike will hope.
City of York Council chief executive David Clark was quick to point out the decision to base the UK Life arm of the insurance giant in York probably owed much to the 'experience and formidable skills base in the city.'
That's undoubtedly true, and was cited by Mr Berville as a major reason why York had been chosen.
But it could so easily have been otherwise. Mr Berville himself admitted it wasn't until the end of last week that he himself heard about the merger.
"There were some fairly high-level decisions taken about the location," he said. "The general insurance business is based in Norwich. Given that, it would not really be feasible that we try to locate such a large life insurance company in the same town."
In those circumstances, he said, York, with its already-established tradition of life assurance work, was a natural choice.
It's hard to avoid the impression, though, that the choice of York as headquarters for the life operation may have hung by a thread - and it's easy to understand the unease of many of the company's 2,500-odd York employees.
Mr Berville says the important thing now is to complete the inevitable reorganisation as quickly as possible, so as to minimise uncertainty.
"If we want to learn the lesson of the last merger, it is to do everything quickly, even if we don't get it 100 per cent right, rather than getting it 100 per cent right and taking longer," he said. "We need to create the feeling of certainty as quickly as we can."
On a broader front, Mr Berville says, the merger is clearly good news.
The lower costs associated with the increased scale of the operation - the combined value of new life premiums alone for the two firms last year was more than £6m - will feed through into increased value for money for customers, he says.
The size of the merged company - it will become the fourth-largest insurance group in Europe, as well as the UK's largest - means it should be fairly secure against takeover by large international firms.
And CGU's existing interests in Europe - it is already the market leader in the life assurance business in Poland with a staggering 25 per cent market share, as well as having interests in countries like France, Italy and the Netherlands - will provide the ideal springboard for further expansion overseas.
The merger should also be good news for the share price of the merged company.
Historically, Mr Berville says, the stock market has valued life assurance firms more highly than general insurance companies.
CGU, because of the balance of its operation, had been described as a general insurance company. But because Norwich Union had been principally a life company, the chances were the new merged operation would be also able to describe itself as a life company.
Good news for customers and for shareholders, then. But with such mergers - not to mention takeovers - in the competitive insurance business becoming increasingly common, it may just fire a warning shot across the bows of York's business leaders.
It's dangerous to put all the city's eggs in one basket. Business diversity must be the name of the game - a fact the work of the inward investment board and initiatives such as Science City York have already recognised. Because if in two years' time we're reporting on a merger between CGNU and Axa of France, there will be no guarantees that jobs will remain in York.
Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.
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