COMMERCIAL UNION PLC

1861–1989

Stock Index: London Paris

Commercial Union (CU) has been one of the leading names in insurance for more than one hundred years. In terms of premium income it is among the top three British composite--life and non-life--insurance companies. Its subsidiaries provide all types of insurance--fire, motor, accident, marine, aviation, and life, and from its earliest days CU has operated on an international scale. In 1989, just under 40% of its non-life business came from the United Kingdom, a similar amount from North America, and the rest from other countries around the world. Its life business is concentrated mainly in the United Kingdom and the Netherlands.

The company owes its origin to the Great Tooley Street Fire of London in 1861. This was the worst fire in London since 1666. It raged for two days through the warehouses that crowded the south bank of the Thames. The destruction was so great that the affected insurance companies reacted by more than doubling their rates for warehouses. Some of the leading merchants refused to pay the new rates and called a protest meeting. The merchants resolved that if the existing insurers would not moderate their rates, they would form a new insurance company that would fix its rates on a more precise evaluation of the risks. Since the other insurers would not negotiate, a prospectus was issued and capital raised, and within three months of the fire the Commercial Union Fire Insurance Company was born.

The other companies must have regretted their panic reaction to the 1861 Fire, because the Commercial Union made rapid headway at their expense. Its shareholders included some of London's most enterprising businessmen. The company's first chairman was Henry Peek, later a member of Parliament but at this time the young head of a firm of tea and coffee wholesalers. Another of the original directors was Jeremiah Colman, who was building a large export trade in Colman's mustard. These commercial shareholders placed their fire insurance with the new company, and with its more equitable rates it soon attracted a large volume of business. Within two years the older insurance companies were forced to adopt the principle of classification of risks that CU had pioneered.

Thereafter, CU did not compete with the other companies on rates, but it continued to expand rapidly. The 1860s were a boom period for business in the United Kingdom, and CU's directors applied the same energy to building up their new company as to their own businesses. They recruited able managers from other companies, opened branches in major provincial cities, and appointed agents throughout the country, all within a very few years. At the same time CU moved into life and marine insurance. Its first life policies were issued in 1862, and its first marine underwriter was appointed in 1863. In the company's early days, profits from life and marine business helped keep it going when fire claims were high.

It was the fire business, however, which offered the greatest opportunities for growth at this time. Britain's cities and industries were growing fast, with large increases in the amount of property to be insured each year. CU was one of many new companies to respond to the growth in demand. Not content with a buoyant home market, the more enterprising British companies saw that the same opportunities existed abroad and set about exploiting them.

The directors of CU were particularly alert to overseas opportunities, because they already had good trading connections abroad through their import and export businesses. In their first year they appointed an agent in Hamburg, and by the end of the 1860s had agencies in many of the foreign ports used by British merchants.

business, following bad results in 1984-1985, and made more acquisitions in Europe, with the result that continental Europe accounted for 30% of CU's worldwide premium income.

1871–1920

The United States was an early target. CU began by appointing agents in San Francisco and New York, and was doing business in Chicago and Boston in 1871-1872 when both cities suffered disastrous fires. CU, unlike some local companies, met the resulting claims in full, and gained the reputation as a company that could be relied upon. By the 1880s its U.S. business was nationwide and was providing more than one-third of the company's fire premium income.

In the same period CU was expanding rapidly in Europe, Canada, and Australia. In the 1890s India and Southeast Asia also became important, helped by Britain's imperial presence. By the end of the century, CU was drawing three-quarters of its premium income from abroad, and in total worldwide fire income ranked second only to the British company, Royal Insurance. In 40 years it had overtaken all but one of its immediate competitors, in a market which itself had been growing at an unprecedented rate.

Up to this point CU's growth had been almost entirely self-generated, and each department--fire, life, and marine--had worked largely on its own, although under the supervision of committees of directors. In the next phase of the company's history, between 1900 and 1914, it began to pursue growth through acquisition, and to act in a more cooordinated way.

