For some time, the writing has been on the wall for bancassurance. But the credit crisis is forcing bankers and insurers to rethink the way they do business together.

In recent days, no fewer than six big European bancassurance groups – Fortis, Dexia, ING, Aegon, KBC and Ethias – have been broken up, salvaged by their governments, restructured or rushed to raise fresh funds from shareholders.

Meanwhile, Germany’s Allianz is in the process of unwinding what has probably been the most unhappy bancassurance relationship of the past decade by selling its Dresdner banking subsidiary to Commerzbank. Two years ago, Credit Suisse decided to divest its Winterthur insurance business to France’s Axa. And Generali of Italy is taking advantage of the Dresdner-Commerzbank merger to end its relationship with Commerzbank while renegotiating at home its partnership with the IntesaSanpaolo banking group.

Bancassurance can be split broadly into two models. The first, which was all the rage in the 1990s, has seen banks buying insurers or insurers buying banks to create financial conglomerates. The second and less ambitious form of bancassurance involves forging partnerships and joint ventures whereby insurance products are sold and distributed through a bank’s network. In some cases, insurers have also acquired a stake in their banking partner.

The first model has seen its day. Merging insurers and banks never really worked. There was always too great a cultural divide between banks and their shorter-term approach and insurers with their 30-year time frame. The promised benefits of diversifying soon turned into a pipe dream. Even in bad times, banks could not dip into the cash reserves of their insurers because of the strict rules protecting the capital of insurance companies. As for the insurers, buying or being part of a bank exposed them to all the risks of a big banking crisis.

The second and more limited form of bancassurance is coming under stress. But it is unlikely to disappear altogether because banks will continue to seek to sell classic insurance products such as life assurance or household insurance that they do not want to build themselves. Insurers, too, are bound to remain interested in using the extensive retail networks of banking groups to distribute their products.

Until now, the banks have tended to hold the upper hand in these relationships. Insurers normally pay banks upfront to distribute their products. In good times, the system works relatively well with insurers getting decent returns. But in bad times – and times have never been so bad for banks – the relationship breaks down.

Rather than partners, the banks under stress turn competitors. They may continue distributing traditional insurance products but when it comes to selling insurance savings products – even if these might in some cases be more attractive to their risk-averse depositors – the banks invariably push their own mutual funds or deposit products to savers. After all, in a credit squeeze, what better source of cheap funding than depositors’ savings?

Bancassurance has traditionally been a low-margin volume business for insurers. So when the banks stop selling their savings products, the insurers naturally feel short-changed. Given the scale of the credit crisis, the insurers this time seem in no mood to compromise with banking partners.

Given that insurance companies appear to be resisting global turmoil far better than banks, they are basically telling their banking partners that in future the banks will no longer be calling the shots.

Force majeur

When it comes to the defence sector, logic rarely applies. Take Alcatel-Lucent’s efforts to sell its 20.8 per cent stake in French defence electronics group Thales.

Dassault Aviation has apparently offered €1.2bn for this stake and is being encouraged by the French government to become the new core industrial partner of Thales. The Franco-German EADS aerospace group has also long had eyes on Thales. It, too, is understood to have made an offer. Although at about €1.8bn its proposal is much higher, the government – a big shareholder in both Thales and EADS – does not want to know.

The twisted logic goes as follows. Thales must remain a French champion and its current French partner, Alcatel, must be replaced by another French core investor. Forget for a moment that Alcatel can hardly qualify as purely French these days.

For some reason, Paris now seems to consider EADS a foreign company in spite of its 15 per cent direct stake in the group that controls Airbus, which is based in Toulouse. Even more bizarre is the fact that EADS also owns 46 per cent of Dassault Aviation, although under a complicated arrangement it has no direct influence. So, if Dassault buys the Thales stake, EADS will indirectly be footing half the bill.