So what's Claude's next move?

Axa's Claude Bebbear, dubbed "crocodile Claude" because of his appetite for acquisitions during the '80s, is on the prowl again. In transforming a once obscure French insurer into a global financial services giant, the urbane Bibber is going up against the major placer in insurance, asset management, and financial services - including rival "Hank" Greenberg's AIG, which is the profitability pacesetter.

Does size matter? Evidently the CEOs running Citicorp and Travelers, Deutsche Bank and Bankers Trust, Aegon and Transamerica, and Zurich Group and BA Financial Services think so. Most industries are being buffeted by the twin forces of convergence and globalization - but to insurance, banking, and financial services, it's a vortex. Just as category killers have become a dominant force in retailing, AXA's chairman and CEO, Claude Bebear, figures size and scale will triumph in the specialist niches it has chosen: insurance, asset management, and financial services. The Paris-based company, which operates in more than 50 countries with 30,000 employees, aims to make itself a global brand.

With $64.4 billion revenues in 1998 and $605 billion in assets under management, AXA is a big player that is getting bigger. Last February, Bebear, a big-game hunter whose office is decorated with hand-tooled rifles and antelope heads, bagged Britain's Guardian Royal Exchange for $5.67 billion from rival hunters Royal SunAlliance and Eureko, a federation of seven European mutual insurers. The takeover of GRE vaulted AXA from 10th to third in the general insurance league table.

A consummate dealmaker, the affable French executive admits he's got his eye on opportunities in Japan, the world's second largest market. AXA created a direct life insurance operation there four years ago, but its market share is small. Considering that Japan's economic woes create vulnerabilities that will attract others. Bebear may have to act fast. Although he insists he has no specific target in mind, he may yet pursue quarry in the U.S. through tile Equitable Cos., which AXA acquired in 1991 and is now 60 percent controlled by AXA.

Although prominent among France's business leaders, Bebear, 63, has steered an unconventional career path. Born in the Dordogne in Normandy, he graduated from the prestigious Ecole Polytechnique in Paris. He avoided the usual path of working one's way through the French civil service and sliding into one of France's government-guided enterprises. Instead, in 1958, right after college, he joined a small mutual insurance company, Rouen-based Ancienne Mutualles, taking an unusual invitation from the father of a classmate: join the company and if you have what it takes, you will become president.

Over the next several years he qualified as an actuary and worked in all phases of the company's operations. During this time he was sent to Canada to set up a life insurance branch for the company. The experience exposed him to the possibilities inherent in international business, which have stayed with him. A committed globalist, he and his wife adopted two Korean daughters, now 28 and 29. His son works for DLJ in New York.

After becoming president of Ancienne Mutualles in 1974, he began a series of mergers, which transformed the sleepy company into the AXA of today. The biggest deal came in 1996 when AXA bid for the once state-owned French insurer, UAP. When UAP's shares tumbled, AIG tried to buy it; but Bebear snatched it up with an $8 billion stock swap.

Buying distressed merchandise and restructuring the operations has helped AXA grow. There's just one problem: profitability. AIG, which grows its businesses internally, regularly earns 15 percent returns on equity. compared to AXA's 12.8 percent in 1998, its best ever. Looking at the underwriting profitability in property/casualty of both companies, AIG's combined ratio in its non-domestic business is close to 90, which means it earns 10 cents of every dollar in premiums it takes in. AXA's combined ratios range from 101 in France to 119 in Belgium, which means investment income is subsidizing underwriting. Analysts say this won't be easy to fix - but don't sell AXA short. As he relates in the following interview held at Equitable's New York headquarters, Bebear is focused on getting senior managers to share best practices "even if they are AIG's."

CLAUDE THE CROCODILE

So about these acquisitions - just how big is big enough?

First of all, in each country you need to have critical mass. And then, even if you have critical mass, but you have very, very big competitors, critical mass goes up, so you need to be even bigger.