CU had taken over several small companies in the 1890s to improve its geographical representation both at home and abroad, but its first strategic takeover was that of the Palatine Insurance Company of Manchester in 1900. Palatine not only had a useful fire business but had also achieved success in the relatively new field of accident insurance. By buying this company, CU gained a foothold in another fast-growing area of insurance, and became the first British company to handle all four classes of insurance--fire, life, marine, and accident.

Shortly after the takeover of Palatine, CU took another important step by appointing its first general manager, Evan Roger Owen, a Welshman who had headed CU's fire department with great success since 1885. By 1900 his reputation was such that the Phoenix Fire Office offered him its top job, and the CU board had to decide whether to lose him to a rival or promote him. It chose the latter course. Owen was general manager from 1900 to 1920, and played a leading part in enlarging and reshaping the company in those years.

During this period, the whole insurance industry was concentrated into fewer and larger composite companies, with CU one of the leaders of this trend. Within a few years it acquired half a dozen major companies. In the United Kingdom, these included the largest of the specialist accident companies, Ocean; another composite, Union Assurance; and the oldest of all the British companies, the Hand in Hand. Abroad, it purchased two U.S. companies, the American of Philadelphia, Pennsylvania, and the California Insurance Company. Two of these acquisitions were a result of the 1906 San Francisco fire; CU was strong enough to withstand severe losses but other companies were not, and both Union Assurance and the American of Philadelphia were rescued by CU.

By these acquisitions and its own vigorous expansion, CU's business grew rapidly throughout the world. By 1914 it was the largest of the British composite companies, with a premium income of £7.5 million--almost four times what it had been in 1901. CU's business continued to grow throughout World War I, despite disruption in Europe and the Atlantic, but it lost its number-one position in the British insurance industry in 1919, when two of its major rivals, Royal, and Liverpool & London & Globe, merged.

1809–1959

After the hectic growth of the previous two decades, the next two were relatively uneventful. Now that CU was one of the giants of the industry it was more dependent on industry trends, and economic conditions were becoming less favorable. In 1921 the postwar depression caused the first drop in CU's income since 1908. Later in the 1920s there was a recovery, but in 1929 the Great Depression brought a more lasting setback. Nevertheless, CU continued to grow as the market for insurance was steadily widening. In particular, the growth of motoring between the wars created a huge new market for accident insurers, and CU was well placed to benefit from this demand both in the United Kingdom and in the United States.

CU continued to make acquisitions in the 1920s. It took over another small composite, British General, in 1926. In the tougher conditions of the 1930s, the emphasis switched from expansion to cost-cutting. As was usual in those days, most of the companies acquired by CU continued to do business under their old names and through their own sales organizations, although under central control. Consequently, there was much scope for economies. Full integration was still a long way off, but in the 1930s a start was made on combining administrative systems. When World War II began, this process was accelerated in the United Kingdom by shortages of staff and space.

World War II and its long aftermath of austerity in Britain halted CU's expansion in Europe for most of a decade. It took time to rebuild business connections in Europe. It was only in the 1950s that living standards in Europe began to rise again, to create more demand for insurance. The use of cars in the United Kingdom, for example, was severely limited by gas rationing until 1950, but increased rapidly after that.

CU was fortunate at this time that so much of its business lay outside Europe, in places where expansion could continue uninterrupted. In the 1950s, however, just as business in the United Kingdom was reviving, conditions in the United States became more difficult. Fiercer competition was driving rates down at a time when claims were rising and government regulations were imposing new burdens on insurers. As a result, all companies were finding it more difficult to make profits in this market. This situation brought about the next great change in CU's history.

This development was the takeover of North British and Mercantile Insurance Company, a company with assets totalling £127 million compared with CU's £192 million, and with a still larger proportion of its business in the United States. In 1957 this company had a very bad year in the United States and, after efforts to restore the situation on its own, decided that it could only improve matters as part of a larger group. It therefore entered into a friendly merger with CU in 1959.

