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© Seguros Catalana Occidente, S.A. Sociedad Anónima de Seguros y Reaseguros Avda. Alcalde Barnils, 63 08174 Sant Cugat del Vallés. Barcelona Drafting: José Jurado Edition: Barcelona Divina, S.L. Tuset, 34. 1º-A 08006 Barcelona Tel: 93 200 10 36 ediciones@barcelonadivina.com Editor: Juan Robles Coordination: Jordina Ayats Art Direction: Sofía Alonso Photographs: EFE News Agency, Arxiu fotogràfic de Catalunya, Consol Bancells, Photo archive of Grup Catalana Occidente. Print: Vanguardgrafic, S.A. Impreso en España - Printed in Spain Legal deposit: B-7.633-2014 © Barcelona, Spain 2014 Any form of reproduction, distribution, public communication or transformation of this work can only be done with the consent of their owners, unless otherwise provided by law.


9 11

Introduction José María Serra Farré La Catalana under the management of Fernando de Delás

1864-1906 59

La Catalana under the management of José María de Delás

1906-1955

99

Creating Grupo Catalana Occidente. Jesús Serra Santamans

1956-1974 171

Consolidation of the Grupo

1975-1990 215

The future begins

271

Catalana Occidente becomes international

1991-2005 2006-2014

307

Annex


La Catalana, origin of the current Grupo Catalana Occidente, was founded 150 years ago. The core values of the group have helped make our company unique in many ways. It is an independent, family-owned group, quoted on the stock market and dedicated exclusively to the insurance business in its broad sense. It currently operates in 46 countries. Catalana Occidente became the company it is today after a 150-year journey guided by ambition, ideas, adaptation to change and teamwork. We take pride in our achievements which constitute the foundation for the future and we look forward to the next 150 years with the same enthusiasm as in the past. Since 1864 the Grupo has had a fascinating history encompassing political, economic, demographic and cultural change. It started out in an office in Barcelona with 7 employees and has grown to more than 5,000 at present. Our group includes over 20,000 agents and salespersons, several insurance companies and millions of policyholders. Society and the world at large have changed radically. Technology, for example, an area in the industry where we have always been pioneers, has transformed reality in unimaginable ways. We have gone from the horse and carriage to the automobile to outer space in just a blink of the eye and Catalana Occidente has experienced it all, changing and adapting to the needs of the day. This and much more is explained in our book. It has not been an easy journey. During these 150 years we have encountered countless challenges, enormous changes, crisis, conflicts and difficulties of all kinds. But throughout these years we have also maintained hope and optimism, clear ideas, coherent management, and the knowledge that what truly matters is the people. It is the people who have made our journey possible and far from coming to an end, it is a journey that starts anew every day: the employees who worked for a common cause and believed in what they were doing, whose efforts over time have proved to be successful so that those of us who follow in their footsteps are able to continue their legacy; the professionals who, distributing our products to all corners of the country now as in the past, are our ambassadors everywhere they go; and, of course, the customers who have placed their trust in Catalana Occidente, deciding it was well worth it insuring their future, their car, their home, all of the most important things in their lives. This book is dedicated with my sincere appreciation to all of those who in one way or another have formed part of the Grupo and have contributed to making the last 150 years a success.

JosĂŠ MarĂ­a Serra FarrĂŠ President


Our greatest gratitude to JosĂŠ Jurado, author of the book that you have in your hands and who passed away when the last details of it were finishing. He was a big expert on the insurance world to which he devoted 36 years of his life and much of his professional career as a general manager and director of ICEA (Cooperative Research between Insurance Entities). His contribution to the commemoration of the 150th anniversary of the Grupo Catalana Occidente, remains patent in this work.


La Catalana under the management of Fernando de Delรกs

1864-1906


La Catalana under the management of Fernando de Delás. 1864-1906

The initiative On July 18, 1864, a group of Catalan businessmen, traders and entrepreneurs gathered at the office of the notary public Mr. José Falp to sign the statutes of a new Spanish insurance company. The name of this company had already been decided; it was to be called La Catalana Sociedad Anónima de Seguros contra Incendios a Prima Fija. They were summoned there on that hot summer's morning in Barcelona by the promoter and alma mater of the company, Fernando de Delás y Gelpí, a lawyer and entrepreneur from a young age when a relative of his suggested he open an insurance agency in the city. But Fernando was not satisfied with the idea of opening an agency and instead he founded an insurance company. Even in those early days he believed that Spaniards would increasingly demand the products and services of insurance companies, a phenomenon he had observed in France, a country where he had travelled in the past and therefore knew well. The name chosen for the company gave a clear message: from the very beginning it was a Catalan company with a national vision. It focused exclusively on providing fire insurance based on a yearly fixed premium.

And so a company was born, one with character and originality, as the other insurance companies in those days rarely specialized in a single product, operating in different lines of business such as transport insurance, life insurance, endowment insurance, military service exemption insurance, agricultural and fire insurance, among a long list of others. Moreover, La Catalana was a stock company which was quite significant at that time. Historically, the Spanish insurance industry in the 19th century and before then in other countries had not been created as for-profit corporations, but mainly as relief and charity service organizations of which there were many in Spain. Statistics indicate there were more than one thousand operating in several lines of business. The extraordinary expansion of mutual assistance institutions corresponded to the social ideas of the time. The dreaded fires that threatened and ruined so many people's lives in those days, in both cities and towns, forced local governments to encourage the creation of relief organizations with the aim of sharing the damage between the neighbors affected by the same risks. They usually received collaboration and support from town governments that provided rudimentary fire extinguishing equipment. Local governments also tried

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to educate building owners on the importance of fire prevention. The first fire insurance companies were therefore relief and mutual associations, many of which did not operate on a yearly fixed premium basis. This meant that when a loss occurred and the company had insufficient funds to repair the damage, an additional premium was requested from policy holders in order to pay for the expenses incurred. In this way the companies were provided with the financial means necessary to attend the most critical situations. These companies, operating in Spain at the end of the 18th century and beginning of the 19th century, before La Catalana was founded, had not developed sufficient statistics to enable them to estimate the likely frequency with which fires occurred nor their economic significance. Moreover, the standard procedure in those days was for insurance companies to repair the damage caused by fire in homes, including their reconstruction if necessary, instead of providing cash compensations to the victims as was the practice years later and as often occurs nowadays. Unlike mutual companies, La Catalana, from the very beginning, adopted new legal instruments such as the joint stock company, and managed the company with a strictly business

Unlike mutual companies, from the very beginning La Catalana adopted new legal instruments such as the joint stock company. approach. This included making basic estimates on the probability of fires occurring in each area of the territory as well as for their potential cost; risks were analyzed to avoid issuing policies for the most dangerous ones, and premiums were established based on these calculations. Positive or negative differences were registered on the income statements depending on how accurately calculations were made. Funds were invested in recruiting and training staff, in opening sales agencies throughout the country and in installing equipment and offices, competing with other companies in the market. Shareholders were awarded a dividend when decisions made were the correct ones, and losses were absorbed when errors were made, either due to excessive expenses or due to bad investment. Policy holders were therefore not requested to pay any additional amounts.

Estanislao Figueras y Moragas. President of the First Republic.


La Catalana under the management of Fernando de Delรกs. 1864-1906

15

War of Independence.


150 YEARS CATALANA OCCIDENTE

These practices were what differentiated, and still differentiate today, corporations and mutual relief associations. Both types of companies played an important role in society; each one fulfilled the purposes for which they were created and they both offered insurance products to their clients. Some were profit orientated while others were charity based; La Catalana formed part of the first group. Let's stop here for just a moment to mention some of the political and social events that were taking place in Spain when La Catalana was founded. 16

The political climate in the early days of the company In 1864, the year the company was created, the country entered a considerably delicate and at the same time important period in our history. Isabel II was queen at the time. She was the daughter of the Borb贸n King Fernando VII, unfortunate protagonist during the Spanish War of Independence against Napoleon. Isabel II was an unpopular monarch who was bitterly criticized both by her subjects and by those in power. Her conduct and ideas were considered improper and licentious by a large sector of the population. The president of the government at the time La Catalana was founded was the moderate Alejandro Mon who was replaced by General Narv谩ez, just a few months later. The social and political climate in Spain was insecure and unstable, as there were many powerful politicians, liberals, progressives and moderates, who totally disagreed with the existing ultra-conservative and absolutist ideas which dominated the country's politics. It was only a matter of time before a

Queen Isabel II.


La Catalana under the management of Fernando de Delรกs. 1864-1906

Barcelona.

unstable and still a monarchy, but now without a king. But in spite of being backward in all aspects, it was capable of establishing one of the most liberal constitutions of the time, the so called Democratic Constitution of 1869. The government, after unsuccessfully searching for some time throughout Europe and Spain, decided to proclaim the Italian, Amadeo of Savoy, King of Spain, a person totally unknown to the Spanish people. His monarchy lacked popular support and was much

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Arc de Triomf.

general uprising throughout the country would cause a war between groups with such different political ideas. The defeat of Isabel II's advocates in the Battle of Alcolea, her banishment and exile to neighboring France, a country to which she had always felt close, was followed by the so called Six Year Revolutionary Period in Spain. It was 1868 and our company had not been operating for long. These events brought about a new situation in Spain, although just as


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criticized, and although his manner of ruling was democratic, his reign lasted only a short time and after his resignation the First Republic was established. During this period Spaniards suffered through the long and painful Wars of Succession or Carlist Wars (The Carlists were against the proclamation of Isabel as queen because she was a woman –the

Salic law of Inheritance– and instead were in favour of Carlos, the King’s brother). Fighting took place mostly in the north of Spain and Catalonia. At the same time traumatic rebellions were being fought for independence of the American colonies with their subsequent loss at the end of the Spanish empire. Moreover generalised uprisings were occurring

View of the Port of Barcelona - 1930.


La Catalana under the management of Fernando de Delás. 1864-1906

It was within this Spanish society of the second half of the 19th century, which we have described as unstable, poverty-stricken, mainly agrarian and above all illiterate, where La Catalana de Seguros contra Incendios was created. throughout the country as well, due to the so called, maybe euphemistically, Spanish Cantonalism, by which any region or city could freely decide to become independent from the rest of Spain. The expression “Viva Cartagena!” rather than “Viva España!” reflected the political climate in the country. The country's successive governments had to use force to end the countless revolts that took place almost daily during this period. In fact some historians believe that the roots of many of the problems and challenges which our country still faces today date back to this period. The First Spanish Republic, although short-lived was interesting given its numerous initiatives, ended with the so called Borbón restoration of Alfonso XII. The reign of this monarch, also very short-lived, was to a large extent a continuation, if not

an aggravation, of the problems that preceded it. It was in this Spanish society of the second half of the 19th century, which we have described as unstable, poverty stricken, mainly agrarian and above all illiterate, that La Catalana de Seguros contra Incendios was created. Surprisingly despite all of the problems mentioned, its commercial development and expansion was not only positive but spectacular. Its income, number of clients and insurance coverage increased every year and it acquired other insurance companies operating in the Spanish market with the explicit aim of increasing its business volume as we will detail below. These events indicate the importance of good and prudent corporate management, especially in the case of insurance companies; the importance of the role of the people who form the foundation of society and the futility of conflicts which unfortunately occur so frequently and which do not lead countries to the progress they promise but on the contrary, to destruction, and poverty. Next we will give a brief description of the insurance industry during these years.

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150 YEARS CATALANA OCCIDENTE

The insurance industry at the time

20

It is interesting to focus on some of the relevant facts from the insurance industry of the time. It can be said that insurance in general terms, and fire insurance in particular, as it is known today, was created in the United Kingdom, going back as far as the 18th century and even earlier, to the end of the previous century. The initiative to create fire insurance companies was generally due to the public’s reaction to devastating fires, such as the Fire of London in 1660 and others that took place in most European capitals, including Spain. Insurance companies in Spain started operating by following guidelines established in other countries and for the very same reasons. These companies, however, were founded in Spain with a significant time delay compared with the rest of Europe, in fact, not until approximately one century later. This is the equivalent of saying that professional insurance companies started to operate in Spain in the 19th century. Normally excluded from statistics are the companies that specialized in marine insurance which go back to far earlier dates. This line of

insurance was not regulated by the same rules as the rest until well into the twentieth century. Reference has already been made to the fact that fire insurance companies seemed to have started with a criteria and mentality based on "mutualizing" losses. Their main purpose was to insure private dwellings which were situated in the same building as others as they are today. These dwellings are known in insurance jargon as "small risks" to differentiate them from those of large corporations or from industrial and commercial risks. A fire in an apartment building had devastating consequences for all the neighbors for countless reasons, among those worth mentioning are the fast propagation of the flames because of the adjacency of the units and the poor quality of the buildings and materials. There was also a tremendous shortage of technical equipment and personnel which complicated the situation. It was often the towns themselves that promoted the incorporation of fire insurance mutual associations, which not only extinguished fires but repaired the damaged homes. They also encouraged the creation of fire-brigade services, a task in which the insurance companies frequently collaborated. The support received from town and regional authorities at that time in


La Catalana under the management of Fernando de DelĂĄs. 1864-1906

21

Cos de Bombers (Fire Brigade), Barcelona – 1865.

Spain, in addition to the social and political ideas prevalent throughout the country with their doctrines in favor of mutual support between citizens, probably influenced the growth and expansion of fire insurance mutuals as well. Commercial companies such as

La Catalana as well as others within the industry, appeared somewhat later than mutual associations; the former initially focusing on covering industrial and large building damages, which as we mentioned, were not usually the main segments of the market of mutual associations. Evidence suggests that


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over the years, and with the proliferation of liberal ideas in the world, joint stock companies saw the opportunity to capture some of the clients of these mutual companies, which, in turn, were slowly abandoning some of their the social ideas. Consequently, mutual companies became increasingly similar in their objectives to companies that had a more commercial orientation, extending their interest to larger risks. The similarities of the corporate objectives between insurance companies of a social nature and those of a more commercial and lucrative nature, occurred not only in the insurance world but also in other sectors, such as loan and credit institutions –loan and savings banks– in a process which continued over the years and is still ongoing today. The sequence of events described, evolving from mutual, local and relatively small companies to larger corporations of a national scope, ends with the introduction and consolidation of foreign companies in Spain. In most cases these companies not only had more funds and means but were also international. This series of events will be dealt with throughout the book. Additionally, in 1822, approximately forty years before our company was founded, the Sociedad de Seguros

Consequently, the objectives of mutual companies and those of a more commercial nature became more and more similar. Mutuos Contra Incendios de Madrid was created, operating in the city's old quarter; years later its services were extended to the city’s new areas, needed because of the ever-increasing population and so the Sociedad de Seguros Mutuos de "extramuros" (outside the walls) was founded. At a later date, and following the guidelines and standards of the company in Madrid, the Sociedad de Seguros Mutuos de Barcelona was founded. This entity is still operating today and is the oldest mutual insurance association in Spain as it was created in 1835. It is currently called Mutua de Propietarios. In 1854 the expansion of Barcelona led to the demolition of the old walls surrounding the city, which gave way to the beginning of the so called Eixample and as a result buildings outside the city's old quarter were also insured. Many other local mutual insurance companies were created in different cities around Spain with very similar


La Catalana under the management of Fernando de Delás. 1864-1906

corporate and social values. Although other commercial insurance companies already existed in Spain in the first half of the 19th century, their consolidation took place in the second half of the century. Some of the insurance companies founded during the earlier parts of this period which still existed years later, despite changes in legislation, are listed in the following table. Worth mentioning is that the insurance industry in Spain in the 19th century was officially regulated by two principle laws which had a bearing on

its development and helped to shape the insurance sector in the years to come. We will explain this in more detail when reviewing our company’s operations. The first law was the Code of Commerce (1829) which regulated all commercial companies. Insurance mutuals did not fall under this Code. This legislation was clearly liberal regarding the creation and management of companies. The second important law was approved on January 17, 1848 and had a more restrictive nature, consequently obligating existing 23

SOME OF THE COMPANIES FOUNDED IN THE FIRST HALF OF THE 19TH CENTURY COMPANY

YEAR INCORPORATED

CITY

Compañía Barcelonesa de Seguros Marítimos

1838

Barcelona

Compañía General La Española

1841

Madrid

Compañía General del Iris

1842

Madrid

Catalana General de Seguros

1844

Barcelona

Ibérica

1845

Barcelona

El Fénix

1846

Madrid

(Note. La Catalana General de Seguros is different and prior to our company despite the similarity in the names. Furthermore, the company El Fénix, also in the table, is different to La Unión y El Fénix Español founded years later and leader of the insurance industry for many years).


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insurance companies to comply with its detailed principles and guidelines. This caused the closing and liquidation of a large number of insurance companies which had been incorporated during the first half of the 19th century and did not meet the requisites or did not wish to comply with the provisions of this law. Research available regarding the insurance sector in those days, depicts the industry as barely regulated and with commercial practices that were not only irregular but totally fraudulent. The business and corporate world was thus a true reflection of the Spanish society of the time, politically, economically and socially. Of the companies operating when La Catalana was founded we should mention El Fénix, (different than El Fénix in the table), precursor of the Union y El Fénix Español and La Española founded in 1864, and mentioned earlier. These were two of the most influential companies at the time although neither of them exists today, La Española because it was liquidated and La Unión y El Fénix because it merged with Allianz. Because of the disappearance of these two companies and others, today Grupo Catalana Occidente is the oldest and most prestigious Spanish joint stock company in the country.

Giving companies similar or totally identical names of already existing entities was common practice. Giving companies similar or totally identical names of already existing entities was common practice in Spain, even when operating in the same industry as there was neither control nor monitoring of trademarks as there is today. It was also frequent practice for certain Spanish banks, in addition to their usual banking activities, to sell insurance policies, for example covering agricultural productions against weather related events. Financial institutions such as La Seguridad y El Fénix, which were formerly banks, as well as offering mortgages or other loans to its clients, regularly insured livestock and other types of policies. The insurance industry was far from being properly defined or sufficiently limited throughout this century. (Guillen 2010) These banking activities which took place in the early days of the history of the insurance industry, can


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be considered a “proto-bank assurance”, in which the activities of both banks and insurance companies were carried out by banks themselves, with the added peculiarity that they maintained their corporate or legal names. One can easily imagine the disorder in the business world in that century due to the lack of adequate regulations with consequences which were, to a greater or lesser extent, detrimental for the progress of insurance companies. In his speech at one of the company’s general shareholders’ meetings, Fernando de Delás, managing director and founder of La Catalana, showed his concern towards this situation referring to "the confusion of many citizens in our country when comparing banks with insurance companies," considering this highly damaging for the development of the insurance industry. He also expressed his concern with the public administration’s lack of control over certain insurance companies, both Spanish and foreign, that did not comply with legal standards. Also worth mentioning are certain

Detail of a mosaic from Barcelona.


La Catalana under the management of Fernando de Delรกs. 1864-1906

27


La Catalana under the management of Fernando de DelĂĄs. 1864-1906

29

Fernando de DelĂĄs y GelpĂ­. Founder and Managing Director of La Catalana (1865-1905).

practices related to the insurance industry in those days. The governing boards of many insurance companies were often formed by members of the Spanish nobility, retired or active politicians

including congressmen and members of the government, business owners and entrepreneurs from other sectors related to insurance. The purpose behind this practice was to confer a greater moral and material solvency


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to the insurance company in the eyes of the public and policyholders. In many cases, a company's solvency was inferred by the surnames and positions of important personalities who were members of the board rather than calculated on the basis of the amount of equity in the company's bank account. Company capital was not regulated at that time and it was usually nominal but not paid-up capital, often not even amounting to 5% of the nominal. The lax regulations of the Code of Commerce explain the high failure rate of many insurance companies in those days in which the average survival rate of companies was considerably low. In fact many companies actually stated in their statutes that they would be operating for a specific period of time, perhaps thirty or forty years, and their future dissolution was stipulated in their bylaws. The shareholders of certain companies who subscribed the initial capital committed themselves to pay for shares "when necessary" and therefore, on many occasions, the actual initial payment was zero. There was a case of a well-known company that subscribed only a fraction of the shares it officially issued, requesting the payment in differed installments of only 10% of that fraction and in

In many cases the solvency of a company was implied by the surnames and other positions held by important personalities who were members of the board rather than the amount of equity in its bank account. this way freeing the founding members from even paying the 10%. In the end, the shareholders in fact contributed at most 2% of the capital, which could amount to even less if one considers there were shares used as a guarantee for loans granted by the insurance company itself, so in fact, it was a question of obtaining money from the company instead of laying out money. Even more surprising was how shareholders were remunerated; in addition to the corresponding dividend they were paid interest on the capital provided, benefitting at the same time from two different sources. (Guillen 2010) This procedure appears to be more frequent before the approval of the Law published in January, 1848 which shut down a large number of companies as mentioned above.


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In any case the new regulation did not eradicate the bad habits of many of the companies operating in the market. Fortunately, not all insurance companies in Spain acted in the same way. The prudent and professional behaviour of La Catalana explains its long and successful existence while justifying its excellent results over the years. Finally it is fair to say that life in the 19th century, in which La Catalana was founded, was not a bed of roses for Spain nor for the insurance industry. The situation in the sector did not substantially improve until the beginning of the following century with the approval of the insurance Law of 1908. From that moment onwards, Spain could count on up-to-date regulations which represented a highly important and qualitative change in the development of the insurance industry, although it did not resolve all of its difficulties. Now let's get a better insight into the life of our company.

The company Although our company was registered in July, 1864, it did not actually start to operate commercially until November 25, 1865, more than a year after its constitution was officially approved. We are not certain about the reasons for this delay but it is most likely that there were many factors involved, especially the social and economic difficulties in Spain and specifically in Barcelona, as well as the need to reach an agreement among the shareholders, the procedures necessary to meet the legal requirements, the purchase of equipment and premises and the recruitment of staff with adequate professional experience. Whatever the

The prudent and professional behaviour of La Catalana explains our long and successful existence while justifying the excellent results obtained throughout the years.


La Catalana under the management of Fernando de Delás. 1864-1906

Antonio Barrau. President of La Catalana (1865-1868).