The second problem is the globalization of the economy obliges you to be more global. Also, the big advantage of being global is that you spread your risk all around the world. For instance, look at Japanese companies today; they are in trouble because Japan is in trouble, not because they have done something wrong.

So the answer to your question is: I don't know. I know that we have to continue, and I think there are a lot of opportunities all around the world.

What is the difference between your need to be global on a large scale, and what other companies, such as Deutsche Bank or Daimler Chrysler, are doing?

Asset management is a global business, while insurance is mainly a national business. So when you are doing business in a given country, you have to be sufficiently powerful in order to be able to decrease your costs, to be known in the country, to attract good people, to offer a good service to your customers and also be profitable.

Secondly, it's the point of cycles. If you are tied only with one economy and this economy is in trouble, then you are in trouble, even if your economy is a very big one. Look at the U.S., the biggest economy in the world. In the '80s, the beginning of tile '90s, the insurance companies were in trouble because the market was poor. If you spread your risk all around the world, you are not under such a pressure.

The logic is a little bit different than, for instance, Mercedes. Their market is a global market. When you produce a car, you have cars coming from Japan, from the States, from France, and so on. You have competition in your home market coming from all around the world. If you want to resist that competition. first you have to be sure that your products can compete with the other products around the world. But you also have to sell your products in other countries, because if not, the piece of pie you have for you is too small.

In insurance, it's a little bit different. You need to be strong where you are doing business, and you need to spread your risk all around the world. Asset management more and more is a global business. Anti as an automobile maker, here too, everybody from everywhere is your competitor, and you need global products to compete.

How do you identify a good practice in Country A and then take that to Country B?

We have what we call synergy groups doing the same business in different countries. And they meet from time to time, once a year, three times a year, if necessary, to exchange practices. So not only with products, but also in IT, for instance, we share the research. In IT, we are building a common architecture in order to be able to exchange everything we are doing in the different countries. And that's the relationship between people.

Inevitably, comparisons are drawn between you and Hank Greenberg, AXA and AIG. How accurate are they?

We are, in fact, very different, because Hank did a fantastic job with internal growth and by becoming very international in young countries where we were not. But he created businesses. And it was internal growth essentially, except for the last big deal he made in the life business.

In AXA, it's exactly the opposite. We grew by acquisitions. At the same time, we try to improve the way we are managing our business. That means that we try to reach less than 100 percent combined ratio in property/casualty. We try in life [insurance] to decrease the cost of the position because that's a big problem in countries where we have fierce competition.

And here I think we are different. But Hank is doing very well - better than we do. He is more profitable than we are. So as I said to our people, "As long as we have acquired a company, look at what Hank is doing, and try to do the same thing."

In contrast to other leading French CEOs, you are said to have an "Angle-Saxon attitude" about shareholder value. If this is true, how do you operate differently?

Personally I spent some time in Canada a long time ago, and I learned the Anglo-Saxon way of doing business, which is different from the Latin way of doing business, which looks a bit like the Japanese way of doing business - more long-term minded than short-term minded. Anglo-Saxon is more short-term minded. So in the Anglo-Saxon countries, you would look at the immediate results, quarterly results, and yearly results more than we do.

In fact, you are more profit-minded. Because when you look only long-term, it's very easy to explain bad management or expenses as an investment, which is not always true. So I became profit-minded when I was young. And when I came back to France after that, I set up a lot of audit systems, managing systems, which were oriented towards profit.

Are the French investors going to be asking for higher returns?

The French market is changing drastically today - not only the French, but the European market - because the competition is global, and the investors in our countries are mainly Anglo-Saxon. For instance, today in France the big companies which are listed in Paris, 40 or 50 percent of their stocks are owned by American pension funds or American or British investors.

The new generation of managers, of CEOs, is totally different. They are international. Previously, when you were doing business in France, it was necessary to have good ties with the government, so at the top of the company you had former civil servants. Today it's different; people are exposed to global competition; they speak English; and the firm no longer has to have ties with the government.

So you have very different conversations with your colleagues these days?