North British and Mercantile was the product of an old merger. The North British Insurance Company was founded in Edinburgh in 1809. It gradually extended its business from Scotland to northern England, and from fire to life, before merging with Mercantile Fire Insurance of London in 1862. Mercantile had been founded only the year before, like CU because of the increase in fire rates. Why it chose to merge with another company so early in its life is not clear, but whatever the reasons the combination of London and Scottish enterprise proved a fruitful one. The new company built up a large overseas business and by 1901 was the fourth-largest British fire insurer. It then became a composite, and was still one of the leading companies in 1959.

The addition of so large a company to the CU group, and the urgent need to pool its U.S. business and cut costs, made drastic reorganization necessary. CU had recently appointed a new general manager, Sir Francis Sandilands, and during the 1960s he carried through the most fundamental changes in the company's structure since Owen's time.

1959–1990

The process of integrating CU's older subsidiaries was still far from complete, but was hurried to a conclusion and combined with the absorption of North British. The group's U.K. staff was reduced from 11,500 at the time of the merger to 8,000, largely by early retirement and natural wastage, seven years later, and proportionate savings were made in the United States and other territories. By the end of the decade, CU had a single management structure. Its new unity was symbolized by an impressive new head office--a starkly modern tower block, clad in blue tinted glass, close to Lloyds of London and the Bank of England.

CU's takeover of North British in 1959 was the largest insurance merger in the United Kingdom in more than 30 years, and was followed by a series of mergers among the other leading companies. Size had become a critical factor in the U.S. market, and universally mergers were seen as the way to reduce costs and achieve a more balanced spread of risks. CU had already begun to profit from this strategy and in 1968 it determined to do so again.

Its new partner was Northern and Employers Assurance, which ranked fourth among the U.K. composites. The company had existed in this form for only eight years, having been created by a 1960 merger similar to CU's. Formerly, Northern had been a Scottish-based composite, with a broad mix of businesses, mainly in the U.K. and Commonwealth countries. It had joined forces with Employers' Liability Assurance (Employers'), the company which pioneered employers' liability insurance in the United Kingdom in the 1880s. Employers' had then broadened out into other fields and developed a large business in the United States, which by 1960 was causing problems. Together, Northern and Employers had a substantial life business, which complemented CU's comparative weakness in this area.

This important acquisition, its second in ten years, restored CU for a time to the position of top U.K. composite. Northern and Employers was quickly integrated into the group, and again there were large savings of manpower. The U.K. staff, after rising to 11,800 in 1968, dropped to 8,400 in 1972, while premium income continued to grow. As a result, profits rose rapidly in the early 1970s. In 1975, however, the company suffered its first loss for many years, mainly due to under-writing losses in the United States. Conditions there were proving difficult for all insurers, partly because of increasing state control of premium rates, but CU's results were exceptionally bad. Profitability was restored in the following few years by reducing the company's less successful business in the United States.

Meanwhile, the United Kingdom had entered the European Economic Community, and CU saw that it must strengthen its position in that market. To this end, it made two important acquisitions in the early 1970s: a Belgian company, Les Provinces Réunies; and a Dutch one, Delta Lloyd. The latter was the second-largest composite in the Netherlands and was particularly strong in life business, adding significantly to the group's stake in that sector.

In the 1980s CU further reduced its U.S. business, following bad results in 1984-1985, and made more acquisitions in Europe, with the result that continental Europe accounted for 30% of CU's worldwide premium income. The company's profits reached a new peak of £202 million in 1988, but fell back to £150 million in 1989.

In 1990, the new holding company, Commercial Union plc, was formed under a scheme of arrangement to facilitate expansion into a variety of financial-service activities which complement the core businesses of life and general insurance. Operations comprise a comprehensive range of such services, including unit trusts and investment management, stockbroking, and personal equity plans.