Casimiro Girona y Agrafel. President of La Catalana (1869-1909).

causes, in the minutes of the first shareholders' meeting the Chairman declared the 25th of November 1865 as the "true commencement date of operations." La Catalana started out with a capital of two million escudos. The escudo was the official currency in Spain that year although soon after, in 1868, it was replaced by the peseta. Two million escudos was the equivalent of twenty million reales de vellón, a unit also used at the time. Both amounts were the equivalent to five million pesetas. This capital was divided into 10,000 shares representing 500 pesetas each. At the first shareholders' meeting, 5,720 shares were represented which amounted to more than 50% of the capital, conforming to the internal bylaws of the company. However, the paid-up capital constituted only 5% of the committed amount, that is, a million reales de vellón, then equivalent to 250,000 pesetas. The shareholders agreed to an additional 5% payment when the board of directors deemed it necessary. In those days, La Catalana's board of directors was called the Governing Board. At the first general shareholders’ meeting Antonio Barrau, who held 250 shares, was elected Chairman of the board, and Fernando de Delás, who held 150 shares, Managing Director.

The managing director was assigned an annual salary of 30,000 reales de vellón, somewhat less than 8,000 pesetas at the time. It was agreed that 11% of the company's annual profits would be allocated to the remuneration of the eight members of the board. An additional 0.5% would be paid to the company's Inspection Committee, equivalent to the Auditing Committee in today’s companies with the difference that the Inspection Committee was formed by board members, not by executives. Other positions and salaries were as follows: a secretary of the board was appointed a salary of 10,000 reales per year, a cashier earned 6,000 reales, a head of department earned the same wage, two clerks, wages of 2,880 reales each and finally two doormen at 3,600 each. These were some of the agreements adopted at the first shareholders meeting. On February 6, 1867, at 3:30 p.m. in the Salón de Lecturas at the Casa de la Lonja, the company’s chairman opened the second meeting stressing the difficult political, economic and social climate in Barcelona and Catalonia. However after Antonio Barrau pointed out the difficulties they faced that year, he also informed the shareholders of "an important agreement La Catalana has signed with

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the insurance company La Providencia", the name of the Spanish subsidiary of the French company La Providence, which was considered one of the most prestigious companies in France for many years. After several mergers and ownership changes, today La Providence forms part

of the AXA corporate group. The agreement between La Catalana and La Providence, as stated in the minutes of the meeting, referred to "assuring and managing the company's business in Spain (...) which proves just how highly the French company regards our company.� 120,000 French francs

View of the Palau Square and the Lonja de Mar Barcelona 1947.


La Catalana under the management of Fernando de Delás. 1864-1906

At the first general shareholders’ meeting, Antonio Barrau was elected Chairman of the board, and Fernando de Delás, Managing Director. were allocated for the purchase of La Providencia (the price was established in this currency). A first payment of 30,000 francs was paid that year with the remaining 90,000 to be paid during the following nine years. This was the equivalent to approximately 46,000 escudos at that time, a considerable amount as it represented almost half of our company's paid-up capital. And so, in its first year of operation and despite the critical circumstances in the country, La Catalana decided to purchase an important insurance company and add it to its own assets. Similar offers were received from other companies over the years such as the Spanish business of Caisse Agricole and La Paternal, both French companies, as well as the Spanish company Bética de Seguros. Information has not been found confirming whether the acquisition procedures went through in the end. It is worth highlighting the following

words of Chairman Barrau to the shareholders: "After years of hard work in Spain, with sufficient resources and without the strong competition that presently exists in Catalonia, La Providencia sold 4,864 fire insurance policies representing an insured capital of 25,646,259 escudos. Our company, on the other hand, after just one year in business, insured 1,249 policies with an insured capital of 16,923,946 escudos, two thirds of that amount (…) I draw your attention to these important achievements because we believe that they are not only a solid guarantee of our reputation but they also represent hope for a positive future.” In its first financial year La Catalana obtained a profit of 9,472 escudos; it allocated over 4,000 escudos to the reserve fund and an equal amount to a payment release fund which would free the shareholders from their commitment of an additional 5% corresponding to the second payment of capital. The remaining profit was paid out as dividends. Despite the critical economic and social climate and the fact that La Catalana had been operating for only one year, the company achieved excellent results, paid dividends and allocated reserves without having any legal obligation to do so. In conclusion the Chairman of the board stated that La Catalana "unlike other companies, has been cautious

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La Catalana under the management of Fernando de Delás. 1864-1906

Despite the critical economic and social climate and the fact that La Catalana had been operating for only one year, the company achieved excellent results, paid dividends and allocated reserves, without having any obligation to do so.

Headquarters of La Catalana. Rambla de Santa Mónica. Barcelona. (1887-1890).

when allotting commission to its agents.” He emphasized that agents were recruited according to their skills and reputation and noted that these practices had contributed to their good relations with other companies in the industry. He finished by thanking all the involved parties, both owners and officers. It is worth mentioning two aspects of sales procedures in those early years. The commissions paid to insurance producers by the majority of insurance companies in Spain were as high as 40% and even 60% on the first year of a ten-year fire insurance policy. In addition a commission of about 15% of the premium was given for premium collections. On top of that, the most efficient agents of La Catalana received a subsidy

to cover the expenses for setting up their offices, a circumstance the company took advantage of by placing publicity outside the agent's building. This publicity was in addition to the traditional plaques, which annonced "Insured at La Catalana" and were placed on the exterior of buildings insured by the company. The main objective was to create a corporate image in the eyes of the public. Another interesting aspect of the marketing process was that La Catalana, as well as many other companies, generated a large portion of their business through what they called “reinsurance” which in fact does not have the same connotation it has today, which is co-insurance. Large policies such as those which covered industrial factories, commercial businesses and railway companies, among others, were usually insured on this basis. When an insurance company sold one of these large policies, it immediately distributed the coverage among other insurance companies. La Catalana maintained frequent and substantial commercial relations of this type with El Fénix and La Española as well as other Spanish and foreign companies. It was therefore important to maintain good personal and commercial relationships with competitors. In any case, La Catalana’s excellent financial and sales results from the very

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beginning are clear indications of the prudent and professional management of the company. In 1866 just one year after the start of its operations, the company reported profits, a totally unusual event especially in the insurance business where it usually takes several years before showing a profit. 1867 went by and once again it was time for the annual accounts. A shareholders meeting was held in February, 1868, coinciding with the beginning of a complex revolutionary period which led to Spain’s First Republic. The Chairman mentioned the disasters and wars going on in Europe, the lack of industrial and agrarian activity that were causing bankruptcy and poverty amongst the population, and then went on to say: "Nevertheless La Catalana has continued to expand into other regions where it has been as successful as in Catalonia (...) We carried out research beforehand on the local conditions in the towns where we have chosen to do business, as it would not be convenient to operate in places with high risk due to the poor quality of its buildings or the frequency at which losses occur. We have been equally careful accepting the risks offered to us and applying the appropriate premium according to their type or risk rate. We operate professionally, without fear of the

In La Catalana’s case there were frequent and significant commercial relations with El Fénix and La Española as well as with other Spanish and foreign companies. reaction of our competitors, as the reputation of our company relies on its credibility and the fulfilment of the commitments it has agreed to." He finished his speech with some comments that reflect the company’s policy: "last year we mentioned that our efforts would preferably be focused on improving our agencies and although we have made considerable progress, we are still far from finding sufficient professional and knowledgeable agents due to the fact that many people are of the opinion that our business is not sufficiently profitable. We hope however that with time, this opinion of the insurance business will change.” "In Spain only a small amount of property is insured. This is because many owners are generally unaware of the concept and benefits of fire insurance. Once there are more agents out there explaining its advantages, there will be a greater tendency to purchase insurance,


La Catalana under the management of Fernando de Delรกs. 1864-1906

39

Agency plaque of La Catalana.

primarily in benefit of the clients and as more and more policies are sold, those dedicated to selling insurance will also earn a better living." These premonitory words were said as far back as 150 years ago. That year the company issued 2,107 insurance policies with a sum assured of 21,694,363 escudos and a premium volume of 21,359. La Catalana was able to pay the initial 12,000 escudos for the purchase of La Providencia without having to decrease its capital; that year it paid 13,832 escudos in claims and

8,000 for claims pending from the previous year, in addition to setting aside a reserve of 10,000 escudos for those claims still being processed. In summary, La Catalana had a premium income of 67,286 escudos that year, approximately 150,000 pesetas, and paid out 23,832 escudos in claims which represented 35% of the premium income. It also paid a dividend representing 12% of the paid-up capital. The claim ratio in those days, unlike today, was very low in most lines of business. This was made possible by


150 YEARS CATALANA OCCIDENTE

40

setting premium rates highly favourable for the companies. Prices were often fixed by companies through trade association agreements not only in Spain but in all of Europe. Interestingly, in many cases the sales cost (commissions) was higher than

the claims cost. At the end of that year, another general shareholders' meeting was held at La Catalana’s new premises on Rambla de Santa Mónica Street. The sole purpose of this meeting was to decide whether the company would continue to be regulated

Paseo de Gracia. Barcelona. Casa Pascual Pons (1910) building owned by the Grupo Catalana Occidente and former head office.


La Catalana under the management of Fernando de Delás. 1864-1906

41

Casa Pascual Pons today, built in 1890-1891 by Enrique Sagnier Villavecchia, one of the most prolific architects of modernism.

by the Law of 1848 or by the Code of Commerce of 1829. The government obligated companies to choose between these two alternatives. The Managing Director of La Catalana explained to the shareholders that the Law of 1848 imposed “too many controls

on the company and did not allow for minimum flexibility or freedom to make corporate decisions”. In his opinion the Code of Commerce was the better one. The board unanimously voted in favour of his proposal. The Law of 1848 was in fact highly


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criticised by most insurance companies as it granted the representatives of the Ministerio de Fomento (Ministry of Commerce) and the provincial governors, the right to request insurance companies to submit their original financial statements for inspection, to be presented at the authorities offices together with any additionanl specifications considered appropriate. Insurance companies reluctantly complied with these and other controls. On one occasion La Catalana's board of directors refused to submit its day to day financial details to the governing bodies on the basis that the law only obligated them to officially present an annual report of the company’s commercial activity and accounts. At the general meeting held the following year, 1869, the board of directors reported the results of the previous year. The General Manager, Fernando de Delås, stated: "No company excepting La Catalana has ever been founded in the midst of such adverse times." He then emphasized the importance of correct and precise risk underwriting in order to achieve positive results and informed that the company had decided to cease operations in some areas of the country where the claim ratio was too high, owing to the careless nature of the inhabitants or because of insufficient control over insurance operations."

Despite the adverse political and social climate the results that year were excellent as well. The sum assured of the total portfolio amounted to 51,281,825 escudos, including the business proceeding from La Providencia and the company’s earnings came to 108,639 escudos. After praising the personal qualities and excellent work of the directors, managers, employees and agents, he expressed his sorrow for the passing away of Chairman Antonio Barrau, a highly prominent and respected person due to his honesty and hard-working nature. Casimiro Girona was then appointed Chairman of the company. The assembly approved the allocation of the annual profit. At the shareholder's meeting of 1870, in which La Catalana celebrated its fifth anniversary, several matters of special interest for the company were discussed and decided. In his speech the new Chairman stated: "In spite of the difficult economic and political circumstances that our country is experiencing we can congratulate ourselves for our positive financial results which confirm our good reputation and reflects the trust the public has deposited in us." He explained that the advantages provided by fixed rate premium fire insurance companies were not understood in Spain by most property owners; many of these owners mistook these insurance


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44

companies for banks and therefore believed that if an insurance company declared bankruptcy the client would end up in the same situation, which is what would occur if a bank declared bankruptcy (...) an impossibility in the case of an insurance company because in a worst case scenario the policy holder would only lose the amount he paid as premium." "To counteract this belief and to convince the client that an insurance company's main interest is to fulfill its commitments (...) we need good professional agents but unfortunately there are not many to be found and this is to their own detriment as they are the ones who would most benefit." He also mentioned that insurance companies exist in all of the European countries and in the most advanced countries of America, and in those places where its citizens are more educated and knowledgeable about the benefits of owning insurance, is where there are more insurance companies to be found. "Hence the importance of educating and convincing owners that insurance is not speculation but to the contrary, beneficial for the policy holder." At another moment of the meeting and replying to some of the questions asked by the shareholders, he stated: "We are classifying risks in agreement with our reinsurers so as not to make the mistake of accepting any risks which other

insurance companies would decline. We are also examining certain claims as experience has taught us that due to the dishonesty of some policy holders and to errors, on other occasions, damage is exaggerated and sometimes non-insured goods are also claimed. Although we must always fulfil our commitments, we should never pay for any fraudulent or erroneous claims.� These and other statements evidence the insistence of those managing our company in carrying out adequate risk selection and classification as well as claim inspection, in order to act fairly and not have to pay for any unfounded claims. He went on to say that this was done "to strictly fulfill our obligations to those policy holders who are honest and to what is covered by the insurance policy". This was a standard rule in the company, and as the director stated: "We not only do this for the benefit of the company but also for the benefit of the policy holders, which is the reason why so many people have so much trust in La Catalana.� Further into the meeting and when asked by the shareholders, the Chairman dealt with a new matter of special interest for the company and a topic which still is important today, 150 years later. He stated: "The climate of unrest and uncertainty with its adverse affect on the economy of our country forces


La Catalana under the management of Fernando de Delás. 1864-1906

The results that year were excellent. The sum assured of the total portfolio amounted to 51,281,825 escudos including the business proceeding from La Providencia and the company’s earning came to 108,639 escudos. us to be especially cautious. The company has not only met the first capital call but it has also paid out dividends every year. Today, due to the circumstances that our country is going through, we believe it would be advisable to proceed differently." "From the beginning of our operations we have been entering in our accounts our investments in Government securities at their purchase price rather than their market price. As railway infrastructure bonds are fixed assets which expire on a specific date and are accepted by the Government in exchange for credit at their face value, we feel this is the best procedure for keeping the accounts, a procedure accepted as good business

practice internationally (...), we feel that Government bonds should be held for reserve purposes and not for trading or speculation (...) and therefore the purchase value should not be altered until the date it is sold or until maturity.” "Although we use this method because it is the correct accounting method, we cannot rule out the possibility, although most unlikely, that the company may be forced to sell the bonds at a considerable loss. Bearing this in mind, we believe we must be more cautious when paying out dividends and have therefore decided to allocate this year’s entire profit to the company’s reserves. (...) This will ensure that we will be able to cover any claims that may arise as well as any other eventualities, always difficult to foresee. In subsequent years we may be able to proceed differently if, as we expect, circumstances improve". It is interesting to note the extraordinary measure proposed by the company's board of directors which reflected the period of uncertainty and its possible consequences for Spain, always difficult to predict. The Chairman ended by saying, "It is necessary to carry out a careful appraisal of our assets, including accounts receivable as well as increase voluntary reserves."

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The company had signed 1,461 insurance operations that year with a liability of 15,454,589 escudos which, added to those of previous years and subtracting replacements and terminated policies, amounted to a total liability of 53,271,282 escudos with a total number of 74,222 policies. Claims were paid for the amount of 13,360 escudos, leaving a reserve of 8,000 escudos for outstanding claims. The decisions of La Catalana's directors were well justified. That year, the Italian, Amadeo of Savoy, was crowned King of Spain. He received a cold welcome in the capital and faced hostility from politicians as well as from the general population. His main supporter, General Prim, was assassinated just a few days before his arrival. His reign was characterised by total political instability and constant unrest which led him to abdicate after only three years, stating that he did not wish to be nor could he be king of the Spanish people having to see how they constantly fought each other. The First Spanish Republic was immediately declared, bringing with it even more instability than under the recently extinguished monarchy. The republic was greatly criticized by the conservative political forces, as they were totally against the ideas represented by the new government. The country was worn out and Spain

It is interesting to observe the extraordinary measures proposed by the company’s board of directors which reflected the period of uncertainty in Spain. had reached its limit of political fatigue. After having gone through a revolution, a provisional regime, a democratic monarchy and a republic, the actual government lacked authority and power. There remained only one solution – to restore the Borbón monarchy with Alfonso XII, son of the banished Queen Isabel II. In 1874 Spain entered a new period: The Restoration of the Borbón Dynasty. Despite these problems, La Catalana had achieved considerable success, both regarding its expansion throughout the country and in premium volume. In only five years it was one of the leading fire insurance companies and remained in the top positions, a point worth mentioning as it sold only fire insurance while the majority of the large companies operated in several lines of business. The company's operation during the following years followed a similar course


La Catalana under the management of Fernando de DelĂĄs. 1864-1906

as it had during the first five years, as shown in the following table: La Catalana continued growing both in premium volume and clients, not only in Catalonia, its main center of activity, but also throughout the entire country. The share capital of the company remained the same since the day of its incorporation (two million escudos with five percent paid up amounting to 100,000 escudos or 250,000 pesetas). Its technical and non-technical reserves, however, constantly increased. The dividends paid out each year were substantial, amounting to 12% of the capital, equivalent to 30,000 pesetas

at the time and the company remained solvent. After 1870 the dividends were as high as 50,000 pesetas per year, equal to 20% of the issued capital. In 1873 La Catalana issued an important insurance policy which covered the structure and the contents of the Palacio de los SeĂąores Diputados in Madrid (Palace of the Members of Parliament), today the Palacio de Las Cortes (House of Parliament), for the amount of 1,254,972 escudos or 3,000,000 pesetas," proof of the company's good name and solvency" as stated in the minutes of the company's general meetings. This was very much

LA CATALANA: POLICIES AND PREMIUMS 1870-1905 (ANNUAL FIGURES IN PESETAS) YEAR

PREMIUM

POLICIES

1870

215,902

8,460

1875

308,711

11,132

1880

383,039

14,645

1885

584,161

27,140

1890

774,304

39,542

1895

991,430

54,314

1900

1,303,203

76,628

1905

1,910,770

95,012

Source: La Catalana

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an honour for the company. In 1883 a policy was issued to cover the Casas Consistoriales in the city of Barcelona (Barcelona Town Hall) and in 1892 El Arsenal, a former royal palace, was insured for a million pesetas, a building that presently houses the Parliament of Catalonia. In 1902 the Arsenal became

the Museum of Art and Archaeology. The beginning of the 20th century, marked the end of Fernando de Delås’ management of La Catalana and in 1906, he stepped down from his position, tired out at the end of his long life. Fernando had reason to be satisfied with his many achievements

Employees of La Catalana, after a business meal held at Vallvidrera (Barcelona) in 1892.


La Catalana under the management of Fernando de Delás. 1864-1906

At the beginning of the 20th century, more precisely in 1906, the management of La Catalana under Fernando de Delás came to an end. as he had become an important personality within the industry. Also, he was elected to represent his city in the Spanish Parliament, a responsibility which he took on for just three months during which time he ceded his position in the company to his brother Narciso de Delás, returning to lead the company immediately afterwards. He was also appointed Chairman of the Sociedad Económica de Amigos del País, an influential society in Spanish politics. Having conceived and created the company, having convinced his partners, ignorant of the insurance industry, to take part in the project, and having transformed the company into an economic and professional success, his satisfaction was more than justified. He delegated the responsibility of managing the company to his son José María de Delás who knew the business well, having worked there for several years, learning from his father and

following his example. In 1906, La Catalana reached a premium volume of almost two million pesetas, had over 100,000 policies in its portfolio and reserves totalling more than 1,700,000 pesetas. The amount of claims paid was 645,442 pesetas.

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150 YEARS CATALANA OCCIDENTE

The escudo, the real and the peseta Understanding La Catalana’s figures

50

The last pesetas minted in Spain showed an illustration of Juan Carlos, the actual King of Spain on one side and on the other, a woman with an olive tree branch representing Hispania. The image was similar to the one on the first pesetas minted in 1869. The peseta remained in circulation for 134 years until June 19, 2000 when the euro was officially adopted at the exchange rate of 166,386 pesetas. A decree signed after the banishment of Isabel II, on October 19, 1868 only three years after our company was created, designated the peseta as the official monetary unit in Spain and following the advice of the Latin Monetary Union, the decimal metric system was implemented. In 1869 the provisional government decided to centralise the coin production in Madrid and withdrew the licenses which had been granted to other mints located in other parts of the country. The first paper note with a face value in pesetas was printed on July 1, 1874. The peseta replaced the escudo which had been in circulation since 1848. The

The peseta replaced the escudo which had been in circulation since 1848. The government had several reasons for introducing the new currency. government had several reasons for introducing the new currency. Politically, the elimination of the image of the banished Queen was one of the more immediate objectives. The text of the decree that introduced the peseta gives an idea of the sentiment of the authorities at the time. It began with the following words: “We must forget the past and sever the ties that linked us to it.” They could not have expressed themselves more clearly. A second reason, and perhaps the principle one, was the need to organize the diversity of coins that existed in the country at the time. In the 19th century, in Spain, different currencies were being used simultaneously, both old and new, both Spanish and Latin American, foreign and regional. For example in Catalonia certain coins were used which were not found in the rest of the country. When La Catalana was founded, coins were widely used among the population representing 90% of the currency in circulation. The escudo, predecessor to the peseta, was equivalent to ten reales de vellón or to two pesetas and fifty cents. The term peseta was not a new word in


La Catalana under the management of Fernando de Delás. 1864-1906

51 EFE NEWS AGENCY

The peseta replaced the escudo which dated back to1848.

Spain's economic terminology as it was referred to as early as the 17th century: historically it is known that during the reign of Isabel II, the general population was familiar with both pesetas and reales. The real had been in use in Catalonia since the War of Independence in 1808. In fact the root of the word peseta is Catalan, deriving from the word peça, (piece). Peseta is the diminutive form. Common expressions such as perra gorda (fat dog) and perra chica (small dog), used in Spain until not too long ago,

originated from the image of a lion holding Spain’s coat of arms; the lion being mistaken for a dog by the public. The “fat dog” was worth ten cents and the “small dog”, five cents. Molds of the coins were produced at La Casa de la Moneda in Barcelona. In 1937 the yellow peseta, made of brass and known as the peseta rubia (the blonde peseta) replaced the last white peseta, made of silver. Over time the coins were minted in both pure and alloyed copper, aluminium and nickel.