Totally different. We are less French and more international, more global. I have a group of friends, and we meet once each month, roughly. Very often we don't talk about France; we talk business all around the world, or talk about a problem in Russia, in South America, in Japan, and so on. We exchange our experience. And at the end of the day we say, "Well, and what about France?"

Long term, is the euro going to make a difference in the way you run your business?

Yes, but it will take time. It's tough today. What are the advantages for us immediately? Previously when I have had liabilities in the French francs, I was obliged to have assets in French francs. Today all my liabilities in Europe are euro liabilities. That means that my French business is not tied with assets in French francs, but it is tied with assets in French business or German lousiness or euro business. So that permits us to be more flexible in investments.

About the products, it's not so clear. Today the products remain very national. The habits are so strong that, for instance, if I want to sell a French product to a German, he would prefer a traditional German product. So that will change eventually.

In our business, in insurance, it will take time, because the laws are different. If I want to insure you in Germany, I have to follow the German laws and I have to learn the German habits. That's totally different than if I want to buy a Sony TV. which is the same in Germany as it is in France. So it's easier to compare. In insurance it's a bit more complicated, so it will take time.

THE VIRTUAL INSURANCE AGENT

Are you concerned that an Internet-based competitor might do to AXA what E-trade and Schwab.com are trying to do to Merrill Lynch?

Sure. When the market is booming as it is today, when you have a bull market, it's easy to go directly and to buy directly. You have some assets, some savings, you can go on tile Internet and buy. When the market becomes a bear market, and it will happen one day, you might say, "Perhaps it would be better to go and see a financial planner."

So that means that we have to develop systems on the Internet. We have already started that, in order to be able to sell to people that are using the Internet. But at the same time, it would be a very big mistake to destroy traditional networks, professional networks; we have to improve the quality of those networks to make them more professional. Because first of all, some people will continue to go to them. Second, even when somebody is playing with the Internet, if he wants to be more sophisticated, he will go to them.

DLJ has a "direct" channel and it doesn't seem to hurt their main business.

No. DLJ does a direct business that is doing very, very well. And today, there is competition between the direct business and tile traditional network. But that does not affect the market as a rule. Some people, older people, for instance, prefer the continuity; they prefer the face-to-face. But the new generation more and more will play with the Internet, so the competition will become stronger, tougher than it is today.

But even those people at one stage or another will come from time to time to a salesman. Look at the banks. The people who play with the Internet, they go more often to a banking agency than other people. because some of them become very interested, more sophisticated.

Do you foresee a virtual insurance company the same way there now exist all-virtual banks?

Yes. Why not? The products we offer in insurance are the same as those banks offer. So if it's possible for a bank, it's possible for an insurance company.

Today we are using the Internet, for instance, to tie an agent with a company. An agent who is about to insure you directly. he talks with you, enters that in the machine, and if you agree, proof! you push the button, and everything is done.

So it's done by an agent today, but tomorrow, you will be able to do the same thing yourself as long as you have a printer with you to get the necessary policy.

So do you anticipate needing fewer agents in the future as a result?

Yes, fewer - but more professional. And it's exactly what Equitable is doing here when they go for the traditional life insurance agent through the financial patterns. We consider that some of our products will become real commodities, and that the Internet will be sufficient. But on the other side, some sophisticated needs need sophisticated people.

Will there be further consolidation in the industry? Will there be a convergence between Insurance and banking? How much further do we have to go?

That is difficult to say. Consolidation is a must and that will continue. Convergence is something else. I'm not convinced at all. It's very difficult to be involved in too many different businesses. And you see what is occurring in this market. You have Aetna, which is concentrating on one business only, because they consider - and I share their point of view - that when the competition is tougher, you need to be a better professional, and you are a better professional when you are involved in only one business.

So when I say that I am doing insurance and asset management. it's already a lot of different businesses. I'm not sure that I have to insure everything everywhere in the world. If I add to that commercial banking, which is an entirely different business, where do I go? There will be some convergence, but I'm not sure that will be very successful.

You said Japan is a window of opportunity for AXA. Given that the financial upheaval there is far from over, how much longer can you wait?

Oh, we are looking and consider that the window is open and will remain open as long as Japan is in trouble. As soon as Japan recovers, immediately the Japanese will try to remain Japanese. So today it's time to look at what is happening in the market and try to make some acquisition or some move. It's not so easy, because you have to look at the Japanese companies, which have an accounting system that is different than our system.

An investment in Japan is more exotic. If I invest in an open country or in the U.S., we think in the same way. The Japanese are very intelligent people, very clever people, but they think in a different way than we do. So you have to be sure when you make an acquisition in this country, or when you want to develop a business in this country, that you fit with the mentality of the country. And insurance companies are big companies, so if you make a mistake, it will be a very big mistake.

There must be some big bargains out there.

Yes. The problem is finding a good bargain. But for that you have to know exactly if there is a role, how big is the role, and whether you will be allowed to develop the business. If a company is in trouble, it's very often a problem of management. So you need to put in managers. And in Japan it's far better to have a Japanese manager than to send a European or an American.

THE PATH LESS TRAVElLED

You chose not to work your way through the civil service system. What was It that set you on your chosen path?

When I was at the university I was in Ecole Polytechnique, which prepares you to be a civil servant. But I was not interested in becoming a civil servant; I wanted to enter the private business.

It was a little bit unusual. It was considered better to start as a civil servant and enter the private sector after that when you were 35 or 40. I considered it boring to think like that, and I preferred to go directly into the private sector. I found a small mutual company, where a man said to me, "You enter the company as the future boss of the company." I was 32.

How did this person spot a future leader in someone so young?

He was a special guy. He was a monarchist, and he considered that it was a business, that it was like preparing a king. You have to prepare a CEO like a king, so you take one when he is very young.

You have a reputation for tilting your managers to exotic locations, such aa a train across Europe into the North African desert. What's this all about?

One thing that is very important: if you want to inspire people to give a new idea, the best way is to destabilize them. So when you go into the desert, sleeping in tents, you are destabilized. Your mind is open and you are ready to accept everything, every concept. When I say destabilize, I mean that it obliges people to go out of their logical habits; you put them in a totally different environment, and they are a little lost, so they are open-minded.

When we ran that train and went through Europe, my purpose was to show them what Europe means. And in each country when we arrived, somebody came to the train and said, "In my country Europe is this or that." So Europe stopped being purely intellectual for them, and they felt it, they saw the differences.

Do you use the Internet?

Yes, yes. I'm not an IT man, but I use a personal computer at home, in my office, and I use the Internet.

How many e-mails do you get a week?

Not so many, because people don't write to me. I think that the first e-mail I got was from Bill Gates.

But the most important thing is people. And the best thing to do if you want to deal with somebody is to talk. I don't write letters, not so many, so I don't write a lot of e-mails. I prefer to phone people and talk with them. You dig up lots of common feeling and you understand each other.

You are well known in European leadership circles. Do you have ambitions of pursuing a political career in the new Europe?

I was tempted some years ago. It was proposed to me to be minister of finance of France. I said 'no' because I thought I was not prepared for that. When you are in business, if you make good things, the bottom line shows you are doing well. And if you make bad things, the bottom line shows that you are doing poorly. In politics, you can be the best politician and not be elected, and the worst and be elected.

I would want to be involved in politics, not as a politician, but as a counselor, somebody that helps the prince, as Machiavelli would have said. Because to be a politician, you have to be a demagogue. It's difficult for somebody who has spent a lot of time in business to enter politics.

How would you describe yourself in terms of your economic or political philosophy? Do you have one?

Yes, sure. I'm a classical, market-oriented liberal. I think we need a strong state that defines the rules and then leaves the players to play. They have to check that they play in a fair way, but then they have to leave the players to play. The big mistake in Europe is that the government wants to do everything. We have to privatize more than we do. They have to set the rules and check that everybody is correct. That's it. And leave people free.