150 YEARS CATALANA OCCIDENTE

El Cos de Bombers de Barcelona (The Barcelona Fire Brigade)

52

The second half of the 19th century witnessed the creation of the Barcelona Fire Brigade. El Cos de Bombers, as it is known today in Catalan, was founded in 1865, coinciding with La Catalana's commercial activities, dedicated exclusively to fire insurance as we have mentioned. That year the Barcelona city government incorporated this important service without sharing its management with any other authority or institution as was the case until then. An interesting book published by the city to commemorate the anniversary of the Cos de Bombers, details the history of this service. It begins by reminding the reader that the word in Catalan bomber comes from or is historically related to the word bomba, pump, dating back to ancient times (bomba de agua, water pump). The purpose of this service was, and still is, to prevent and extinguish fires in homes and buildings. Fire brigades existed before fire insurance companies did, but once the latter were created they were a

The Barcelona Fire Brigade, or as it known today in Catalan, El Cos de Bombers, was created in the second half of the 19th century, in 1865. source of tremendous support and collaboration both functionally and economically. La Catalana, for example, financed several fire extinguishing services in several towns and cities both in the province of Barcelona and in the rest of Catalonia. At the beginning of the 19th century, Barcelona was a city with a medieval structure of 100,000 inhabitants. It was protected by walls, the streets were narrow, irregular and curved. The first fire fighters were voluntary workers, as was the custom in other countries. They were under the orders of a representative of the city government who was always present at the site of the fire. An outbreak of a fire was made known by ringing church bells. During the second half of the century, the city authorities decided that the fire-fighting equipment, including horses and the hydraulic pump used in those days should

La Catalana contributed to the creation of the fire brigade.


La Catalana under the management of Fernando de Delรกs. 1864-1906

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be looked after full time and so with the government’s approval of a permanent work-place, the seed of the future Cos de Bombers (fire brigade) was planted. In those days when a fire occurred, different groups of people appeared at the scene, including the military, who often gave orders that contradicted those given by the representative in charge from the city government. Obviously this complicated the situation even further. The fire on Sitjar Street where an order was given by the military to demolish buildings and homes in order to extinguish the fire is a perfect example of this. Consequently greater damage was caused to the property than would have been caused by simply extinguishing the fire. Because of the disastrous sociopolitical climate and the wide-spread famine that affected the population, the city suffered terrible fires in those years. Many religious residences were destroyed and the burning of convents is still remembered on St. James Day. The work of fire-fighters was encumbered further by the opposition of those same revolutionaries who caused the fires in the first place and also because of the inadequate fire-fighting equipment. A few days after the Bonaplata steam factory burned down, the city government decided to create a military fire brigade to help mitigate the problem.

Years went by and in the second half of the century Barcelona experienced an extraordinary expansion. The old walls were pulled down to make room for the growing population, which in 1865 had doubled in size, now numbering 200,000 inhabitants. The project of expanding the city was started (el Eixample), conferring Barcelona with a new sector and greater dimensions. Over the years the Cos de Bombers set up other fire stations around the city, creating a fire alarm system in each neighbourhood. From then on the traditional ringing of the church bells or toc de foc (in the Catalan language) was no longer needed.


La Catalana under the management of Fernando de Delás. 1864-1906

Catalonia and Barcelona at the time of La Catalana under Fernando de Delás In 1833, shortly after the death of Fernando VII, the first Carlist revolt took place in Catalonia. At the same time the cultural movement, the so called Renaissance (Renaixença) had its beginnings. This cultural explosion manifested itself through poetry, literature and patriotism, all strongly linked to the Catalan language. During these years both the bourgeoisie and the workers were pro-liberal and supported the reign of María Cristina.

Because of the disastrous socio-political climate and the wide-spread famine that affected the population, the city suffered terrible fires in those years.

Between 1832 and 1833, the first steam powered cotton textile factory was inaugurated in Barcelona. It employed 700 workers and became a symbol of the high level of industrialization. Because of the ongoing economic crisis several uprisings took place. Convents were burned and assassinations were committed, such as the murder of General Pere Nicolau. General Espartero put down the uprisings forcing the Carlists into exile across the border into France. In 1842 Narváez succeeded General Espartero. In 1844 the Bank of Barcelona was founded. The savings from Catalonians financed the first railway, which joined Barcelona and Mataró in 1848. From 1846 to 1849 the Second Carlist War, limited mainly to Catalonia, took place. From 1856 to 1868 the Queen requested O'Donnell to form a new government. Catalonia experienced severe riots and protests. Between 1854 and 1860 the African War was fought in which General Prim played an important role. The so called Ortegada took place: a Carlist rebellion in the Balearic Islands commanded by Jaime Ortega. This event contributed to the exacerbation of the existing regionalism among the bourgeoisie. These events culminated in the Renaissance (Renaixença), which began as a movement of the upper classes but was soon adopted by the population in general. In 1864, the year La Catalana was incorporated, a series of unsuccessful uprisings against Isabel II took place.

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These were popular movements due to the struggle of the people for survival. In 1869 General Prim dethroned Isabel II and destroyed the Ciudadela, symbol of the Borb贸n authority in Catalonia. It is believed that in 1860 there were 150,000 industrial workers in Spain, half of which were located in Catalonia. Fifteen years of the twenty-four year reign of Isabel II were spent in a state of war under military control. These were the years coinciding with the creation of our company. 1860-65. Both the Catalan cotton and wool industries were leaders in the Spanish market. The first census taken in 1867 indicated that Catalonia had 1,652,291 inhabitants. Between 1834 and 1857 the population growth in Catalonia was approximately double that of Spain. The 19th century was a period of economic prosperity with an increase in both consumption and savings due to the significant rate of industrialization which must have contributed to the growth of La Catalana, in both clients and premiums. Immigration was also on the rise as a result of industrialization. In 1900, Barcelona's population of 533,000 inhabitants forced the city to incorporate neighbouring towns. The second half of the 19th century witnessed important technical progress and hydraulic development, the farming industry improved and chemical fertilizers were used for the first time. Industrial colonies appeared beside rivers which

later became urban areas. The first metallurgical factory was La Maquinista Terrestre y Mar铆tima, incorporated in 1885. In 1840, Barcelona's streets were lit by gas lamps and as early as 1842, gas light was also available in homes. Due to the surge in immigration and the increase in the number of factories, large groups of workers tended to live in close proximity, favouring the development of class consciousness. 16 banks and many large companies were founded in Barcelona. The Stock Exchange (La Bolsa de Valores) also grew over this period until the start of the financial crisis. Catalonia was known as the "factory of Spain." During the Six Year Revolution, the political involvement of Catalan personalities in the Spanish central government was more active than ever before. In fact, two of the presidents of the First Republic were Catalan. In 1869 the cotton textile worker's association was formed (Las Tres Clases de Vapor) numbering 8.500 members and the anarchist AIT declared itself independent from all political parties. Catalonia's anarchist party was very powerful in the region and played an important role in the protests and revolutionary actions taking place in the country. It had over 30,000 members throughout Spain, three quarters located in Catalonia. It is worth mentioning that unlike other regions, there were no Cantonal demands in Catalonia.


La Catalana under the management of Fernando de Delรกs. 1864-1906

57

Gran Teatro del Liceo in Barcelona, known as "El Liceo", opened in 1847. Barcelona.

In 1873 the Barcelona government announced the independence of Catalonia from Spain but both Figueras and Pi y Margall, presidents of Spain at different moments and although Catalan nationalists, convinced their fellow-party members to withdraw the announcement. In 1875 the Catalan bourgeoisie supported the restoration of the Borbรณn monarchy

and for this reason the Carlists who were based in rural areas of Catalonia had to leave the country. The bourgeoisie also supported the conservative Cรกnovas del Castillo. During this period important Catalan institutions were created such as the Foment del Treball Nacional, today an important trade association in Catalonia. In 1879 the first newspaper was


150 YEARS CATALANA OCCIDENTE

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published in Catalan, the Diari Català. Almirall founded the Centre Català (the Catalan Centre) with the aim of promoting nationalism among the middle class by uniting monarchists, catholic republicans and freethinkers. 1855-1892: After the death of Alfonso XII general elections, marred by high levels of corruption, were held in Spain. In 1866 the first work of Catalan ideology was published, Lo Catalanisme by Almirall. In 1887 the Catalan League was formed and the Catalan Union was promoted. It organized the Manresa Assembly where in 1892 a political action programme for Catalonia was approved. In 1888 Pablo Iglesias founded the UGT (Socialist Trade Union) in Barcelona. An extraordinary transformation of the city and especially of its architecture was undertaken in preparation for the Universal Exhibition held that year. On the first of May 1890 the population demanded an 8 hour working day. In 1893 anarchists, with an important presence in Catalonia, engaged in acts of terrorism to obtain their political objectives; the anarchist Salvador set off a bomb in the Liceo opera house killing 20 people and causing many injuries. 1898 was the year of disaster: Spain lost Cuba, the Philipines and Puerto Rico which caused severe economic losses for Spain and Catalonia. The first pro-Catalan political party, the Lliga Regionalista of Catalonia, won

Almirall founded the Centre Català (the Catalan Center) to promote nationalism among the middle class by uniting monarchists, catholic republicans and free thinkers. the election in 1901. That same year, on September 11, the first popular protest took place in front of the statue of Rafael Casanova, a high government official in Catalonia injured in 1714. At the end of the 19th century and the beginning of the 20th, the number of institutions increased in Catalonia: some examples are the Centre Excursionista de Catalunya, the Orfeó Català (1891), the Associació Protectora de l’Ensenyança Catalana, (1892), the Ateneu (mid 19th century) and Solidaritat Obrera (1907). The week beginning July, 24 of the year 1909 is known as La Semana Trágica. In addition to holding a general strike, so many violent incidents with the forces of law and order took place that a state of siege had to be declared.


La Catalana under the management of José María de Delás

1906-1955


La Catalana under the management of José María de Delás. 1906-1955

The beginning of the company under the leadership of José María de Delás José María de Delás accepted the position of Managing Director of La Catalana on February 6, 1906. Fernando de Delás, his father and founder of the company, gave up his position because of his advanced age and ill health. At this stage in the history of our company, its founder had reached the height of his profession, was respected alike by shareholders and employees and had an excellent reputation in the industry. Fernando de Delás decided to withdraw totally from any further management of the company as well, as his intention was to not interfere in the decisions made by

Since childhood, José María de Delás had been taught that one's goals could only be achieved through hard work.

his son. In 1909 shortly after ceding his position, he fell seriously ill and passed away at his home. During his final hours and surrounded by his family he was conscious of having left a consolidated insurance company, in the capable hands of his son, the person he most trusted, both personally and professionally. It could not have been easy for José María to take on this great responsibility but he did so not only because it was what his father wished but because he wanted to continue the work his father had so successfully begun years before. From this moment on he was completely dedicated to making the company even more successful, preparing himself and the company in anticipation of the new and complicated events to come. La Catalana's board of directors with the same members as in his father's day, unanimously approved the proposal of his appointment made by the Chairman, Casimiro Girona. A few days later it was confirmed at the company's general shareholders meeting. Since childhood, José María de Delás had been taught that one’s goals could only be achieved through hard work. The education he received was put into practice when he started working for the company as legal counsel in 1891, and from the very beginning he applied this principle of hard work in his role as managing director as well. In addition he was technically prepared in insurance matters as he had been working in the

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company for 15 years; at university he had studied law, the same academic degree as his father. He was about 40 years old when he accepted his new position. José María had a lean face and a slim build; he loved team work and had a very outgoing character. His physical presence was considerably different to that of his father. He was friendly and open with his fellow workers and it was usual to hear them addressing him as Don Pepe Delás, a name by which he was known during his lifetime in the company and throughout the industry. Those who knew him said that not only was he a good company manager but he would soon become a popular public figure as he possessed all of the positive attributes that this role entails. He was one of the promoters as well as one of the authors of the well known Insurance Law of 1908 and its reglamento (norms for the correct application of the Law, common legal practice in Spain) published in 1912. He participated in the creation of the Insurance Directorate, which today is the Dirección General de Seguros y Fondos de Pensiones. José María collaborated with authorities of the different governments in Spain throughout the years, including the Second Republic, which granted him a prestigious award for his contribution to the industry. He was also granted the Orden del Mérito al Trabajo and the Medalla de Oro del Mérito en el Seguro, two of the most distinguished awards in the Spanish industry.

Unlike his father, José María did not dedicate all of his time exclusively to the company. Besides being managing director of La Catalana, he held high positions in various other Spanish insurance companies which operated in different lines of business, such as Banco Vitalicio de España. He was also an active member in the Spanish Association of Insurance Companies (a lobbying group). Together with other insurers he founded Covadonga, an insurance company whose head office was in Madrid; he was also director of La Previsión Nacional, a company located in Barcelona. Having helped draft the Law of 1908, he was appointed Honorary Head of the Technical Corps of Insurance Inspection and he was also a member of its Advisory Board. Don Pepe Delás fulfilled his role as the most senior executive at La Catalana for almost fifty years. He died in 1955 at the age of 91 and was succeeded by his son, Ramón de Delás y Sagarra, who managed the company for a short period of time until Jesús Serra Santamans took over in 1959. Jesús Serra, an outstanding figure of the Spanish insurance industry, and to whom we will refer at length further on, was the leader who paved the way for the Grupo Asegurador Catalana Occidente to become what it is today. He also helped lay the foundation of the Spanish insurance industry of his time, which led to a more modern, innovative and progressive sector than ever before.

Medalla de Oro al Mérito en el Seguro (Gold Medal for Merit in the Insurance Industry ), awarded to La Catalana in 1962.

José Mª de Delás y Miralles. Managing Director of La Catalana (1906-1955).


La Catalana under the management of José María de Delás. 1906-1955

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Synthesis of a complicated period in Spanish history

64

The Spanish government evolved from the historic Restored Monarchy of Alfonso XII (who died of an illness in 1885) and the regency of his wife María Cristina, to the reign of their son, Alfonso XIII, who ruled the nation to its uncertain future from 1902 until 1931. As a result of Republicans winning the local elections for mayor in the towns, Alfonso XIII abandoned the country fearing for his safety, circumstance that brings to mind the banishment of his grandmother Queen Isabel II, in a former time of upheaval. For its many major social and political disorders that took place, his reign and the years following are known as the most unstable and violent period in Spain's modern history. There were continuous internal and external revolutions, dictatorships, wars being fought in Europe, Africa and Spain, as well as other disastrous events. But at the same time it was a period of major scientific and human progress and development. When José María Delás took over the management of La Catalana, Spain was still getting over the loss of its last

possessions in America which occurred in 1898; it was facing a hateful war in Morocco and at the same time trying to recover from the causes and consequences of the Semana Trágica in Barcelona in 1909. These are some examples of the events coinciding with his appointment as managing director. Although Spain did not take part in the First World War

King Alfonso XIII.


La Catalana under the management of José María de Delás. 1906-1955

World War I.

which began in 1914, only eight years after José María took over, the war had a great social and economic impact on the country which also affected the development of our company. Spain's neutral position during the First World War opened markets for its companies, favouring Spanish growth, although at the same time social unrest

significantly increased in the country. Despite these events, the extraordinary expansion of La Catalana's insurance business in this period is conclusive evidence not only of its positive business management, but also of the economic and social progress and development in Spain at the end of the 19th century and beginning of the 20th.

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The economic crisis in Spain following the First World War, in addition to the ever present pressure from Catalan nationalism, military activism -long a tradition in Spain- and the frequent strikes of the revolutionaries, caused the breakdown of the political regime and influenced the downfall of the nation's

government which was then formed by members of the two principal political parties, liberals and conservatives. The socio-economic collapse, the military fiasco in Morocco and the regional problems all contributed to the worsening of the country's internal difficulties, weakening the governments which were

José Mª de Delás y Miralles, with his sons Fernando and Ramón de Delás y de Sagarra, 1950.


La Catalana under the management of José María de Delás. 1906-1955

67

José María de Delás with members of the board.

incapable of resolving the problems. On the other hand, under the reign of Alfonso XIII, Spain became, to a certain extent, an industrial nation. Population and life expectancy increased which at the end of the previous century had been less than 35 years. The country also gradually entered into the world of arts

and realigned its feelings regarding the America it had discovered, populated and then lost. At the same time the serious social problems the country was facing promoted political consciousness and stimulated the creative and intellectual activity of many of its citizens.


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The period beginning with the coronation of Alfonso XIII, suffered both the consequences of both World War I and Spain’s internal problems, ended radically in 1923 with the establishment of the dictatorship of Primo de Rivera. Owing to these events, and focusing on Spain's internal crises, this period can accurately be described as one of permanent political turmoil. The causes are many: the King's constant involvement in politics without remaining neutral; his support of the most conservative sectors of the army, which years later led to a dictatorship approved by the Monarch; and the increasing radicalism of political parties due to lack of leaders and the weakening role of political bosses. An intense opposition to the King and his government led mainly by republicans, anarchists, socialists and also nationalists arose as a result. Political unrest became seriously worse. Protests extended throughout the country against the government over the role of the church in society and against the military due to a feeling of frustration over the loss of the Spanish colonies. Separatism was on the rise especially in Catalonia and the Basque Country and the war between Spain and Morocco widened the gap between the military and the people even further. La Catalana, which a few

Separatism was on the rise, especially in Catalonia and the Basque Country and the war in Morrocco intensified. years earlier had celebrated its fiftieth anniversary, suffered the consequences of these events. In the beginning, the dictatorship of Primo de Rivera, which lasted until the end of the 1920's, was well received by certain sectors of the population, especially entrepreneurs and most of the middle class who fervently hoped it would bring about much needed social stability. Due to the preliminary success in the war with Morocco, the dictatorship managed not only to reestablish order throughout the country but also, through public works and by encouraging business activities, managed to achieve a period of solid economic expansion. Soon afterwards and influenced by the rapid deterioration of the political situation in the country and the impact of the Great Depression, the King tried to re-establish a democracy, an objective that was prevented by republicans, socialists and nationalists who were opposed to a monarchy they

Spanish Civil War.


La Catalana under the management of José María de Delás. 1906-1955

EFE NEWS AGENCY

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considered corrupt and unconstitutional. The victory of these parties in the elections held on April 12, 1931 forced the King to leave the country to avoid a serious civil confrontation. He left Spain two days later and the Second Spanish Republic was acclaimed. The republic immediately adopted radical political measures which affected the daily lives of the people and the traditional and conservative ideas held by certain sectors of the population. The new government promoted reforms and changes which many probably found difficult to assimilate in such a short period of time. The Second Spanish Republic can be divided into three distinct periods: 1931-1933, with a majority of left- wing politicians, when many of the radical laws were passed; 1933-1936 with a majority of right wing politicians, principally conservatives and monarchists and 1936-1939, once again under a government of the left, coinciding with the years of the Spanish Civil War provoked by a coup d’etat, led by General Francisco Franco. Political agitation, revolts, social unrest including assassinations and terrorist acts between opposing factions were a daily occurrence during the entire Second Republic leading up to the civil war. It is important to note that almost all

The end of the Spanish Civil War coincided with the beginning of the Second World War. economic activity in the country ceased during the three years the war lasted. The end of the Spanish Civil War with the victory for the nationalists commanded by General Franco coincided with the beginning of the Second World War which lasted until 1945, and which caused the destruction of the world order. The last 10 years of La Catalana under the management of José María de Delás, until the year 1955, were spent recovering from the devastating political and socioeconomic crisis when hunger, food rationing and the government's interference dominated all aspects of daily living. The option of autarky adopted by Franco’s government, due to the isolation of Spain imposed by the developed countries, created an extremely difficult scenario for the Government but above all for the population. In 1955, having survived the difficulties of the past years, the country entered a period of certain rationalization and economic stability but only recovered the economic levels


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prior to the Civil War. The country slowly started to recuperate; new politicians entered the government and Franco's regime was recognised by many countries, led by the United States of America as well as important international organizations. The death of José María de Delás occurred during the time of Spain’s economic recuperation and international recognition; the board of directors elected his son, Ramón de Delás y Sagarra, to lead the company but he held this position for less than four years. This second period in the history of our company was truly complicated for the country, where it was difficult to carry on business activities, especially the selling of insurance which depends on systematic savings, a long-term vision and a stable political, social and economic climate.

The insurance industry during the second period of La Catalana The insurance industry was very much influenced by the Law passed on May 14, 1908 which introduced new operating rules for insurance companies. In this law, the Ministry of Commerce enumerated specific criteria for incorporating companies, establishing specific standards of control. The law also created a body of specialised technicians and experts to inspect companies as well as the obligation to officially register all companies operating in the market. Until the enactment of this Law and its reglamento in 1912, fire insurance companies, such as La Catalana, were mainly regulated by the 1885 Code of Commerce, as well as other binding regulations relating to insurance. Years later, another law passed on February 8, 1927, established the minimum amount of equity, depending on the line of business, for Spanish and foreign insurance companies operating in Spain. It also included the minimum amount of guarantee deposit that a


La Catalana under the management of José María de Delás. 1906-1955

company had to have in the Bank of Spain in order to receive authorization to operate. The minimum capital, strictly speaking, required for insurance companies had not been included in the Law of 1908. The minimum amount of capital required for Life Insurance business was two million pesetas with 25% of the total paid up front. For the rest of the business lines, including fire insurance, a minimum of two million pesetas was also required but paying only 250,000 pesetas up front. Insurance companies had to pay 100% of the subscribed capital by the end of the first five years of operation, a requirement that was not always met. An interesting fact: By the end of the 19th century almost half of the one hundred existing companies that according to some authors existed in Spain, ceased to operate after 5 years. Only a third of the remaining 50%

managed to survive for more than fifty years. (See Frax and Matilla) One of the many consequences of the passage of the Law of 1908 was the proliferation of new insurance companies, both Spanish and foreign. According to some researchers, before this date, there were more foreign companies operating in the fire insurance sector, but after its passage the situation changed. Although the Law of 1908 fomented the creation of both Spanish and foreign entities, it especially favored the creation of domestic companies whose corresponding market share was larger. This probably contributed to the fact that La Catalana continued to be market leader in the fire insurance line. Barcelona was the city in Spain where the most head offices of insurance companies were registered, representing over a third of the total; Madrid was second, with 28%. This may possibly

1909 - 1940 TOTAL PREMIUM VOLUME (IN PESETAS) AND NUMBER OF COMPANIES YEAR

SPANISH (Premium volume)

Spanish companies

(Premium volume)

Foeign companies

(Premium volume)

No. of companies

1909

31,745,318

57

20,913,563

45

52.658.881

102

1920

47,193,754

125

29,378,833

59

76,572,587

184

1930

203,906,277

214

104,737,291

146 308,643,568

360

1940

251,066,846

247

132,747,144

155 383,813,990

402

SOURCE: Frax and Matilla

No. of

FOREIG

No. of

TOTAL

COMP.

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explain why, in 1912, the first fire insurance trade association which established premium prices and requisites for accepting risks, was established in Catalonia and the Balearic Islands. The Managing Director of La Catalana was Chairman of this association for several years. The expansion of insurance companies after the Law 1908 is shown in the next table: The table shows the positive development of the insurance industry in Spain and the large number of companies, both foreign and Spanish that operated between 1909 and 1940, an amount exceeding 400. Data confirms that foreign companies had a much smaller market share than Spanish owned companies although some corporations with a majority of foreign capital considered themselves national companies. Examples are La UniĂłn y el FĂŠnix EspaĂąol and Plus Ultra, which in those days had French and German capital respectively. Furthermore and despite their large number, it should be mentioned that more than 50% of the insurance business was controlled by only ten or eleven of the companies. Referring to the financial investment side of the business, it is important to point out that after 1908, the basic equity of both national and foreign insurance companies consisted of

capital and deposits, required by the government as reserves. The so called technical reserves were and still are different than the aforementioned equity, technical reserves belonging to the policy holder. In February, 1927 the Department of Labor, in charge of supervising insurance, passed a Royal Decree modifying the aforementioned 1908 Law, now requiring companies to hold minimum capital levels according to their line of business. In this respect, it was estimated that there were about 85 stock insurance companies operating in Spain in 1921, a figure lower than the one in the previous table which probably includes all types of companies. According to some calculations, the average paid-up capital of these eighty five companies amounted to 870,000 pesetas which is very low even for those days. Similarly, in the case of La Catalana, the subscribed capital was five million pesetas and the paid-up amount that year was 1,500,000. During this second period of the La Catalana, Spanish insurance companies concentrated on perfecting the financial side of the business. Until the Law of 1908 investments were barely regulated in Spain and many companies faced serious continuity problems due to deficient and risky practices regarding the capitalisation and


La Catalana under the management of JosĂŠ MarĂ­a de DelĂĄs. 1906-1955

According to some calculations, the average paid up capital of 85 companies amounted to 870,000 pesetas. investment of their reserves in unsafe assets. In many cases companies dealt in highly speculative investments hoping to earn short-term profits. The different types of investments were classified as follows: Spanish government securities, foreign government securities and private commercial and industrial listed securities. The limit for real estate investment was 25% of the total. The following table summarises the

insurance industry market: During the years following the passage of this law, the private sector exercised strong pressure on government authorities to allow more options regarding investing in securities abroad (mainly for foreign companies) as well as in non-listed securities such as shares and bonds in certain Spanish regional railway companies which had not been included in the original list. In many cases the Administration replied positively. In any case, despite the progress made by the insurance industry and the experience gained by the companies, the Government's policy regarding investment continued to be very interventionist and restrictive and therefore was highly criticised by the insurance companies. At the beginning of the century

INSURANCE INVESTMENTS INVESTMENT TYPE

1911

1913

1915

Transferable securities (public and private)

68.84%

69.69%

67.40%

Property

19.60%

18.20%

16.85%

Mortgage loans

2.65%

3.05%

6.57%

Security loans

0.55%

0.19%

0.95%

Policy advance payments

8.54%

8.84%

8.25%

Source: J. Pons

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Government intervention continued to be strict owing to the negative experiences that went on before the Law of 1908. The controls which later were once again put into effect, were not so much to prevent bankruptcies as was the case at the time, but for reasons related to the extreme nationalism of the Spanish government, such as during the dictatorship Primo de Rivera and the post-civil war years when Franco was in power. The table below indicates the social capital of some of the most important insurance companies of the time: Companies with the highest equity, more than ten million pesetas, sold several insurance lines, including life insurance which usually required more financing. La Catalana, specializing in fire insurance alone, had a nominal capital of five million pesetas. It is worth pointing out that fire insurance already represented an important percentage of the total amount of business in the industry. The respective percentages of premiums held by Spanish and foreign companies from 1915 to 1940 appear on the table where you can see that Spanish companies held two thirds of the premiums. The second table in the next page shows that two thirds of the premium

It is worth pointing out that fire insurance already represented an important percentage of the total amount of business in the industry. from this business corresponds to Spanish companies and only a third to foreign companies. On the other hand, the direct influence in life insurance of foreign companies operating in Spain was greater than in other lines of business, including fire insurance, probably due to their larger market share in this sector. Their management skills, marketing experience, sales systems and technical knowledge such as use of mortality tables and premium rates were more advanced. Price agreement negotiations were also used more efficiently by foreign companies. There were two main trade associations in the industry at the beginning of the 20th century: The Federaci贸n de Sociedades de Seguros Espa帽olas, created in 1928 and the Federaci贸n de Sociedades de Seguros Extranjeras formed by foreign companies. There were also regional


La Catalana under the management of José María de Delás. 1906-1955

SUBSCRIBED CAPITAL (AMOUNTS IN MILLIONS OF PESETAS) COMPANY

1916

1930

1940

Aurora

10.00

10.00

10.00

Banco Vitalicio

15.00

15.00

15.00

Caja de Previsión y Socorro

1.5

1.5

1.5

La Catalana

5.0

5.0

5.0

Covadonga

----

5.0

5.0

Equitativa

----

5.0

5.0

Estrella

10.00

10.00

----

España

----

5.0

5.0

Unión y Fénix

12.00

12.00

12.00

Vasco Navarra

4.0

4.0

4.0

Source: J. Pons

FIRE INSURANCE BUSINESS ACCORDING TO TYPE OF COMPANY YEAR

% of PREMIUM (SPANISH)

% of FOREIGN PREMIUM

Nº SPANISH COMPANIES

Nº FOREIGN COMPANIES

1915

64%

36%

17

30

1920

57%

43%

21

31

1930

59%

41%

31

43

1940

70%

30%

40

43

Source: J. Pons

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trade associations such as the Convenio de Compañías de Seguros de Incendios de Cataluña y Baleares, previously mentioned, and the Sindicato General de Compañías contra Incendios created in Madrid in 1924. The relations between Spanish and foreign associations were not always good; there were also disagreements between Spanish companies within their own trade association. An example of this was the intervention by La Catalana in which José María de Delás stated his disagreement with the association of Spanish insurance companies. “Not all Spanish companies are the same nor do we always share the same interests”. Directors of the insurance company Banco Vitalicio de España, also based in Barcelona, expressed their differences with the actions of this federation as well. Starting in the decade of the 1920's, the Spanish insurance sector experienced frequent disagreements between Spanish and foreign insurance companies due to the nationalism which was pervading the country. It goes without saying that these differences disappeared once Spain became part of the international scene at the end of the 1950's. However, it is necessary to point out the role that these associations played

in the insurance industry of the time: they enabled insurance price agreements which today would be unthinkable. Setting high rates allowed margin for a company to operate comfortably so that if it were minimally cautious it would show a profit. The “combined ratio” in those days was very favourable for the companies, although not all of them managed to grow or develop, because as we have mentioned, many of them ceased to exist due to bad results or management errors. The next table gives an idea of the La Catalana's position in comparison to other large companies operating at the time: The following is a summary of the major features of the industry during this period of La Catalana. As its managing director pointed out, owing to the positive effects of the Law of 1908 and despite the increase in the number of new companies, La Catalana continued to be one of the leading companies in the Spanish insurance sector in its line of business, making good progress and developing uninterruptedly. Over the years, our company continued to advance and in 1947 it entered into other lines of business such as life insurance, general liability and personal accident insurance. As the Spanish insurance industry


La Catalana under the management of José María de Delás. 1906-1955

MARKET SHARE OF LARGE INSURANCE COMPANIES COMPANIES

1920

1930

1940

La Unión y el Fénix

23%

19%

18%

La Catalana

15%

16%

15%

La Urbana

6%

6%

5%

L’Union

6%

5%

4%

Aurora

5%

4%

4%

left behind the difficulties of the previous century it attained a higher degree of professionalism, solvency and efficiency. La Catalana was one of the companies that contributed to this professionalism setting an example of good management in marketing, finance and technology. In addition, José María de Delás, through his dedication to the legal reforms of the sector, was an active contributor to the progress made during this period of time. During the Civil War years, the insurance sector was almost totally inactive. Many companies were managed by workers’ committees elected by company unions. Very few new operations took place during this period, although a certain number of claims were settled. The management

of La Catalana, who considered that the committee’s effort was correct under the circumstances, transferred its legal head office to Seville, a city under General Franco’s control, and where it remained until the end of the Civil War. Business did not resume until after the war ended and the company did not get back to its former level until the years following the Second World War. A law published on July 16, 1949 prohibited the opening of new insurance companies in Spain for the next three years, and then was extended for an additional year. The number of existing insurance companies in Spain was considered excessive for the needs of the market. Once again, these measures must be considered a sign of a backward society

79


80

PÉREZ DE ROJAS. ARXIU FOTOGRÀFIC OF BARCELONA.

150 YEARS CATALANA OCCIDENTE

Proclamation of the Second Republic, 1936.

in which the importance of free competition took second place to government control over business. Years later, in 1954, a new insurance law was passed which, despite its long existence, did not have a significant impact in the industry. The evolution of the Spanish insurance industry in this period was as follows: Later in 1954, a new Law regulating the insurance industry in Spain was published which, despite its long existence, did not become very

relevant or achieve an impact for several reasons, among which is the fact that this law did not develop into any regulation. The development of the Spanish insurance industry in this stage was as shows the table on the next page.


La Catalana under the management of José María de Delás. 1906-1955

The company La Catalana under the management of José María de Delás was a continuation of the previous period, although adapted to the new circumstances of the country and to the different personalities of its leaders. Available research shows that after only two years in the position of managing director, one of his principal priorities was the preparation in conjunction with other experts of the new insurance Law which was passed in May 1908. The work he carried out developing this law was published in several books, some written in collaboration with the Spanish legal expert, Professor Félix

TOTAL PREMIUM ISSUED AND FIRE INSURANCE PREMIUM (AMOUNTS IN MILLIONS OF PESETAS) YEAR

TOTAL PREMIUMS

FIRE INSURANCE PREMIUMS

1920

133,590

41,345

1930

308,640

72,859

1940

607,200

84,750

1950

2,571,540

342,190

1960

9,503,180

1,031,770

Source: Ángel Rubio. El Eco del Seguro

Benítez de Lugo. The company's records also indicate that soon after the law was approved in 1908, La Catalana officially registered with the Department of Commerce, the application being quickly and expediently approved. At the shareholder's meeting in February, 1909, the Managing Director referred to the “confidence that both clients and government have in the company” and stated that, “having overcome the difficulties of the increasing competition in the sector and the industrial crisis affecting Spain, our premiums have grown while general expenses have remained the same and claims are under control”. With regard to the insurance Law of 1908, he also stated that “far from being a hindrance for our economic performance it has helped improve the financial strength of the company”. The premiums at the end of the year reached 2,220,233 pesetas and the sum assured exceeded 223 million. The loss ratio, that is, the proportion of claims in relation to premiums, was 40.35%, which was relatively favourable for the standards of the time and even for today. Total expenses (both administrative and sales) amounted to 38.70%. The company showed a profit of 387,435 pesetas and paid out 157, 950 pesetas

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in dividends to the shareholders. The company’s capital amounted to 1,250,000 pesetas. and the year's surplus was 31% of the capital. The financial statement in this period showed that the financial reserves of the company, both equity and technical reserves, consisted mainly of bonds issued by railway companies operating in different areas of the country (Asturias, North, Lérida, Alicante, Reus and others) and also of Spanish and foreign government bonds, principally from France, during the first few years. The company also invested in "urban properties" which is what real estate was called in those days. The real estate was mainly for company use, located in the center of Barcelona or used for agency offices throughout the country. 1909 was a sad year for La Catalana due to the deaths of President Casimiro Girona and Fernando de Delás, both founders of the company in 1864 and both men crucial for its positive development. The speech which José María de Delás gave at the shareholder's meeting was especially meaningful. The activities of the company had to continue. The member of the board, José Carreras, was immediately appointed as new

Chairman of the Executive Board. The company's operating expenses began an upward trend reaching 45.87% of the premium, due to various reasons, both internal and external. The loss ratio, however, was contained and therefore the final results showed an increase amounting to 406,230 pesetas in 1911. Dividends rose to 168,480 pesetas and from then onwards the reserve to complete the paid up capital was renamed the contingency reserve, amounting to 1,500,000 pesetas. The board received an additional 14% of the profit and the equity reserves were augmented, partially with profits and partially by revaluating the real estate they owned. This entry was not a taxable transaction in those days. The company set aside reserves for future risks as well as for outstanding claims, now required by the Law of 1908. World War I broke out and La Catalana acknowledged the negative impact it was having on the financial investments of the company; in the year 1914 neither the Spanish nor foreign stock markets were operating. An exceptional government decree issued on December 4, 1914 authorized assets to be valued at the price of the previous year. To offset the possible negative influences of this situation, the company decided to allocate a considerable amount of money to a reserve that it recently set up, the so


La Catalana under the management of José María de Delás. 1906-1955

That same year two important members of the board of directors passed away, President José Carreras and Francisco Casades, after having dedicated many years to the company. called reserve for price fluctuation of securities. There was an increase in premiums while the surplus was maintained. In 1915 the company celebrated its 50th anniversary. The President at the time was Fernando Fabra, Marqués de Alella. To commemorate the event, the board decided to create a fund “with all of the possible material and moral support” in order to cover the death and disability of employees. From that year on this account was assigned a percentage of the surplus. The fund began with 20,000 pesetas that first year; by 1925 it amounted to 500,000 and in 1955, more than 3,000,000. That same year two important members of the Board of Directors passed away, President José Carreras and Francisco Casades after having dedicated many years to the company. A new item of importance appeared on

the asset side of La Catalana's balance sheet: a large number of shares of the insurance company, Banco Vitalicio de España, valued at 1,830,295 pesetas, a significant amount at that time which must have represented an essential part of the paid-up capital of the company. In 1916 the accounts were especially positive. According to the Managing Director this was due to “extraordinary factors such as global reinsurance contracts for fire risks with the companies Hispania and Alborada as well as an agreement with La Previsión Nacional. Once we include their premiums in our portfolio, the advantages will be evident. This has been achieved due to our perseverance and hard work and our good reputation in the industry, especially bearing in mind that we have paid the cost of these transactions in cash.” In reality, these transactions consisted of a transfer of business from these two companies to La Catalana which represented a growth of almost double of what they had the year before. Simultaneously La Catalana acquired shares from La Previsión Nacional at a cost of 500,000 pesetas. Despite these large investments, the final profit that year amounted to 38% of the shareholders' paid-up capital. The company held second position in the ranking of the Spanish market by total turnover, a situation which it

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maintained during decades, even when operating exclusively in a single insurance line of business. In 1922 the board of directors expressed great satisfaction with the appointment of its President, the Marqués de Alella, as mayor of Barcelona. A new building was bought to house headquarters of the company on Paseo de Gracia nº2, "a magnificent building purchased in conditions that have not been a financial hardship whatsoever for the company". This statement, made by the Managing Director, appears in the minutes of the general meeting that year. In fact, La Catalana fully cancelled a mortgage on this property for the large sum of 1,260,000 pesetas "without having to sell any of the assets of the company". Two years earlier, La Catalana reached an agreement with the Spanish company Celtiberia to take on another “general reinsurance” of its entire portfolio, similar to the arrangement which had been accorded with Hispania and Alborada. This strategy for premium growth, very common for some time at La Catalana, seems to have been a frequent practice in the industry. This practice not only multiplied insurance premiums but to a large extent eliminated some of the competitors in this line of business. This so called global reinsurance seems similar in practice to a company

In 1922 the board of directors expressed great satisfaction over the appointment of its President, the Marqués de Alella, as mayor of Barcelona. takeover in exchange for a price. La Catalana also expanded internationally, which the Managing Director referred to every year at the board meetings under the heading of “reinsurance business abroad”, which probably included an exchange of premiums between companies. La Catalana decided to operate in Cuba as early as 1915, in collaboration with a company called Aurora. It is not known whether this was the Spanish insurance company of the same name or a foreign company. La Catalana also operated in Morocco and in various European countries. According to available financial information, the volume of international business of La Catalana was similar to that of its domestic market, thereby doubling the total premiums generated by the company. At the same time, important volumes of reinsurance were ceded to other


La Catalana under the management of JosĂŠ MarĂ­a de DelĂĄs. 1906-1955

Fernando Fabra y Puig. President of La Catalana (1916-1944).

companies so that the net balance (international and domestic) remained the same. In 1924 the operating profits of La

Catalana exceeded one million pesetas for the first time owing to inflation in Spain which enabled most of the insurance companies to update their sum assured to prevent negative underinsurance situations. The company's paid-up capital remained at 1,500,000 pesetas. The profits earned in the year therefore represented 66% of the capital. In this climate of optimism, La Catalana and other similar insurance companies, decided to create a new insurance company in Madrid named Covadonga, which would have a long life within the Spanish insurance sector. Referring to another matter, La Catalana agreed to transfer its reserve of paid up capital to the recently established reserve fund for price fluctuation. This was probably advisable due to the socio-political climate at the time in Spain. These were the years under the dictatorship of General Prime de Rivera in which all constitutional rights ceased until his dictatorship came to an end years later. He was replaced by General Berenguer and his so called dictablanda (soft dictatorship) who had been requested to take over by King Alfonso XIII with the mission to return the country to democratic rule. Soon afterwards the Second Republic took place in Spain.

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During the last years of Berenguer’s dictablanda important relations were established between the central government and Catalonia, when entrepreneurs and politicians, mostly aligned with the moderate party Lliga Regionalista received political favours from the government in Madrid. La Catalana and its directors, who were members of this political party, benefited as well, receiving awards and appointments: Fernando Fabra as Marqués de Alella, Juan de Maluquer who was appointed President of the executive council of Barcelona' and Juan Ventosa who was appointed Minister of Finance of Spain just before the establishment of the Second Republic. Evidence indicates that at the end of the 1920's the insurance company La Previsión Nacional, although not legally, in reality formed part of La Catalana. Spain did not have laws regulating corporate groups as there are today. Different positions within the board of directors, and even within the management, overlapped in both companies. The assets on La Catalana's balance sheets showed significant and increasingly larger numbers of shares held in the other company as well as in Spanish public funds, foreign public funds and real estate. The company held very few

shares, if any at all, of other private companies, therefore we can conclude that the investment policy of the Spanish insurance industry today had its roots in this period of time.

Juan Ventosa y Calvell. President of La Catalana (1945-1959).


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In 1930 the results of the company were highly satisfactory. The managing director stated, “The economic crisis (these were the years of the Great Depression), the contraction of industrial activity in Spain and the increasing competition has not affected or influenced our operations. The amount of claims is lower and the operating surplus has increased; this has enabled us to increase dividends, technical reserves and equity.” The President of the company continued, “our policy holders and those companies, both national and foreign, that share with us important insurance and reinsurance operations, have continuously demonstrated their total confidence in La Catalana, for which I congratulate our staff and management.” The profit amounted to one and a half million pesetas with gross premium close to twenty three million, 50% of which was from foreign reinsurance. We have arrived at the 25th anniversary of José María de Delás's management of La Catalana. The company's paid-up capital remained at two million pesetas. A terrible fire in Barcelona occurred on Christmas day in 1932 when the department store El Siglo burnt down. The building, completely destroyed, was insured by La Catalana jointly

with other insurance companies; the cost of the fire was over eleven million pesetas in the currency of the time. This was a very important moment for our company as well as for the Spanish insurance industry as a whole. On November 7, 1933 a decree was issued and signed by the President of the Republic, Niceto Alcalá Zamora, honouring José María de Delás on occasion of his silver anniversary at the Comisaría General de Seguros (General Insurance Commission) for his work on the Advisory Board. At the same time the Sindicato General de Compañías de Seguros de Incendios (Trade Association of Fire Insurers) created an award named in his honor, financed with contributions from member insurance companies. These were, however, times of great upheaval in Spain which for the first time did affect our company adversely: reduction of new operations owing to the industrial and agricultural crisis; reduction also of foreign reinsurance business, affected negatively by the erosion of Spanish currency exchanges; increase of claims and decrease of the surplus. The State also obliged the appraisal, or in other words, the devaluation of securities in the portfolios of insurance companies, given the political and social conditions of the country.


La Catalana under the management of José María de Delás. 1906-1955

In 1924 the operating profits of La Catalana exceeded one million pesetas for the first time. The years of economic and political crisis passed and Spain entered the absolutely devastating period of the civil war. The already deteriorated situation during the convulsive years of the Republic, became so much worse during the civil war as all insurance business practically ceased, in regards to both the income from new premium and to a large extent, as well, to the payment and settlement of claims. There is very little information available on the insurance industry and the company during the Spanish Civil War. At the end of the war, the Dirección General de Seguros (General Insurance Directorate) published specific guidelines on how to prepare balance sheets and operating statements during the years of the war from 1936 to 1939 and the subsequent years 1940 and 1941. La Catalana, as we have mentioned, had transferred its legal head office to Seville, presented its financial statements differentiating the war years and the two following ones.

The Managing Director, who had once again taken on the responsibility of the company, pointed out that the purpose of rule XIV under the regulation in force in 1941 which unfroze companies’ assets was so that “ those Spanish insurance companies who wished to apply the compensation benefits set out and also those companies affected by any of the special regulatory laws regarding extraordinary losses and who plan on paying a dividend greater than 1% per year on capital and reserves, must request authorization from the Dirección General de Seguros (General Insurance Directorate).” La Catalana decided against applying for the compensation benefits of this law or the rulings on extraordinary losses and therefore reformulated its balance sheet to show nominal profits during the mentioned period while it increased its paid-up capital. The company resumed its normal activities confronting the delicate socio-economic situation of the postwar years. In 1943 the new Government granted the Award of Executive Merit to the Managing Director, José María de Delás. On July 7 of the following year the President of the company, Francisco Fabra, passed away and Joan Ventosa y Calvell was elected as the new

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President. In 1949 José María de Delás was presented with the Gold Insurance Merit Award at an event held at the premises of Fomento del Trabajo Nacional. In 1950 the company sold its shares in Covadonga and its capital increased to ten million pesetas. The second Managing Director of our company passed away five years later. José María de Delás had done an outstanding job leading La Catalana de Seguros de Incendios a Prima Fija which, as we have mentioned, not only sold fire insurance but in 1947 also started operating in lines such as life insurance, general liability and accidents, including the specialized line of workmen’s compensation. Commercially the company had achieved a major presence throughout the country having opened agencies and branches in practically all of Spain. However, as we will mention in more detail later on, many of them needed readjusting and restructuring due to changes that took place in the economy and in the insurance industry as a whole. The description of La Catalana so far is almost a reflection or perhaps a short biography of its main character. José María de Delás was not only a professional manager who led his company along a path of continuous progress, but he was also a man of his

The years of economic and political crisis passed and Spain entered the absolutely devastating period of the civil war. time who was continually in the public eye demonstrating a manner and style prevalent among the personalities of this period. His manner was very much related to the times in which he lived, when awards and medals were highly sought after, and although in this case they were well deserved, they were also highly welcomed and desired. From the 1960’s onward the profile and style of the Spanish insurance industry greatly changed. This profile, more modern and probably more progressive as well, was no longer going to be led by La Catalana, but to a larger degree by a new insurance group, leader in the Spanish market at the time, and continuing to this day: the Grupo Asegurador Catalana Occidente. In 1959 La Catalana changed hands when Jesús Serra Santamans purchased the company. A new family of insurers, the Serra dynasty,


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originally from a small town in Catalonia, El Pont de Vilomara, near the city of Manresa, would manage this company and integrate it within Catalana Occidente. El Pont de Vilomara was the home town of the family's patriarch, José María Serra Sallent, the distinguished innovator and entrepreneur Jesús Serra Santamans and his successor and current President, José María Serra Farré who has consolidated the group as one of the leading companies in Spain. 92

A new family of insurers, The Serra Dynasty, originally from a small town in Catalonia, El Pont de Vilomara, near the city of Manresa, would form and manage Grupo Catalana Occidente.


La Catalana under the management of José María de Delás. 1906-1955

THE INSURANCE LAW OF 1908 A POSITIVE CONTRIBUTION BY LA CATALANA The Spanish insurance industry has been regulated throughout history by a diversity of standards and rules, some of which have been mentioned in this anniversary book. Nevertheless, the first modern and specific law regulating the Spanish insurance sector was the law of May 14, 1908. According to its text published in Madrid's la Gaceta newspaper, it was a "law that dealt with the official registration of companies, corporations, associations and in general all companies dedicated to insurance business." Its reglamento was approved in 1912. The Law of 1908 is structured into four parts or headings, each one containing a series of articles. Some the most significant provisions are the following: • All insurance companies are obliged to officially register, submitting their deed of incorporation, the statutes by which they are governed, a sample of their policies, subscribed capital (of which the paid-up capital had to be 25%), copy of rates, the base for technical reserves and re-

ceipts of cash and security deposits in the Bank of Spain. (These legal specifications were required for the first time in the history of the Spanish insurance industry). 93

• The deposits payable are the following: 200,000 pesetas for life insurance; 5% of the paid-up capital which will be no less than 5,000 pesetas nor more than 100,000 for non-life insurance companies; 50,000 pesetas for companies managing associations and 5,000 for mutual associations without fixed premium or fee, which insure the military service or any event not included under life insurance policies. • Excluded from this law are friendly societies and aid and charitable associations. • Companies dedicated to insuring land and sea transport will not be ruled by this law. • Excluded from registration are the companies that do not specify the investment details of their revenue. Companies with investment specifi-


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cations considered as ambiguous or against the policy holder’s interests shall not be accepted. • All insurance companies must indicate their subscribed capital in their contracts and in any documents they use, as well as their paid-up capital and in the same font size. All advertising must be approved by the Insurance Inspection.

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• Companies are obliged to publish a comprehensive annual report on their situation as well as a balance sheet and profit and loss account (…) printing sufficient copies to sell to their policy holders at a price no higher than one peseta per unit, and free to shareholders for a year. These will also be on display at their head office. • Life insurance companies, as well as holding statutory reserves must have a mathematical reserve. Non-life insurance companies must set aside reserves for risks in process. • An Insurance Advisory Board is created within the Department of Public Works with the main task of advising the Minister in this kind of matters. Its composition is established with the participation of the public and private sector. • Companies operating insurance policies without being registered in the registry will be fined 100

pesetas for each policy issued by the company. These fines will be paid by the company's manager from his/her personal assets. • Should the official visitors (inspectors) consider that the company alters or falsifies the accounts on its balance sheet or does not set up appropriate reserves, the Commissioner (Insurance General Manager) may fine it for an amount between 1,000 and 10,000 pesetas. • Stock companies will be obliged to dissolve when losses amount to half of the subscribed capital. This insurance law was promoted and developed by important personalities of the Administration and of the private insurance sector, the Managing Director of La Catalana, José María de Delás, being one of them. With the aim of promoting and supporting it, he carried out important legal and economic research studies on the insurance industry in Spain and in different countries around the world. The jurist Félix Benítez also participated in the research. The importance of this law is revealed when placed within the historic, political and social environment in which it was prepared, written and published at the start of the 20th century. It is therefore a very significant law within the history of the Spanish insurance sector.


La Catalana under the management of José María de Delás. 1906-1955

LA CATALANA: STATUTES AND REGLAMENTO of the COMPANY 1906 In the Spanish insurance industry of the 19th and beginning of the 20th century, the internal statutes, selfimposed by insurance companies, were a key element for their operation as a company. They represented to quite an extent rules that became law, when approved by the government. In the absence of general rules in the insurance sector, on certain occasions, the company was governed by its own statutes; something similar occurred with their reglamento. In 1906 the statutes of the company had 38 articles which were classified under the following headings: Name, Objective and Address of the company; Capital; Board of Directors; Managing Director; General Shareholder's Meetings; Use of Capital, Profit and Reserve Fund; Dissolution of the Company; Extension of the Company; General Provisions; Modification of the Statutes. The reglamento, in turn, had 24 articles divided into the following headings: Company Operations; Shares; Board of Directors; Managing Director; Secretary; General Shareholder's Meeting. Some of the provisions are particularly interesting when compared with present day practices.

The second article of the statutes stated that the company's duration, which was initially established at 50 years (ending therefore in 1915) was extended for another 50 years until 1965, according to the agreement reached at the extraordinary general meeting on February 18, 1902. The third article, which refers to the company's operations, included among other items, the assets and objects that the company would not insure, which included gunpowder and factories which made explosives, paper currency, deeds, manuscripts, gold, silver bars, medals and precious stones not deposited in the Monte di Pietà. Damages caused by war, invasion or popular movements were not to be insured as well. The seventh article detailed that the company's capital was twenty million reales, the number of shares was ten thousand and listed the shareholders' preferential rights in the event of an increase in capital. The twelfth article referred to dividends. Once the government had established a maximum for the first dividend, the share holder could not demand a dividend higher than 5% of the capital. It went on to say that if reserves were reduced due to excessive

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claims, the company would have to restore the fund with 50,000 pesetas which was considered the amount necessary to meet the company's urgent and daily expenses. The board was also in charge of setting premium rates, establishing policy conditions, setting reinsurance conditions and appointing staff. The board members had to hold a minimum of fifty shares, which had to be deposited in the head office. The Managing Director had to hold a hundred shares. The general shareholder's meeting was scheduled to meet once a year, in the month of February (when the balances were usually presented). 10% of the liquid profits of the company would be allocated to the equity fund and appropriate amounts were to be allocated to respective funds. Once the equity fund reached 20% of the capital, the board could choose to continue allocating part of the profit to increase this reserve fund or allocate the surplus to other company reserves and funds. The company would be dissolved if a third of its capital was lost. This would be decided at a general shareholder's meeting and the liquidators would

be appointed from among the shareholders and board members. The company would also be dissolved if it had not extended its date of termination, which would have had to be decided 10 years before the official date. Of certain interest among the articles of the reglamento of the company are the following : Policies must be signed by the current CEO or by the Managing Director in Barcelona and by any agents who took part in the operation. The maximum risk the company can accept is one million reales although if the quality of the risk permits and circumstances allow, up to four million reales could be accepted. Sales of shares will be carried out with the knowledge of the Board of Directors which would have to provide the corresponding forms. These must include the name of the seller and the buyer as well as the security agent's authorization. No endorsement without the company's stamp will be valid. The board of directors should meet once every week to deal with company business. The board will also meet when requested by the President.


La Catalana under the management of José María de Delás. 1906-1955

ART AND CULTURE IN BARCELONA AND CATALONIA

When José María de Delás became Managing Director of the company many of the Catalan cultural institutions were already operating. The Barcelona World Exhibition in 1888 had transformed the capital and opened the eyes of the world to a new, modern and cosmopolitan city. It was the period of the so called Modernisme (Modernism) represented by important personalities such as Antoni Gaudí (18521926), maximum representative of this movement in Catalonia. In 1906, at the start of the second period of our company, a new Catalan nationalist cultural movement appeared called Noucentisme, a name created by Eugeni d'Ors. This movement appeared as a reaction against the superficiality of the so called Modernisme (Modernism) movement. Apart from Eugeni d'Ors, known as Xènius, who was the great literary figure of this movement, we can mention Josep Carner in poetry, Josep Clarà in sculpture with his famous Deessa of the Plaza de Cataluña in Barcelona and Enric Casanovas. Among its distinguished painters are Joaquín Sunyer, Xavier Nogués and Feliu Elías. The most relevant years of the Noucentisme period were those from 1914 to 1923; this was one of the most innovative periods of the 20th century in Spain.

As well as Antoni Gaudí, the great architect of the Temple de La Sagrada Familia, Casa Milà and Parc Güell, to name a few of his works, other modernist artists included Lluis Domenech i Montaner, (Palau de la Música Catalana) and Josep Puig i Cadafalch (Casa Martí, known as Els Quatre Gats, Casa Trinxet, Casa de les Punxes) and painters Ramón Casas and Santiago Rusiñol. It was at this famous bar of Els Quatre Gats where the artistic personality of one of the most outstanding artists of Spanish art emerged: Pablo Picasso (1881-1973). In the 1920’s another movement appeared: The Vanguardistes (Avant Garde), represented by the painter Antoni Tàpies, the poet and painter Joan Brossa and the philosopher Arnau Puig. Salvador Dalí and Joan Miró are among the principle artists of this movement as was the sculptor Pau Gargallo. Up until the Civil War, some of the outstanding artist were the painters Antoni Costa, Joan Sandalinas, Àngels Planells, Joan Massanet among others and the sculptors Jaume Sana, Eudald Serra, Ramón Marinel·lo and Leandre Cristòfol. The World Exhibition was held in Barcelona in 1929. This exhibition took place despite the fact the world was immersed in the Great Depression. Jo-

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sep Puig i Cadafalch, the famous architect, had the idea for hosting the Exhibition which turned out to be very controversial as it resulted in tremendous economic losses for the city although it also contributed to the transformation of Barcelona in terms of urban planning. Many of the current emblematic works and monuments in the city, such as the famous Montjuic magical fountain and some of the buildings in Plaza de España were constructed for this event. In the 1940's Eugeni d'Ors would be the key figure of the new Catalan artistic policy. In 1942 he created the Academia Breve de Crítica y Arte (Arts and Critics Academy) and in 1943 the Salón de los Once was created which was a link between the major figures of the Vanguardia movement and the new generation of artists such as Dalí, Miró, Ponç, Cuixart and Tàpies among others. In the 1950's official channels in Spain gradually be-

gan to open to the Avant Garde Movement and in the second half of this decade the Informal Art movement appeared. This decade is witness to the end of the post-war political autarchy; the works of art of such prominent artists as Antoni Tàpies, Modest Cuixart, Joan-Josep Tharrats, Joan Ponç and August Puig are examples of this period. Among the distinguished musicians are Pau Casals, Alicia de Larrocha, Isaac Albéniz, Enrique Granados, Montserrat Caballé and Victoria de los Ángeles. In literature, Salvador Espriu and in the 50's Mercè Rodoreda are to be acknowledged as well as Josep Pla, who published El Quadern Gris among other works and is considered one of Catalonia's most outstanding writers.


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans

1956-1974


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

Leadership and management Hey there! Listen to me! Why are you walking so fast? Wait for me! Don’t you realize I'm the leader? Jesús Serra liked to tell the story of a man who addressed his followers with these words. A large group of people were attending a demonstration of great importance. The group of protesters had moved ahead quickly avoiding all kinds of obstacles until, without quite knowing how or why, they had left their own leader behind. The poor man couldn't keep up with the others; he hesitated over every step, wondering if there were any unforeseen dangers ahead, not even trusting his own shadow. He was continuously held back by the fear of what could happen either to him or his followers. Instead of leading the

He was not only a step ahead of everyone but he was also a great motivator.

protesters, he ended up behind them. "If this anecdote were true," said Jesús Serra with conviction, "there is one thing we would know for certain: the man in the story may have been clever; he may have been hard-working; he may have been anything at all except for one thing; he could never be considered a leader. A leader cannot allow his people to leave him behind; he must stay ahead of the group. A leader must always be at the forefront, he must always be first." Jesús Serra Santamans was a natural leader precisely because he possessed those very characteristics. His ideas, his dreams and his actions were always in the vanguard, always a step ahead. Besides possessing those qualities which define a leader, Jesús Serra was endowed with other qualities not frequently seen in the business world. He was not only a step ahead of the rest but he was also a great motivator; and he wanted, in fact expected, his collaborators to have the necessary training and the best education possible. For Jesús Serra there was no limit to how much education a person could receive. He wanted the people in his company to advance with him. He understood people well and

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could easily recognize those men and women who would excel at their work and in positions of management. Jesús Serra was basically a good person, a man with moral authority, someone who set an example. He not only had power, which is often determined by one’s position or wealth; he also had authority, which has to be granted by others. He was generous in his judgements of others and honest with his collaborators and opponents. In return people were usually honest with him. In 1964, on the occasion of the 100th anniversary of the company, he addressed his many collaborators to explain what he used to refer to as "prospectiva" (forecasting) a concept that today would be called long-term strategic planning. "Every time we need to make an important decision concerning the company we must try to answer these questions: Will it be good for our policy holders? Will it be good for our employees and agents? Will it be good for the companies in our group? Will it be good for the Spanish insurance sector? If all of the answers are affirmative we can be sure to have contributed

“The future belongs to those who fight honestly to achieve their goals. The future therefore must be ours." towards creating a business organization with a solid moral and economic foundation that will be able to face the future without too many concerns. If, however, even one of our answers is negative we are not on the right track and must change direction. Never forget, the future belongs to those who fight honestly to achieve their goals. The future therefore must be ours." What an amazing exercise the managing director had presented! What relevant questions! And how difficult to answer! And to think that this took place over half a century ago, long before people spoke about customer service and customer satisfaction, long before business schools began explaining the importance of developing employee management skills, and long before corporate responsibility was emphasized, as it is today and long before different aspects of good management were discussed as if they had just been invented. As every director and every executive


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JesĂşs Serra Santamans. London 1960.


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knows, or should know, the quality of being a good manager is a very important attribute and very different than being a good leader. And although good managers are easier to

find in the corporate world than charismatic leaders, there are never seem to be a sufficient number of good managers to ensure the adequate development of our companies.

Investment Committee chaired by JesĂşs Serra.


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

A good manager is a person who makes sure that objectives are met, that the goals set by the company are achieved and that employees actually do the work they are required to do. The role of a manager is not theoretical but eminently practical, geared towards action. A good manager achieves his objectives through careful planning of his own responsibilities as well as those of his team. He/ she knows how to organize the business, motivate and educate the members of his team, and control results, giving incentives to ensure successful outcomes and correcting errors when they occur. Jesús Serra was endowed with all of the qualities which define a good manager. He was a successful man throughout his life, a man who achieved his business objectives. The success of La Catalana Occidente group was not due to Jesús Serra alone, but also to the exceptional team of executives appointed by him. There are very few people who have both leadership and management qualities, just as there are very few companies that achieve true and sustainable success over such a long period of time. Jesús Serra greatly enjoyed managing his companies and surrounded himself with enthusiastic people who believed in team work.

He also surrounded himself with friends and good business partners. There is an anecdote about Jesús Serra which aptly defines his business sense and the knowledge he had of people and their individual circumstances. It refers to his handling of the purchase of the insurance company La Catalana in Barcelona in 1959, for the purpose of integrating it with Occidente, an insurance group which he had bought in Madrid years before. Jesús Serra knew that La Catalana de Seguros was in the process of being sold. Unfortunately the company had not been as successful under the managers who took over after José María de Delás and as a result some of the company's shareholders felt quite discouraged. Serra knew that the sale process was at an advanced stage but he also knew that La Catalana was a great insurance company. The company had an excellent history and he felt it had an even more positive future. It had earned a well justified reputation in its line of business. He didn't need to know much more; La Catalana was an opportunity which Jesús Serra could not let escape. He managed to get an invitation for an interview in Barcelona at the home of one of the company's main

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shareholders. This person informed Jesús that it was true that the company was in the process of being sold as this was what many of the company's owners desired and therefore his proposal came too late and could not be considered. There had already been an oral preagreement with very favourable conditions from an important foreign company. His host thanked him for his interest. Our man, however, was not someone who easily accepted no for an answer, nor was he someone who could easily be defeated. He continued insisting, trying to change the owner’s mind but to no avail. It finally reached a point where the owner said he was truly sorry but a decision had been made, and unless there was a different matter to discuss, the meeting was over. They stood up, left the room and walked down a wide corridor towards the front door. Whether by coincidence or a stroke of luck, Jesús Serra noticed a large framed insignia on the wall which represented a former moderate Catalan political party. He stopped, looked at his host and without hesitating inquired: Are you a Catalan nationalist, sir? The man replied affirmatively, adding that the insignia represented the political party he had been a

There had already been an oral pre-agreement with very favourable conditions from an important foreign company. member of for many years until General Franco’s government prohibited it, just as all parties, except for the one in power, were now illegal. Are you really a Catalanist? It is difficult to believe. You can't honestly be a true nationalist if you prefer selling to foreigners when you have the opportunity to sell your company to a man and a group of people who are Catalans like yourself. No, I don't think you are a true Catalanist. The man's son, who was present at the meeting was just as surprised as his father on hearing this criticism, but nevertheless thought that Jesús Serra was right. Father, what this man is saying is true. Besides, we have not yet made a final commitment with the other company; I would prefer the company to continue in the hands of Catalans, as it always has been. After hearing what both his son and


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

Jesús Serra had to say, the father finally gave in and changed his mind. Thanks to Jesús Serra’s astute and intelligent handling of the situation today La Catalana forms part of the Grupo Asegurador Catalana Occidente, the Serra family owning a majority of the shares in the company. The dedication of this outstanding representative of the Spanish insurance industry and the work he accomplished are described in the following section of our book.

The beginning. The Serra Sallent Insurance Agency The story about to be told began some time ago, approximately at the beginning of the 20th century when José María Serra Sallent, Jesús Serra's father, opened a shop in the small town of Pont de Vilomara near Manresa, Barcelona where he resided with his family. In addition to selling fabrics to the neighbours in the town, the shop sold the typical products found in drug and perfume stores. The town was small with less than 1,000 inhabitants. It had a Roman bridge, a plaza mayor (main square) and a main street as well as narrow adjacent side streets, where neighbours would take their walks. Cal Teixidó, the name of the family shop was on the ground floor of a three story building located on the main street. José María was a respected man who had been mayor of the town. He had clear and firm ideas about business. He also had a strong build, quite a temper, and a domineering character; he was a strict man with everyone

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including his own children. However his stern character did not prevent him from expressing his love of art, poetry and music. Later in life he was appointed Director of the Orfeó Manresa (Manresa choir). He married Maria Assumpta Santamans a girl from his town, but became a widow at a young age after she had given birth to four children, a girl named Roser and three boys named Jesús, Antonio and Félix. The early death of his wife caused a strong emotional impact which led him to take a new direction in life. He stopped working at the shop and instead dedicated his time to local politics. Luckily for the family, his daughter Roser took over the running of the shop. She was an extraordinary woman who dedicated her youth to running the family business and looking after and educating her brothers. From the beginning the patriarch’s political interests were associated with the Liga Regionalista (the Regionalist Party) where he made a number of contacts and relevant friendships although, unfortunately, without contributing to the family’s income. Because of their precarious financial situation, José María could not afford to pay for his children’s secondary schooling and whenever his eldest son Jesús mentioned the subject, or to be more exact, pleaded with him, the

answer was always the same: "No more studying, find a job, but if you really want to learn something, learn to play the piano!" Reactions of this type left Jesús with an indelible impression, resulting in his determination to be

José María Serra Sallent, Jesús Serra's father.


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

self-taught (what should have been a higher education was in fact the tremendous amount of knowledge that he acquired during his lifetime). His passion for the piano and quality music is also a direct consequence of his father’s attitudes. According to the saying, every cloud has a silver lining and for Jesús Serra this proved to be the case. José María Serra Sallent remarried some years later to María Fainé, who gave birth to two children, Magín and José María, the latter dying from a serious disease at an early age. Years later he left the town of Pont of Vilomara, the town of his birth, and settled in Manresa where he opened a general insurance agency on Avenida de Caudillo Street, (General Franco Avenue). Before the Civil War the street was called La calle de la Muralla (the Street of the Wall) as it formed part of the wall surrounding the city. Family members would sometimes say, “not only are we pleased that the head of the state has changed but in this country we also like to change the names of the streets." It was at his father’s insurance agency in Manresa where Jesús Serra would start out on his path to success in the Spanish insurance industry.

Jesús Serra. Portrait of a remarkable business man Jesús Serra was born in 1911 in Pont de Vilomara. He started learning piano at the early age of 7; when he was 10 years old his father bought him a reduction of Beethoven's nine symphonies for piano. As he would say later on, he had no choice but to learn them by heart as his father made him perform whenever they had guests. "That is probably how I acquired my early phobia of this great musician." When he was 8 years old his mother died of cancer after suffering from the illness for three years. He was not allowed to enter her bedroom as in those days people believed that cancer was contagious. At the age of 10 his role as leader of the children in his town was apparent: he was first in his class and the only one who could play the piano. When he was 13, he organized a festival in the town theater to buy a wheelchair for a classmate who was paralyzed. His friends sang and danced to the words and music he composed for the occasion. It was a great success and in the end they were able to buy the wheelchair. He had just turned 14 when his father

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went into bankruptcy. Jesús would comment, "my father often dedicated more time to politics than to his business and because of this I couldn't attend secondary school which was required to be able to attend university (...) I've always said, as I couldn't study when I was supposed to, I've been forced to do so throughout my life." To help out the family financially he started as a trainee at the Banco de Préstamos y Descuentos de Manresa, earning a salary of 40 pesetas a month. He had to stop attending piano class. He was employed at the bank until he was 16, studying bookkeeping, French and English in the morning, from seven until ten a.m., before going to work and again in the evening from seven until nine p.m. At the age of 16 he went to work for the company Uralita, receiving a salary of 160 pesetas per month. He stayed there until he was 22, at the same time helping out at his father’s agency in his spare time. Jesús was given the opportunity for promotion to branch manager at Uralita, but because his father fell ill, he had no choice but to work fulltime at the insurance agency. Although it had prospered it had no other employees. Jesús took charge of the sales side of the agency and his brother Antonio managed the office affairs. In 1936, at the age of 25, the Spanish

Civil War began and his father had to flee in fear for his life. Jesús was arrested on several occasions for refusing to reveal his father's whereabouts. On one occasion he was taken to the basement of the Manresa casino where the revolutionary committee used to meet. There were several other people arrested who afterwards were sentenced to death, but he was allowed to go free because of a very extraordinary circumstance. Early one morning, the Communist political commissar entered the basement and asked why Jesús Serra was there. After hearing that he had been arrested because he was a fascist, the commissar ordered his immediate release.


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

The Serra Sallent Insurance Agency, Manresa.

After leading Jesús to his office the commissar asked him if he had recognized him. Jesús answered that he looked familiar but at the moment he could not remember who he was. The man continued, "I always used to place bets on you when you played in billiard tournaments (Jesús Serra's favourite hobby as a young man) and you have no idea how many coffees, liqueurs and cigars I have won thanks to you." He then filled out a form certifying that Jesús was a supporter of the revolutionary regime and

accompanied him home, warning him to stay away from Manresa for the time being. Jesús took his advice, moving to Barcelona the following day. In 1937 he was called up for military service, joining the Anselmo Lorenzo medical corps where he was united with his brother, Antonio, who had been called up shortly before. A year later a young man who was the secretary of the Juventudes Comunistas de Manresa (Manresa Communist youth group) arrived at the barracks and recognizing

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Jesús, turned him in for being a fascist. The political commissar in charge sent him to fight at the Ebro front which had just been broken through by Republican troops. With the rank of sergeant, he served as a stretcher-bearer responsible for evacuating the injured from the trenches and transporting them to the battalion's medical station. The bombings and the aviation of the national forces forced the Republican soldiers to spend most of their time hidden under dirt and rocks. In the end they were forced to flee from the Ebro due to Franco’s advancing troops. Their brigade was reduced from 4,800 to 600 men, most of who belonged to the auxiliary corps. In 1939 and due to the irrepressible advance of Franco's troops, the Republicans started their retreat towards France. Prisoner in a concentration camp which held tens of thousands of soldiers, Jesús once again was united with his brother. They were given the option of choosing between returning to Spain or staying in France as political refugees. The two brothers chose to return and after being sent to Irún, in the north of Spain they were put on a ship headed to Cádiz, in the south western part of the country. Once again they were placed in a concentration camp which was located in an abandoned fish factory in Rota, in the south of Spain where they had to

In 1939 and due to the irrepressible advance of Franco's troops, the Republicans started their retreat towards France. sleep on insect-infested heaps of hay. Shortly after meeting the camp's commander-in –chief, Jesús was given permission to form a choir among the interns of the camp. On one occasion he organised a three piece instrumental arrangement of Cara al Sol (the fascist anthem at the time) but when a sergeant turned up at one of the rehearsals and thought they were mocking the hymn, he literally broke up the choir with whip lashes. However his luck had not abandoned him. In answer to the letters he had sent a few days earlier to the Seville representatives of the insurance companies with whom his father collaborated, he received word that they had sponsored him and his brother and as a result they were both set free. He then travelled to Cádiz where he paid a visit to one of the agents who helped him out with a loan. Afterwards he travelled to the commander’s office at the headquarters of the national army in Seville where he was assigned to the transportation corps. Towards the end of the war he was given responsibility for


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the ambulance route from Linares to Seville. Taking advantage of the opportunity to earn some money, he bought paper for rolling cigarettes, selling it in the national sector where there was none and bought tobacco in Seville, selling it in the republican sector where this product was inexistent. In September 1939 he was discharged and entrusted with driving a car to Barcelona. Once back in Manresa, he discovered that his father was bankrupt again and that the family shop, the apartment and offices had been robbed; everything had disappeared: money, accounts and shares. The files of the policy holders were missing from his father's agency so Jesús had to request copies from the insurance companies. He then spent several months visiting each client separately in order to get their consent to the new conditions which affected their insurance policies due to the new political and economic situation in Spain. Shortage of food supplies and other difficulties of daily life in the town lasted for many months. The Serra family managed to cope thanks to the help and support of friends and relatives. Two years later, in 1941, Jesús Serra married Luisa Farré with whom he had been in love for several years and to whom he had dedicated an endless number of poems. Their first daughter, Pepa, was born in 1942 and their second

The files of the policy holders were missing from his father's agency so Jesús had to request copies from the insurance companies. daughter, Assumpta, in 1943. Their first son, named José María, was born in 1944 and years later, in 1950, their second son, Jesús, arrived. During the first few years of the decade of the 1940’s, Jesús and his family experienced financial difficulties owing to the low salary he received from his father, which in his opinion was much less than he deserved considering the amount of profit he generated for the insurance agency. When a compulsory Health Insurance Law was passed in Spain in 1944, he saw his first great opportunity: to create an insurance company which would handle this line of business. Once he had finished organizing all of his plans, he decided to have a serious talk with his father which would prove decisive for his future. He mentally prepared himself as best he could and went to visit his father in his home. When he arrived, Jesús kissed his hand, as he always did as a sign of respect, and spoke to him using the term Usted (Spanish formal term for “you” instead of the familiar form tu).

Old plaque of La Catalana.


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

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-What do you want Jesús? His father asked, surprised to see him at that hour. -Well, I would like to have what rightfully belongs to me, answered Jesús calmly, claiming his position as family heir. (He was the oldest male son.) -Why do you want to have it at this particular time? -To start a business of my own, he quickly replied. -And what exactly are you planning, if I may ask? -I plan to dedicate my life to the world of insurance companies, answered Jesús easily and confidently. His father was surprised at what he had heard, perhaps not so much for the content because he knew his son's character very well, but because of “how” he had been informed of Jesús’ decision to become independent and take charge of his own life. His father replied seriously and firmly to the request for money. He told Jesús that he hoped he knew exactly what he was about to embark on, reminding him of the risks his decision would entail, adding," because I will not always be able to help you." But, feeling proud of his son, and convinced that his decision was a good one, he immediately agreed to provide the financial backing which Jesús had requested although reminding him once again that this would be the only time he would receive help from his father. "How it all began" could also have been

He obtained the necessary financial support from his father to begin his first steps in the business, and he met a number of people through his father who in future would be partners in the companies he created. the title of this section as the narrative takes the reader to the very beginning of Jesús Serra’s involvement as an insurance entrepreneur. José María Serra Sallent's personality and attitude to life had a strong influence on his son, who was to become the founder of the Grupo Asegurador Catalana Occidente. As well as being a strong influence, his father’s decision to open an insurance agency in Manresa, encouraged by his political friends, offered Jesús the opportunity to learn about the insurance industry where he would dedicate his life. His father’s agency is where Jesús Serra first heard about the company La Catalana de Seguros, which he would purchase; it was from his father that he obtained the necessary financial support to be able to take his first steps in the business, and it was through his father that he met a number of people who in future would be his partners and colleagues in the companies he created. When he started his companies many of his father’s collaborators went to work for

Copy of an insurance policy, La Catalana 1932.


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When Jesús Serra together with a group of investors purchased La Catalana de Seguros in 1959, Spain was financially bankrupt as well as politically and economically isolated from the rest of the world.

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him and would later hold executive positions at his companies. He followed his father's example, always fulfilling his obligations and commitments. Thanks to his father he also developed a passion for good music at a time when not many people showed an interest, as they do today. As a child he learned to play the piano and the enjoyment it always gave him helped develop his sensitivity towards life and helped contribute towards the success of his business. Jesús Serra's business career began in 1944 when he started the company, Asepeyo. Four years later he bought the company Occidente and in 1959 he purchased La Catalana de Seguros. A few years later the Grupo Catalana Occidente was created with the merging of the two companies and their respective subsidiaries. Each of these events will be described in the following pages. However, it may be worthwhile to describe the socioeconomic and political climate at the time as well as the characteristics of the industry in which our insurance group evolved.

A summary of the socioeconomic and political events from 1959 to 1975 When Jesús Serra together with a group of investors purchased La Catalana de Seguros in 1959, Spain was financially bankrupt as well as politically and economically isolated from the rest of the world. These problems caused by the Spanish Civil War of 1936-39 and the politics carried out by Franco's regime after the war, lasted until the post- war years of the Second World War, with the defeat of Germany and Italy in 1945, countries with which the Spanish government was aligned. The problems Spain faced were manifold: uncontrolled public deficit,


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negative balance of payments, lack of foreign reserves, high inflation, lack of competitiveness, political and social crisis, isolation and total financial, monetary and fiscal imbalance. The Government's strong interventionism in all affairs and the harsh economic and cultural autarky imposed by the regime had led the country to an insupportable situation which sooner or later had to end. At the beginning of the 1950's, Franco's regime took the first small steps towards opening the country to the international community and to foreign investment. Much needed foreign capital entered Spain enabling the importation of necessary equipment and the exportation of agricultural products with more favorable economic conditions. The response to this policy came mainly from the United States on signing a mutual friendship agreement with Spain in 1953. Under the agreement Spain received financial support which helped relieve the famine suffered by the population. In exchange the United States was permitted to establish military bases in the country. These were the years characterized by economic corruption, rationing and the black market. A few years later, in 1957, the regime underwent a significant

political change, replacing some of the fascist orientated members of the government, eliminating some of the symbols which represented the Falange Española and adopting ideas which were more liberal. Members of the Opus Dei were appointed to positions in the government, Alberto Ullastres and Mariano Navarro Rubio, heads of the Trade and Treasury Departments respectively, and Laureano López Rubio, head of the General Technical Secretary of the Government's Presidency. They formed the first non-fascist government under Franco's regime. These ministers prepared and enacted the much needed Decree for the New Economic Order of Spain which was commonly known as the Stabilization Plan, assisted by technicians from the OECD and the IMF as well as the Spanish economists Sardà and Fuentes Quintana among others. The 1959 Stabilization Plan which Jesús Serra referred to in his speech at Occidente’s general shareholder's meeting, embodied four main principles: currency convertibility, price stabilization, liberalization and integration. Some of its more important objectives included reducing inflation, liberalizing the foreign sector, achieving convertibility of the peseta in order to promote trade and finally,

Copy of an Insurance Policy, Occidente 1953.


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

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modernizing the country's economy. Following these principles Spain entered the decade of the 1960's, experiencing the longest period of economic development in many years. All sectors grew, including insurance, although less than others due to causes which will be mentioned later on. Domestic production increased on the average at the high rate of 7% per year, and society underwent a transformation at a speed and scale

unknown before. It was called by some, "the Spanish economic miracle," an inexact expression as economic expansion did not occur in Spain alone: all first world countries experienced it to a greater or lesser degree and many before Spain. The success of Spain opening its economy and society to the international community was also a result of good timing or perhaps good luck, as it coincided with expanding

ICEA conference chaired by JesĂşs Serra.


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Inauguration of the first commercial department of the company 1961.

European markets. There was a high demand for non-specialized labour as well as an enormous amount of available international financing. Spain underwent an important industrialization process; it is estimated that national production increased several fold from the beginning of the 1950's up until 1975. The increase was seven times higher from the 1950's until 1990, the year coinciding with the end of the second

period of the Grupo Catalana Occidente. Spain's population, however, did not increase significantly in this same period. In the 1950's, 60's and 70's it grew annually by only 1%. Afterwards, at the end of the 70's, the birth rate descended causing the population to grow by only 0.2% net, thereby achieving an extraordinary increase in the country's productivity rate and income per capita. In turn,


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the mortality rate started to decrease causing longer life expectancy. This process was to continue throughout the following decades and still exists today. The consequences for public and private insurance activities are very evident. Employment, on the other hand, did not follow the same pattern. The problem was resolved, if it is correct to use the word resolved , when massive numbers of citizens, about two million, left the country in search of employment, mainly to Europe and also to Latin America. Spain benefited from this mass emigration as it not only solved the terrible problem of an unsustainable unemployment rate but also because the volume of reserves increased due to the foreign currency transferred by emigrants to their families. The money transfers, the surge in international tourism in Spain on a large scale and the increase of foreign investments, as well as stimulating the economy, were the main factors that sustained the regime's continuity. It should be noted that 40% of the population employed in the agricultural sector at the end of the 1950's decreased to 20% in 1975. This left a large number of unskilled laborers who could not be absorbed by either the industrial or service sector. In the social realm changes were no

On the other hand, the average person started to enjoy the characteristic advantages of economic development such as television in their homes, summer vacations at the beach, ownership of a car (especially the popular Seat 600). This brought with it compulsory automobile insurance. less significant. Internal emigration is also worth mentioning; depopulated rural areas increased while at the same time major cities became over populated, especially in Catalonia, the Basque Country and Madrid. Many Spaniards had to suddenly change from being small farm land owners or workers to being employed in the industrial, construction and services sectors in large cities, separated from their familiar environment without the support of necessary social services. However, the average person started to enjoy the characteristic advantages of economic development such as television in their homes, summer vacations at the beach, ownership of a car (especially the popular Seat 600). This brought with it compulsory


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

Paseo de Gracia. In the foreground the two towers of the Casa Pascual Pons, one circular and the other polygonal.

automobile insurance. The cultural impact of foreign tourism completely changed customs and ideas, including religious ideas, while at the same time, causing an enormous collision between people of different circumstances as well as raising sociopolitical and moral barriers between youth and their elders, between parents and their children, between men and women and between rural areas and cities. Spain was undergoing

a complete and lasting transformation which many people considered dangerous or disturbing. The national health system was no longer just a theoretical concept but a tangible reality that was to expand with the arrival of socialism in the eighties. The official church, which to some extent had been drifting away from the political regime in power, also evolved because of the new ideas of the II Vatican Council. Universities

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also changed: more and more students and professors from different social classes now formed part of university life expressing their increasingly radical political and social opinions against the regime. Labor unions also flourished gaining increasing support against the political system and the Government. The first Planes de Desarrollo Económico y Social (Franco’s economic programs), accompanied by widespread publicity campaigns had very little practical success. In 1975, a number of famous death penalty sentences applied to members of terrorist organizations provoked heated internal and international protests against Franco's regime. In Spain, the opposition started to organise, positioning itself against the government. At the same time the delicate conflict with Morocco when the so-called Marcha Verde (Green March) was promoted by the Moroccan government, resulted in the loss of the Spanish Sahara to Morocco and Mauritania. Immediately after Franco's death, in 1975, the current Borbón monarch, Juan Carlos was crowned king. Arias Navarro was the last president under Franco's regime. Under the presidency of Adolfo

Universities also changed: more and more students and professors from different social classes now formed part of university life expressing their increasingly radical political and social opinions against the regime. Suárez, Spain entered a new era of democracy and rule of law. These events had influenced the evolution of the insurance industry, including Catalana Occidente. There were more opportunities for growth given the low level of development up to then in comparison to companies in Europe and also because of the greater potential of the Spanish economy.


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

The insurance industry

Jesús Serra Santamans.

Analyzing the development of the insurance industry from 1959 to 1975 from today’s perspective, professional improvement was evident in all areas. The insurance industry evolved just as other sectors did, in tune with Spain's social development. During this period, there was a strong interest among Spanish executives to professionalize the technical and organizational management of their companies. It was in the 1960's when the North American concept of efficient work organization was applied in its different forms throughout the industry, the so-called Taylorism theory being an example. The new concept of efficiency spread quickly among Spanish companies under the umbrella of the “Spanish economic miracle.” The first National Congress on Scientific Organisation of Work held in Spain in 1963, had a strong influence on company professionals. At the same time, Catholic sponsored educational management schools participated in matters related to human and work relations, opening a number of centres which are still highly prestigious today. Also, in 1963 the Spanish insurance

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Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

Jesús Serra was the chairperson of ICEA for over 15 years and in collaboration with a team of professionals, he turned it into an important instrument for the development of the Spanish insurance industry. industry created the association of insurance companies, ICEA (Investigación Cooperativa entre Entidades Aseguradoras) [Cooperative Research between Insurance Entities] for the purpose of improving productivity in the industry. It provided both professional and technical education for employees and executives and promoted the efficient organization of insurance companies. It was Jesús Serra who initiated the idea of ICEA, and together with a small group of insurance company entrepeneurs aware of the progress taking place in Europe and the United States, convinced over one hundred companies to join. Jesús Serra was the chairperson of this institution for over 15 years and in collaboration with a team of professionals, he turned it into

an important instrument for the development of the Spanish insurance industry. With this initiative and others, whether they originated from within the industry or within a company, the insurance sector began a long-lasting and fruitful process of adopting modern management and methods of work oganization. These were the years during when the word “marketing” was introduced into day-to-day insurance operations, replacing the concept traditionally known as insurance "production departments" and also replacing the more restricted concept of commercial or sales management. Unlike in other Spanish speaking countries, in Spain the word “marketing” is not translated. It encompasses not only sales but also the knowledge of the client's needs and the way to "prepare and deliver" the products and services to the policy holder. In other words, the marketing concept differentiates insurance products or services, adapts them according to the profile of the clients and channels them through the different possible distribution networks. At the time measures were also taken to avoid the term "lines of business" when communicating with clients. The line, a technical concept frequently used by insurance companies, was not easily understood

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by clients. Instead, products and services with commercial names expressing their use and functions took its place, and were now referred to as hotel insurance, store insurance, homeowners as well as many others. Something similar occurred with the word siniestro (claims): in Spanish the word derives from the word sinister, which has quite a negative connotation). This unpleasant term so widely used in the Spanish insurance world was replaced with the word pagos (payments) claims or simply, accidents. The industry also searched for new ways to meet the clients’ needs by providing reparation services for damages instead of the traditional cash indemnity in the event of accidents. Reparation of vehicles the traditional procedure in automobile insurance, was now being introduced in other lines of business such as homeowners insurance, where the company repairs the damaged home or premises instead of reimbursing with cash. Insurance companies also began to group a number of different coverages under a single policy avoiding many inconveniences for the client. This practice lowered production costs and consequently

This period also witnessed the first advertising and communication activities involving the public, policy holders and future clients. rates could be reduced. This period also witnessed the first advertising and communication activities involving the public, policy holders and future clients. Until then communication between the industry and its clients was almost nonexistent and when it did occur it was far from effective. To a certain extent, clients were no longer "held captive" by the insurance companies which until then had been the practice due to the extraordinary power of certain industrial and financial groups. The insurance industry opened up to free trade, or at least more so than in the past, driven by the influence of new insurance companies and groups such as Catalana Occidente and by a growing middle class, usually characterized with having a higher cultural level. During this period, insurance agents became more professional. Until then many of them were mainly part-time workers combining the selling of insurance with other jobs and with


Creating Grupo Catalana Occidente. Jes煤s Serra Santamans. 1956-1974

little sense of belonging to the profession. They lacked sufficient technical knowledge and had no training in matching coverage to client's real needs. Professional training took on unprecedented dimensions in the industry. By the 1970's the sector's image had improved and the public began to recognise some of the names of the companies. It was the insurance agent alone who communicated with clients and without having the necessary means to be effective. Clients knew the agent who sold the policy but

INDUSTRY PREMIUM (AMOUNTS IN MILLIONS OF PESETAS) YEARS

Life Premium

Premium in other business lines

1959

1,014

8,400

1961

1,240

10,370

1963

1,659

15,850

1965

2,108

25,050

1967

2,829

25,641

1969

3,916

32,895

1971

5,431

43,419

1973

8,393

61,097

1975

13,069

90,460

Source: Direcci贸n General de Seguros

they knew very little if anything about the insurance company itself. Agents sold insurance policies, collected premiums from the clients and paid indemnities in the event of an accident. Given the comprehensive role of the agent, the company itself had few opportunities or perhaps little interest in controlling their work, leaving the most important part of the business out of their scope of operations. The most advanced insurance companies, among them Catalana Occidente, began to close the gap between company and client reducing the lack of communication. One can get an idea of the size of the industry by looking at the insurance premium figures. The volume of life insurance is very small when compared with the rest of the lines of business. The table shows that the total income from life insurance in Spain in 1959 was approximately a thousand million pesetas, in other words the equivalent in current prices of six million euros. During the next eight years this amount was almost three times larger and over the next fifteen years it increased 13 times. However it was still very low in comparison with European averages at the time and with the amounts reached in Spain in subsequent years. In those days, few people in Spain purchased life insurance, only the

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upper classes and only those with higher cultural levels. The rest simply could not afford it or were not interested in buying the product. The average volume of premiums per person was very low given the scarce demand for life insurance products. The industry was aware of this and some companies were preparing themselves for the change in mentality that was about to occur. The income from non-life policies was several times higher than from life insurance policies. Today this is far from what would be considered appropriate or normal: life insurance on its own should be similar or greater than from all other lines of business together. In effect, this is what happens today in many developed societies. So-called savings and retirement plans, important nowadays, did not exist at the time. People bought only life insurance and were hardly, if at all, concerned about saving for their retirement. Saving was associated only with the banking industry. The situation has changed significantly over the years. In 1966 the insurance industry commissioned ICEA to carry out the first public opinion survey on insurance activities to analyze and resolve these types of problems. The survey had an outstanding impact on

Many of the problems faced by the Spanish insurance industry were caused by its "atomization" or excessive fragmentation. the companies, resulting in several measures for creating an awareness of the importance of being protected with an insurance policy. It is also worth mentioning that many of the problems faced by the Spanish insurance industry were caused by its "atomization" or excessive fragmentation. There were many companies, up to seven hundred at one point, most of which were very small with little chance of developing activities which would improve customer service. Some say that this fragmentation was the cause of the undisciplined commercial and technical management. The expense to premium ratios were so high that when accident costs increased, companies lacked the solvency to operate confidently towards their clients and the public. Complaints about this, mainly from larger


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companies, were constantly being reported in the press, though other forms of communication and even directly to the government. In spite of this the insurance industry gradually amended some of its existing weaknesses. Companies evolved in the following years, solving some of the problems, whether real or imaginary, aided by reports and studies in the 1970’s. The first was the so called Informe de la Subponencia de Seguros del III Plan de Desarrollo (III Insurance Development Plan Report) drawn up by prestigious insurance executives who were members of the Sindicato Nacional del Seguro (National Insurance Union). The second was the Plan Estratégico del Seguro Español (Strategic Plan for the Spanish Insurance Industry) developed by ICEA at the request of its Chairman Jesús Serra and undertaken in collaboration with the Stanford Research Institute in California, United States. Both reports listed main objectives for the industry, distinguishing between those of an institutional or industrial nature, laws and official regulations (new Insurance Law, Financial Statement Adjustment Law to correct the effects of inflation on assets, Insurance Contract Law,

Insurance Marketing Law, etc.); improvement of the industry's image; educating and training of employees and technical staff as well as other general matters. The strategic plan for each company was to be decided individually. Both the industry’s and the companies’ objectives were coordinated under a long-term plan which the government, the industry and the individual insurance companies were free to follow. The progress was monitored annually by ICEA through follow-up reports. The objectives were based on the assumption that a strong business growth would take place in Spain given its low starting point. This growth would be higher than the inflation rate, higher than the Gross National Product and higher than the operational costs of the insurance companies. No reduction of staff was planned, in fact quite the opposite had been forecasted. Quantitative and qualitative growth was expected regarding the recruitment of executives possessing a more professional background. In addition there were plans for further investments to improve technology and management. How could the insurance industry meet the objectives of the plan which included a two-digit annual growth in premiums?


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

No reduction of staff was planned, in fact quite the opposite had been forecasted. Quantitative and qualitative growth was expected regarding the recruitment of executives possessing a more professional background. The objectives for the industry were also based on certain assumptions. First, there would be a greater demand for life insurance in Spain. To support this growth, reductions in both inheritance and income tax benefits were requested. Second, automobile sales would increase which in turn would raise the volume of premiums in this line of insurance. In 1966 the Government had passed a compulsory automobile insurance law, covering a driver's legal liability. The law was extended to include an optional insurance which would cover other contingencies such as damages to the vehicle itself. Both modalities were expected to grow

strongly in the medium and longterm. The third assumption was that there would be an improvement in communication with the public and a more fluid relationship between the industry and the government. Finally, a more professional and efficient distribution network for the industry was added. In order to achieve these objectives, it was considered necessary to liberalize automobile insurance rates which historically had conditioned the industry's development, restricting quality of service and endangering companies' solvency due to frequent losses. Until 1972, when insurance rates were finally updated, premiums were calculated based on the general costs in 1957, in other words 15 years behind. It should be noted that the principles of free markets and nonpublic intervention in business were important components of the Strategic Plan for the Spanish Insurance Industry. The objectives established in the plan were more than fully met over the next few years although not in the expected order nor by the established deadlines. It was hoped that a solution for the industry’s structural problems would be found in next few years. In 1965 workmen’s compensation insurance which

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represented a third of the industry's total income had been nationalized, with its corresponding loss of business for the sector. The insurance sector, nevertheless, continued to evolve, overcoming its difficulties, as we will confirm further. Some companies contributed more and others less to producing a competitive and efficiently managed industry. The Grupo Catalana Occidente played an outstanding role in this progress, thanks to the leadership of its founder and to the improvements made within his own company. We will now have a look at some of his main achievements.

First initiative. The creation of Asepeyo in 1944 At the beginning of 1944 a group of prominent people brought together by Jesús Serra, purchased the montepio (a mutual company), El Obrero Catalán, which had been founded in 1915, with the specific objective of transforming its limited operations into a larger mutual society, widening both its geographical market and extending its product range and services. On March 26 of the same year, the

From right to left, Jesús Serra with his wife Luisa Farré, the mayor of Manresa, Antonio Serra and other people that assisted to the inauguration of the first center of Asepeyo. Manresa 1959.


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Old files of La Catalana.

consolidation of the new group was formalized by the shareholders, led by Jesús Serra who was appointed member of the board and secretary. It was chaired by Dr. Antonio Alzamora and Antonio Serra Santamans, Jesús' brother, was made treasurer. Other prominent directors

throughout the years were José María Juncadella, Luis Olano and Carlos Godó, Count of Godó. Under the law regulating Social Welfare Mutual Companies in Spain and in view of the positive circumstances leading towards compulsory health insurance, the first


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Since 1960 the company had set out on a very well defined path towards expansion, its main field of action then being compulsory health insurance given the legal situation of the country.

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measure taken was to provide a wide range of insurance products, extending the company's limited product range until then. The new board was granted due powers and agreed to provide individual and group health insurance, as well as medicalpharmaceutical and surgical assistance, while at the same time extending the market for these services to the whole of Spain and not only to Catalonia. The following month, in April 1944, the board of directors agreed to change the name of the company, believing that El Obrero Catalán (The Catalan Worker) neither reflected the mission of the entity nor the characteristics of the shareholders and future policy holders. From then onwards it was called Asistencia Sanitario-Económica para Empleados

y Obreros, Mutualidad de Previsión Social, also known as Asistencia, or more popularly, A.S.E.P.E.Y.O. This is how one of the largest workmen’s compensation companies in Spain today was created. On the following June 1st, Antonio Alzamora was appointed General Health Director and Jesús Serra was appointed General Financial and Administrative Director. It was agreed to grant them both sufficient powers to achieve the proposed objectives. In July an arrangement with the government was made to commercialize compulsory health insurance. In the beginning the company was legally registered at Plaza de Cataluña 9, the home address of the Serra family. In September it was changed to 7 Plaza de Cataluña and the following year to 18 Paseo de Gracia ,


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

its legal address until 1966. In October 1945 it was decided to open an office in Madrid and subsequently in other Spanish cities and towns. The company now sold the following lines of business: optional health insurance, compulsory health insurance in collaboration with the Government and workmen’s compensation insurance which still exists today in accordance with official regulations. In 1946 Jesús Serra delegated his position as financial and administrative director to his brother Antonio Serra and after the board of directors was reorganized, Jesús was appointed sole managing director and Luis Planas Roca, chairman of the board. Since 1960 the company had set out on a well defined path towards

expansion, its main field of action then being compulsory health insurance given the legal situation of the country, while continuing the lines of workmen’s compensation and optional health insurance. The business of the company during its first twenty years is found in the table: Some of the personalities who worked closely with Jesús Serra and had a distinguishing role at Asepeyo are Luis Planas Roca who as president knew how to steer the company in the right direction; José María Juncadella, vice-president; Luis Olano and Carlos Godó, both directors; Antonio Arderiu, secretary of the board for many years; Joaquín de Cárdenas Llavanera, chairman from 1950 to 1966 and Antonio Serra,

ASEPEYO: FIRST 20 YEARS YEAR

Number of clients companies

Number of workes

Premiums (in pesetas)

1945

2,080

27,762

10,411,449

1950

7,730

58,762

50,065,947

1955

13,178

94,232

79,125,151

1960

14,372

111,140

129,662,129

1965

28,960

291,225

396,374,497

Source: Asepeyo

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director and member of the board before becoming chairman of the mutual company from 1966 until his death. Other important members of the board were Remigio Thiebaut and Luis Cela, who were also top executives of the company Unión Española de Explosivos. Asepeyo owes its great success since its creation in 1944 to all of these personalities as well as to many others, including directors, officers, employees and collaborators. Special mention should also be given to José María Serra Sallent, father of Jesús and Antonio Serra and family patriarch who was indispensable for uniting the shareholders' interests, keeping up spirits when necessary, and contributing to the general progress of the company although he held no official position.

The next move: the purchase of Occidente in 1948 In 1948, four years after founding Asepeyo, Jesús Serra together with Planas, Olano, Conde de Godó and Juncadella, businessmen connected with Asepeyo and their fellow partners in Madrid, Thiebaut, Figueroa, Cárdenas and Cela contacted the owners of the insurance company Occidente located in the capital of Spain. Their purpose was to acquire the company and extend its market, selling new insurance products which would add to those lines marketed by Asepeyo. The company which was known as Occidente since 1940 had originally been founded in 1902 under the name of Mutual Franco Española. At the end of the 1940's, the company found itself in an increasingly difficult situation both commercially, its premium growth being almost at a standstill, and financially, its operating results, negative. The most worrying feature, however, was that the Subdirección General de Seguros, (Government department of insurance control))


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Old plaque of Occidente.

had forbidden it to sell new policies because of its low solvency level. Public administrators had been appointed to liquidate the company in an orderly manner. That year the company had reached a premium volume of approximately 40 million pesetas, had a considerable amount of policy holders and employed almost a hundred people. The offices were initially located at 27 Alcalá Street

in the center of Madrid and another office had been bought on Cedaceros Street, also in the center. The company had changed hands several times. The last owners, represented by its chairman Matías Mateos Careño, had decided to transfer the responsibility of the management of the company to the official authorities. This was exactly when Jesús Serra and his colleagues decided to contact them.


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After many conversations and much travelling back and forth to examine the company's financial and technical documents, both parties reached an agreement. An appointment was then set up with the insurance control department of the Government in order to stop the liquidation process, at least for a reasonable period of time. The prospective buyers assured government officials that the problems Occidente were going through were not structural or related to a weakness in the market, but instead were largely due to management errors. They felt that if given the opportunity, they would be able to resolve these problems and the company would return to a situation of financial solvency and adequate commercial development. The amount of capital needed to buy the company was ten million pesetas plus a 10% premium, although the most important payments were to be made over various years as the only possible way to completely turn the company around, saving it from bankruptcy. Both growth recovery and increased productivity were achieved in a short period of time, just over six years, thanks to the extraordinary dedication and work undertaken by the new board of

directors, the management team and employees, some moving to Madrid from Manresa where they had worked at the Serra Sallent's insurance agency. The most prominent names on the team were Genaro Félix, Francisco Carné, Pedro Echevarria, the Carballeira brothers, José and Ramón, Valentín Oliveras, Joaquín Tardós and Juan Ferrer, among others. These men later became executives of the Grupo Asegurador Catalana Occidente. In 1958-59, some 10 years after the acquisition of Occidente, the profit and loss account was in good order, the level of results was considered appropriate and the solvency ratios were on the right track. The management and administration departments worked satisfactorily, technology was highly advanced and the distribution network sold the products of the company throughout the country. The obligation agreed with the government’s department of insurance control had been met. This allowed a Spanish insurance company to continue operating, saving many jobs. At the general shareholders' meeting in 1960, after having examined Occidente's financial statements of the previous year, the achievements of the company and future challenges were thoroughly discussed.


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The company's president, Remigio Thiebaut Chardenal, opened the session announcing that 100% of the company's shares were present or represented. He then dedicated a warm and affectionate tribute to Luis Planas Roca a member of Occidente's board and chairman of Asepeyo's board of directors, who passed away that year. JesĂşs Serra, general manager of the company, gave a detailed analysis of the situation which the Spanish insurance sector was facing in these sensitive times while the country debated the possibility of joining either the European Common Market or the Free Trade Zone, according to his words recorded in the minutes of the meeting. Serra confidently stated that Occidente and its subsidiaries Intercontinental, Cantabria, Salerno and Depsa could look towards the future with optimism "because for a long time now we have been striving to achieve a level of technology that will enable us to compare ourselves with the best foreign companies. We will however, have to double our efforts to improve the organization of our company so that we are never at a disadvantage when large foreign groups enter Spain." Several of the comments he made should be mentioned. First,

Plaques belonging to companies of the Grupo Catalana Occidente.


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

The development and utilization of technologies in his companies and his faith that this would increase productivity and results, was also a permanent passion of Jesús Serra’s from an early date. regarding Jesús Serra's early interest and concern, not yet shared by others in the business, about the consequences that Spain's integration into Europe could have on insurance companies. He could frequently be heard saying, "Spain would not enter Europe but Europe would enter Spain, quite different concepts", anticipating its occurrence twenty years before the fact. This was one of his major concerns. The development and utilization of technologies in his companies and his faith that this would increase productivity and results, was also a permanent passion of Jesús Serra’s from an early date, lasting throughout his life. Years later his ideas have proven to be a reality throughout the business world. He also announced that

Occidente's insurance sales in the first few months of 1960 had grown by 50% despite the fact that the company was suffering the consequences of the famous Stabilization Plan of 1959. "The Spanish Economic Stabilization Plan will strengthen the Spanish economy in the long-term although in the short term it is causing a general economic slow-down especially affecting the insurance industry." Here we have another example of Jesus Serra’s prescience, in this case, regarding the immediate difficulties the Stabilization Plan entailed and regarding the positive effects it would have on the Spanish economy in the long-term. The following are the business results of Occidente during 1959, the year in which La Catalana was purchased in Barcelona: premiums reached approximately 130 million pesetas; the loss ratio was within market standards although with an upward trend in workmen’s compensation insurance and administration costs increased slightly compared to the previous year owing to extraordinary expenses incurred from purchasing more punch card computer equipment. The company's reserves exceeded 100 million pesetas, approximately 10 million allocated to equity.

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Investments in securities amounted to 56,358,655 pesetas and real estate amounted to 20,132,360. He also explained that La Catalana’s business had been satisfactory, showing a slight increase in volume since its purchase in 1959 , enabling both Occidente and La Catalana to invest, through a subsidiary company, in modern technology which would provide long term advantages as the volume of premiums, direct and reinsurance, already amounted to roughly 400 million pesetas. At the shareholder's meeting it was agreed to pay a 9% dividend and to register the remaining 90%, almost the entire profits, to legal reserves in order to gradually increase the solvency of the company. The following year at the shareholder’s meeting, the financial statement of Occidente was once again analyzed. The results achieved in the first year of the decade of the 1960’s, when Spain’s longest period of economic growth took place, were reported by Jesús Serra, "premiums have grown significantly, reaching 146.5 million pesetas, which represent an increase of over 17 million, although if we include accepted reinsurance, the total income exceeds 158 million pesetas." The loss ratio maintained its slight

upward trend in fire and workmen’s compensation policies, while expenses seemed to be under control "because although the number of employees has not increased, salaries and depreciation of computer equipment have, which, as everyone knows, is one of the most modern in the market." In fact, it was the first of its kind installed by IBM in the Spanish insurance industry. "We believe, added Jesús Serra, that with a greater use of technology, we will be able to accomplish two important goals; the first is to improve the standard of living of our employees who have dedicated their professional lives to the company and secondly, reduce our overhead costs, maintaining levels of productivity similar to those of foreign companies.” These statements once again confirm the leadership quality of Jesús, because he knew well that in order to progress and be successful in business, one should always take into account the professional and social conditions of employees and collaborators. "The advances in productivity and profits have to benefit us all: shareholders, executives, employees and clients." The group's financial progress was detailed in the speech of Remigio Thiebaut, chairman of the board.


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He reported that the amount of Occidente's total reserves were over 125 million pesetas, 15 million of them allocated to voluntary reserves. The total premium volume registered by the Occidente group, including its subsidiaries, amounted to 191,673,033 pesetas, an increase of more than 22 million. "The integration of procedures between Occidente and La Catalana, initiated in 1959, continues to operate satisfactorily and although the financial statements are submitted separately, a growing number of functions are undertaken jointly. As the date for entering the Common Market draws closer, Spanish companies, whether insurance or not, have the obligation to strive for business turnovers comparable to their European counterparts with whom they will have to compete. Given the modest nature of the Spanish market, a minimum turnover can only be achieved by grouping together those companies with similar concerns." He continued by saying, "the greatest advantages of our policy of integrating the two companies have been in the rationalization of work, as well as the use of technology, technical and commercial research and reinsurance. The services shared by both companies have proved to

"The greatest advantages of our policy of integrating the two companies have been in the rationalization of work, as well as the use of technology, technical and commercial research and reinsurance.� be more efficient in regards to decreasing accident and car insurance losses. The cost of services when divided by 400 million pesetas of direct insurance premiums, have progressively been reduced. Furthermore, the efficiency of our services has made it possible for both groups to double the growth of the previous year, which exceeds 50 million pesetas from new business as well as increasing profits." The board agreed to allocate 10% of Occidente's profits to dividends for the shareholders and the rest to equity reserves. The following table gives us an approximate idea of the position in the insurance market of our insurance group: This table shows that the business


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

volume of La Catalana was higher than that of Occidente, the buyer. The Spanish insurance sector was generally experimenting average premium increases between 10% and 15% while the premium increases of both Occidente and La Catalana were almost double. This explains the gradual gain in market share of the group. Approximately ten years later, at the beginning of the 1970's, Occidente and La Catalana with their respective subsidiaries proceeded with their operational and functional integration, to become what is known today as Grupo Catalana Occidente. The new company established its corporate headquarters in the building where it is still located, in San Cugat del

VallĂŠs, a town close to Barcelona. In 1971, Occidente's direct insurance premium amounted to 430 million pesetas which when added to the accepted reinsurance premium, totalled 461 million. This business volume came from a wide range of insurance products, both life and general, the most significant being automobile insurance with 178 million pesetas, life insurance with 78 million and fire insurance with 59 million. These three products represented 70% of the company's portfolio. Occidente's equity amounted to 130 million whereas the paid-up capital was 60 million. Its securities portfolio was 320 million pesetas, real estate, 167 million and total assets amounted to 813 million

PREMIUMS OCCIDENTE AND LA CATALANA (IN MILLIONS OF PESETAS MARKET SHARE Premium

1959

1960

Premium Occidente and subsidiaries

160

190

Premium La Catalana and subsidiaries

220

250

Total

380

440

Insurance industry

9,400

10,300

Market share

4.05%

4.27%

Source: Internal

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Premiums had grown, the number of employees had stabilized, thanks to the improvement of skills and productivity, expenses were contained and the initial problem of the company’s insolvency had been resolved.

150

pesetas. The profit that year was 17 million pesetas. We will now analyze in greater detail how the Grupo Asegurador Catalana Occidente evolved.

Purchase of La Catalana in 1959. Creating the Grupo By 1959 the insurance company Occidente had reached a healthy standard of results when compared to when it was purchased in 1948. Premiums had grown, the number of employees had stabilized, thanks to the improvement of skills and productivity, expenses were contained and the initial problem of the company’s insolvency had been resolved. The company was managed more efficiently due to investments in technology, to improvements in marketing and


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Governing board chaired by Jose MarĂ­a Juncadella BurĂŠs, President from 1960-1992.

to the incorporation of training and educational programs for employees and agents. The organization of the company had earned well deserved recognition within the sector. The company's shareholders and directors were satisfied with the progress achieved although they were

somewhat worried about the long-term future of the company because of its relatively small size in comparison to the principal Spanish companies, especially the international ones. It was true that Occidente had gained market share over the years but it was also true that it started from a


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Special lighting for La Catalana's 100th Anniversary.

very low position. A great deal of time would be required to significantly improve the situation through internal growth , too much time to be able to classify in the near future as one of the leaders in the industry, which was the company's objective. Because of the shareholder’s great financial capability and the large amount already invested in technology and other equipment, far superior to the average company in the sector, the company had more capacity for investment purposes

than it was making use of. There was only one answer to this situation, and that was to acquire other insurance companies. This would add a greater value to Occidente and its subsidiaries and would provide cost synergies which would improve competitiveness with other companies. The task of searching for possible companies to purchase was carried out by the general manager and Chief Executive Officer, JesĂşs Serra. La Catalana de Seguros with


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headquarters in Barcelona and its subsidiary, La Previsión Nacional was the ideal candidate. The group was larger and wealthier than Occidente although its management and technology were less developed. It had, however, a significant portfolio of fire insurance policies and other business lines which complemented and balanced the portfolio of Occidente, which was mainly based on accident insurance. After an elaborate process personally carried out by Jesús Serra, the company was purchased for 23 million pesetas, paid by checks directly to the principal shareholders, Casades and Banco Santander, and then to the rest of the owners. In the end a very favourable price was agreed on if you consider that in 1959 La Catalana and its subsidiary had exceeded 230 million pesetas in premium income; the amount paid was only ten percent of that figure. Some of La Catalana's representative statistics from the report published by its new owners at the first shareholder's meeting which was held in 1959 and referring to the fiscal year 1958 are as follows: The net premiums of direct business were 130,337,339 pesetas and those of the accepted reinsured were 45,676,172 from lines of business such as fire insurance (corresponding to almost 50%), life, automobile,

La Catalana's technical and equity reserves exceeded 140 million pesetas, whereas the company’s subscribed and paid-up capital reached ten million. individual accident and workmen’s compensation. The total expense ratio, which exceeded 45% with regard to the premiums, was considered excessively high. This was attributed to the relatively insufficient internal organization of La Catalana, whose structure was based on separate sectors for each line of insurance, instead of being based on marketing, underwriting, administration, reinsurance, etc. covering all the lines of business. In 1959, a few months after being bought, the company's organizational structure underwent important changes. First, the already mentioned organizational structure of La Catalana which had been originally set up in the traditional Spanish way; secondly, its administration services were merged with those of its subsidiary, La Previsión Nacional, reducing expenses and increasing productivity. La Catalana's technical and equity


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Computer Room with IBM 1401. Year 1963.

reserves exceeded 140 million pesetas and the company’s subscribed and paidup capital reached ten million. The company's total assets exceeded 280 million pesetas with important nonregistered capital gains, especially real estate. The company's profit in 1958 was 5,011,128 pesetas with a pay out to the shareholders of 40%. The subsidiary company Previsión Nacional reached direct and accepted business premiums exceeding 28 million pesetas with a highly

satisfactory loss ratio. Its portfolio was formed mainly by theft insurance policies. The equity reserves reached ten million pesetas. In 1959 both La Catalana and its subsidiary company underwent a major change in management, resulting in much faster growth which had reached more than 230 million pesetas in total premiums, as we have already noted. In 1964 La Catalana de Seguros celebrated its 100th anniversary and on May 27, at the general


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Gold medal granted to La Catalana for merit in the Insurance Industry 1964.


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

shareholders' meeting held at the company's head offices at 2 Paseo de Gracia, in Barcelona, the performance of the company and its subsidiary during the previous year was reported. The president of the company, José María Juncadella, was accompanied by the board members: Marqués de Caldas de Montbuy, Juan de Cárdenas Llavanera, Manuel Girona, Federico Elías de Molins, Ramón Negre, Antonio Serra, the Marqués de Sentmenat, Javier Villavechia and Jesús Serra, the CEO. Fernando de Delás y Sagarra also attended as member of the board of La Previsión Nacional. Once the balance sheets and profit and losses had been examined, the CEO commented on the development of both companies and on the insurance industry in Spain in general during 1963. He first pointed out the remarkable increase “which has followed the trend of previous years. The income of La Catalana and La Previsión Nacional from direct insurance was 377,346,066 pesetas, an increase of 59,373,368 pesetas compared to 1962. If we add the reinsurance business, the total amounts to 446,686,094 pesetas." Growth was also evident in the increase of total reserves in both technical reserves and equities. Therefore the amount of reserves and

capital for all items grew from 410,106,425 pesetas in 1962 to 450,425,012 in 1963. "The continued increase of reserves" stated Serra, "gives an idea of the effort made in self-financing and healthy provisioning policies carried out by the company". He also mentioned that similarly to what the Spanish and foreign insurance industry was experiencing "we see that there has been an increase in the loss ratio in all lines of business, especially in automobile insurance, which has vastly exceeded the most pessimistic forecasts. It is vital to urgently update rates if the insurance sector is to avoid serious problems." "Furthermore La Catalana and La Previsión Nacional, have continued to improve the use of our computerized system, obtaining accurate and more defined statistics and therefore becoming more efficient, enabling faster decision making with less overhead expenses.” "The companies that form Grupo asegurador Occidente (Occidente Intercontinental, Occidental de Capitalización and Depsa) continue to develop at a good pace and with satisfactory results. The adquisition of the IBM 1401 computer was a large investment but it has facilitated the work related to programming and the execution of numerous routine tasks."

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Direct insurance premiums of all the companies together, both La Catalana and its subsidiary, and Occidente with its subsidiaries, reached 703 million pesetas in 1963, representing an increase of 131 million compared with 1962. If we add the premiums for health insurance from Asepeyo to the 703 million pesetas, mentioned earlier, our total income would be in the region of 924 million pesetas. The chairman of the board of directors, José María Juncadella, gave a detailed analysis of the evolution of the last five years of operations of La Catalana and La Previsión Nacional. Premium registered in 1963 represented a 146.83% increase compared to 1958. He then referred to growth in net worth and the work in progress to restore and extend the company building located on Paseo de Gracia. On the whole, the net worth accounts grew 97.47% over the five years. In regard to the results of La Catalana during that financial year and despite the fact that the gross surplus was somewhat higher than during the previous financial years, it was considered advisable to maintain the dividend in order to strengthen equity, to be able to confront any contingencies in claims which might arise. Finally, it was agreed to increase the company capital in order to keep

The chairman of the board of directors, José María Juncadella, gave a detailed analysis of the evolution of the last five years of operations of La Catalana and La Previsión Nacional. in line with growth in income. On October 19, 1964 La Catalana received the Medalla de Oro del Mérito en el Seguro from the Ministry of Finance for its continuous contribution to the sector. A few years later, in 1971, the operational and functional integration of all the companies within the Grupo Catalana de Occidente was completed and the company moved to its new headquarters in San Cugat del Vallés. The joint premium income of the total group, amounted to 1,865 million pesetas and the total capital and reserves, 2,800 million of which 500 corresponded to company equity. An important insurance group had been created and had attained an outstanding position in its business sector with a positive reputation in Spanish society. After December 21, 1973, many

José Mª Juncadella Burés President. (1960-1992)


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

insurance companies complied with a new decree approved in Spain which promoted the updating of balance sheets. La Catalana, however, was not one of them, choosing instead to register assets at their purchase price in order to correct possible loss deviations in the future. In 1975, the general shareholders' meeting analysed the main variables of La Catalana's balance sheet. The total amount of direct insurance premium was 1,758 million pesetas, an increase of over 313 million compared to the previous year, although if overseas business was included, premiums amounted to 1,774 million. The most important lines of business were fire, life and both compulsory and voluntary automobile insurance. The premiums accepted in reinsurance reached 155

million pesetas while in 1974 it had been 150 million, "as you can see we have continued to maintain a cautious approach in this part of the business." La Catalana's capital and equity reserves increased from just over 622 million pesetas in 1974 to 668 million in 1975 without including the stabilization reserves which reached 29 million at the end of the financial year. The amount of the company's technical reserves grew to more than 2,000 million pesetas in 1975, up from 1,639 million in 1974. The capital and reserves for all items amounted to 2,700 million pesetas with the subscribed and paid-up capital being 150 million and the profit somewhat more than 69 million pesetas, with dividends of 22 million and share

INSURANCE COMPANIES ACCORDING TO VOLUME OF PREMIUMS 1975 (AMOUNTS IN MILLIONS OF PESETAS) Company

Premiums

La Unión y el Fénix

5,699

Grupo Catalana Occidente

3,176

Grupo Mapfre

2,957

Mutua Madrileña

2,688

La Estrella

2,339

Source: Sindicato Nacional del Seguro; Catalana Occidente; Mapfre

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participation for the staff of more than 19 million pesetas. The insurance group on the whole, including the business of La Catalana and Occidente with their subsidiaries, reached 3,176 million pesetas in premiums which was 561 million more than the previous year. The company had moved to second position in the industry ranking as shown in the following table: From 1959 to 1975, Grupo Catalana Occidente developed guidelines and corporate policies enabling it to become one of the most significant and unique insurance companies in Spain. The different corporate characteristics which defined the company then and still define it today are listed below.

Special consideration for human resources Giving importance to staff education and training has been ongoing at Grupo Catalana Occidente. Investing in human resources including formal education such as university degrees, Spanish and international insurance training centres, in-house courses and on the job training has always been a priority of the company. The group encourages communication between staff members, promoting transparency instead of hiding information between

It is worth noting that on very few occasions were jobs given to persons from outside the company, internal promotion always being preferred. top and lower level employees. Staff participation in yearly strategic planning according to each person's position within the organization was a policy adopted early on. Finally, in order for employees to develop professionally and be eligible for promotion, the company offered fair and competitive conditions according to their achievements and effort. In this respect, it is worth noting that on very few occasions were jobs given to persons from outside the company, internal promotion always being preferred. Also, the company maintained close ties with retired employees and agents.

Customer service quality From the beginning Catalana Occidente was known for improving


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

161

Training seminar.

quality of service to its policy holders, this being a priority established by JesĂşs Serra, This was achieved through information gathered from customer satisfaction surveys and public polls as well as from opinions received directly from policy holders. The early appointment of a company

ombudsman was another measure to improve service and solve possible conflicts. Ombudsmen resolutions were often favorable to the client's position even when the strict application of the law favored the company. The products offered by Catalana Occidente were also adapted to clients' needs based on information supplied by


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Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

agents whose income was based not only on the number of premiums sold but also on quality of service. In the long-term this would have a positive effect on the quality of portfolios and on the profits of the company. The large distribution network of Catalana Occidente has traditionally been one of the most professional and well prepared in the sector.

Efficiency in administration services A policy of efficiency has been maintained not only in head office operations but also in branch offices and agencies. Efficiency has been an element which has differentiated the company from its competitors even before the Grupo Catalana Occidente was formed. The introduction and constant development of technological systems originated from this idea; its importance to the company, a pioneer in the installation and use of modern computer systems, continues to this day, especially in the point of sale. Computer room; pioneer in the use of computers in the industry.

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Decentralisation of the staff, both in number and operational decisions, was and still is one of the highest in the industry. Along with improved risk selection procedures, decentralization has made the company more efficient because decisions can be made where needed, not only at company headquarters, saving both time and money.

Risk selection 164

The selection of risks based on fair and technical criteria has helped Catalana Occidente to maintain correct rates which, in the past, had caused many companies to fail. These policies, together with others, such as fast and efficient premium payment collection through automated electronic transfer, have optimized the company's profitability without harming clients' interests. Investing technical reserves efficiently has also had positive results, increasing customers’ confidence in the company.

Management by objectives Right from the beginning, Catalana Occidente has followed this

The selection of risks based on fair and technical criteria helped Catalana Occidente maintain correct rates. participative management policy as it observed that it led to optimum professional decision-making avoiding improvisation caused by doubts, fear or by not knowing the fundamental facts of the market. A very useful tool to reach this objective was the implemented management control system which stood out for being fast and detailed and providing warning signs of the performance changes of the businesses' most important variables. Both the management style and the good use of control tools have been an essential part of the group's strategic planning system. Catalana Occidente's strategic plan has been a key element for reflection and decision-making in the main areas of the business, which has continued to improve with the active staff participation at all levels.


Creating Grupo Catalana Occidente. JesĂşs Serra Santamans. 1956-1974

JesĂşs Serra, presiding at a conference at ICEA.


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Inauguration of the Grupo headquarters in

166

San Cugat del Vallés.

Independence and professionalism Grupo Catalana Occidente has always been an independent company, without ties to any external economic or financial group. Although open to external investment through minority positions shareholdings, the Grupo Catalana Occidente has always been a family-owned company. The main principless and policies set out for the company in the past, and still present today, arose from the entrepreneurial vision of the founder Jesús Serra Santamans. Catalana Occidente was created as an

independent insurance group with a vocation for leadership and a clear direction towards efficiency, accomplished through the efforts of employees, managers and directors. An example of the company's leadership role within the insurance sector was demonstrated at a meeting for directors and presidents that took place in the north of Spain. In March 1970 in Santiago de Compostela, during Las Jornadas de Estudio para Directores Generales del Sector de Seguros (Annual Convention of Directors and Presidents of Insurance Companies in Spain) organized by ICEA, Jesús Serra,


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

INSTITUT AMETLLER D’ART HISPÀNIC. ARXIU MAS.

167

December 25, 1962. Barcelona Plaza Cataluña


Creating Grupo Catalana Occidente. Jesús Serra Santamans. 1956-1974

“It can easily be inferred that in Spain not only must we increase our business volume in absolute figures but especially in regards to other countries." who was chairing the meeting, addressed the participants from the insurance industry and government representatives: "I believe that the Spanish insurance industry needs a specific strategic plan because all of us together can achieve more than each of us on our own. This plan would contain measures to increase both quantitative growth and qualitative growth. Our previous speaker, Mr. Hernando de Larramendi (president of Mapfre at that time, friend of Jesús Serra and one of the most distinguished personalities of the Spanish insurance industry) mentioned some figures indicating the importance of insurance in certain countries. We have seen that percentages of premium over national income in all of the advanced countries are much higher than in Spain. It can easily be inferred that not only must we increase our

business volume in absolute figures but especially in regards to other countries." "When making long-term forecasts of quantitative growth we will probably also discover the need for setting objectives to improve the quality of our insurance." "Together we need to solve those problems which we all share, while at the same time each of us must actively strive for the number one position in the industry, which needless to say, I would like to see as the leading industry in the country. To achieve this depends on us and on a good dosage of noble and loyal competition." "When the members of a group are passive, activity ceases, so together we must work hard to offer the best possible products and provide the best possible service to our policy holders. This can only be achieved if each of us continuously improves his business practices, so that together we are capable of forming a great industry." These inspirational words received with enthusiasm by the representatives of the Spanish insurance industry, could only come from a leader such as Jesús Serra. He was probably the Spanish insurer who showed more enthusiasm for the development of the Spanish insurance industry. He knew very well that if all of the insurance companies advanced,

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his company would also advance as it would be part of a convoy that would move faster, more efficiently and with more stability. "I do not manage the largest insurance company in Spain, because that is not possible for now, so I will have to conform to the idea of managing the best one." These were Jesús Serra's words. In 1959 Grupo Catalana Occidente was created as a single property unifying La Catalana and its subsidiary, Previsión Nacional, with Occidente and its subsidiaries; in 1971 management and staff were united at the head offices in San Cugat del Vallés, although legally the union had not yet been formalized. Over the years, the Group has become a large, complex and international institution. Nevertheless the principles established by Jesús Serra in the initial years have not changed. In addition to new principles acquired over the years to meet current needs, they still prevail today as they did in the past, guiding the actions of its directors, employees and shareholders. Today Jesús Serra’s idea remains present throughout the company: “We may not be the largest insurance company in Spain but we will always strive to be the best.”

Today Jesús Serra’s idea remains present throughout the company: “We may not be the largest insurance company in Spain but we will always strive to be the best.”


Consolidation of the Grupo

1975-1990


Consolidation of the Grupo. 1975-1990

The political, economic and social environment The second part of this history is dedicated to the formation of the Grupo Catalana Occidente. It starts in 1975 at the beginning of Spain's democratic transition, and lasts until 1990, well into the years of socialist government. During this time Catalana Occidente experienced tremendous growth becoming one of the leading companies within the industry, both in terms of revenue and quality of management. Spain also underwent major

The coup attempt was finally solved thanks to the intervention by the King who was supported by all the parliamentary political parties and by the people.

changes during this period. In 1976 the King entrusted the presidency of the government to Adolfo Suรกrez who in just under four years succeeded in normalizing the country's politics in order to establish a system of democratic freedom. Political parties, which had been prohibited were now legalized. The political system was decentralised, with more power allocated to the regions. The country faced a very serious economic crisis. In 1977, the economic crisis was partly resolved due to the measures agreed by the totally antagonistic political parties in the so called Pactos de la Moncloa. A year later after holding a national referendum a democratic constitution was approved. Despite the improvements brought about by these measures, the Government continued to be very unstable, a situation that was made worse by terrorist attacks. This led to the resignation in 1981 of President Suรกrez who had lost the backing of his party as well as the support of the King. Following the resignation of Suรกrez, the UDC, his political party, appointed Leopoldo Calvo Sotelo to replace him. On February 23 of that same year, during a vote in Congress to approve the nomination of Calvo

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Sotelo, lieutenant Colonel Tejero accompanied by a large group of national guards attacked the assembly, holding them hostage in an attempted coup. The main instigators of the coup were General Armada and Milán del Bosch. The attempted coup ended with the intervention of the King who had the backing of all of the political parties as well as the Spanish people. In 1982, after the short mandate of Calvo Sotelo, Felipe González, head of the Partido Socialista Obrero Español (Spanish Socialist Party) was elected President. He was reelected and held office for over thirteen years. It was the first time since the Second Republic, that Spain had been governed by a socialist president. His government launched a series of bold measures involving the significant restructuring of industry and introduced a series of important social and legislative reforms. Between 1975 and 1985 the economy went through a period of stagnation, including the oil crisis of 1978. This was followed by a period of expansion from 1985 until 1991, a result of Spain entering the EEC in 1986 with its welcome influx of European structural funds, investments and international aid. During those years annual income

growth per capita was once again higher than 4%. At the end of this period the population reached 39 million inhabitants. GDP per person increased from 389 dollars in 1960 to 12,610 dollars in 1990. Inflation was extremely high, at an average of 15.5% between 1975 and 1985, and 25% between 1976 and 1977. From 1985 until 1990 the increase in the annual consumer price index was 6.5%. Saving rates, which were higher than 15% in 1974 were reduced by half in 1990. With the establishment of the universal social protection scheme in Spain, public administration and local government expenses grew from 19.8% of GDP in 1960 to 43.3% in 1990. The budget for Social Security alone was more than 12% of GDP in 1975, mainly because of public pensions and unemployment subsidies. Ten years later it rose to 22% of GDP. The number of people aged 65 and older increased from slightly less than one million at the beginning of the century to more than five million in 1990. The population aged over 75 grew even faster. It is worth mentioning the family situation in Spain at the time. 80% of married men reached retirement


Consolidation of the Grupo. 1975-1990

The public administration and local entity expenses underwent an extraordinary growth as they increased from 19.8% of GDP in 1960 to 43.3% in 1990. age with their spouses still alive, compared to only 42% of women. Because women lived longer than their husbands they faced serious economic difficulties and social problems. The illiteracy rate of the elderly population at the end of 1990 was still higher than 15%; 91% of this segment of the population had not completed primary school education. The consequences of Spain's process of political normalization had an important influence on both private and public sectors of insurance. One of these consequences was the high rate of inflation at the time. Price increases had very negative effects on certain lines of insurance, especially those whose rates were controlled by the Government, such as compulsory and voluntary

automobile insurance. From the end of the 1950's until 1977, the prices of these lines were frozen while their costs continuously increased. This placed many companies in a precarious situation, forcing many to close down their operations. Life insurance, a line of business in which the industry had placed high expectations, expanded throughout the 1970's and 1980's. This was partly due to its low starting point, and partly because income and inheritance tax had been lowered, in contrast to other forms of taxation which went up. Large amounts of hidden income and capital never before declared surfaced due to increased government inspection. New taxes were applied, including a wealth tax affecting the most affluent, who were obviously against it. Life insurance was included in the wealth tax, based on the redemption value of the policy. Value Added Tax was introduced in Spain in 1986. At this time a highly criticized and publicized scandal in Spanish life insurance appeared on the front pages of the country's newspapers lasting several years. A large amount of, until then, hidden capital had been invested in so-called "single premium" life insurance, a confusing

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and inappropriate name, representing extraordinary volumes of short-term earnings, legally exempt from taxation. Only a few companies marketed these products, mainly those linked to banks and saving banks. As expected, once a new law was passed changing the taxation rules, most of the money was removed from the companies' portfolios. This serious problem which caused negative publicity for insurance companies ended with an agreement which was politically complex. With the entry of Spain into the European Community, the acquis communautaire was enacted which included several directives and rules for controlling and operating insurance companies, such as rules governing freedom of establishment of foreign companies and freedom of services for companies without having to open an office in Spain. The impact of this last directive was less than had been forecasted. For the first time in Spain a regulation referring to margin of solvency (Decree 478, 1978) established that companies had to increase their free equity in proportion to the increase of premiums or claims. For some time due to freezing of rates of some lines of insurance or to management

problems, many companies encountered serious difficulties sustaining the official solvency margin with their low profits and there were serious doubts about whether they would be able to survive. In those days people would say, “shareholders invest capital in order to obtain profits and not in order for company to survive.” The situation was even more delicate for mutual companies as there were no shareholders involved. Over the years this regulation contributed to the closing of a considerable number of insurance companies in Spain. Another consequence of Spain's integration into Europe, and the increase in the size of the elderly population, was the passage of the Law for private pension plans in 1987. This was enacted to help complement public social security benefits that were beginning to come under pressure from demographic and economic change. However, in Spain, private pensions were less successful than expected, especially in the area of company schemes. At the same time, premium ranking altered considerably, owing to the overwhelming consolidation of the second phase of “bancassurance” and to the entry of many multinational insurance companies encouraged by


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the new European directives. Important growth in the sector was expected and Spain was known as El Dorado of the European insurance industry. Banks sold their traditional insurance companies to certain foreign groups interested in operating in Spain, but continued to sell insurance from their bank branch offices through “instrumental” companies which were like additional departments, rather than companies as such (the “second phase of bancassurance”). This produced tremendous profits not only from the sale of the traditional companies but also from the production of insurance policies due to the reputation and financial dominance of the banks. Savings banks also sold life insurance on a large-scale and within a few years both types of banks were controlling the business, representing 90% of sales. In sum, between 1975 and 1990, the Spanish insurance sector underwent remarkable changes both in terms of operations and structures caused by pressures and influences taking place in both the political and economic environment and not only from decisions made by the companies. The transition from Franco's

Life insurance was after all an insurance dominated by the bank groups, which controlled almost 90% of the new production within this line of business. dictatorship to a democracy encouraged political parties and the working class to demand social and economic rights that they had been previously denied. This resulted in salary increases aimed at compensating for lost time; in price freezing for certain products and services such as insurance policies; in new ideas for more progressive taxation; in changes to the country's industrial structure; and in a larger role of the social security system and social services. The much demanded law to regulate the insurance industry, which was to replace the obsolete law of 1954, with its reglamento from 1912, was not passed until 1984 due to political reasons. Insurance rates continued to be controlled for many years by the


Consolidation of the Grupo. 1975-1990

“Board of Price Control”. Regulations for the investment of technical reserves remained inflexible, and operation in the insurance market continued to be very controlled. Despite these drawbacks, the insurance industry continued to grow mainly due to the low levels from which it started, as already mentioned. The following table shows the development of the sector throughout this period: These figures speak for themselves regarding the significant growth of the Spanish insurance industry. They also reflect the enormous impact that “single

premiums” had on the economic volumes of life insurance and on their duration in portfolios.

179

INSURANCE PREMIUMS IN SPAIN (AMOUNTS IN MILLIONS OF PESETAS) Years

Life

Non-Life

1976

16,444

106,098

1978

24,312

167,926

1980

34,090

243,666

1982

47,311

324,148

1984

58,901

448,593

1986

417,136

552,529

1988

1,538,144

818,931

1990

546,921

1,164,346

Source: Dirección General de Seguros


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Catalana Occidente

180

We have already mentioned that 1976 was the beginning of a new stage for the corporate and institutional development of Catalana Occidente, a stage of consolidation and establishment of the group as one of the principle leaders within the Spanish insurance industry. At a conference given at the European Conference of Insurance Directors held in 1977 in Alicante and organised by the Comité D'Action pour la Productivité dans L'Assurance (CAPA), Jesús Serra explained the principles which formed the basis of the management of the group. Although the general feeling at the meeting was that the 70's were difficult years for both Spain and also for the insurance sector, many European insurance companies were optimistic that greater progress would take place in the 80's. Facing a large audience of insurance company directors, Jesús Serra explained the conditions which he felt would be necessary to achieve this goal. The title of his conference was very eloquent: The Reason for Change. With this title he referred to what he considered the weaknesses in the country's corporate structures and particularly those of the insurance sector.

1976 was the beginning of a new corporate and institutional development stage for the Grupo Catalana Occidente, a stage of consolidation and establishment as one of the main leaders within the Spanish insurance industry. “We should consider that there are seven groups or parts of a company which have a great influence and pressure over the whole. These groups are the following: (1) the employees (2) the shareholders (3) the clients (4) the community in which one lives (5) the industry to which one belongs (6) the government and (7) the suppliers.” “Companies live in a situation of permanent change and each of the groups that I mentioned are continuously seeking benefits from us. Some people believe that it is best to give more to some groups and less to others. But that is not what needs to be done; it is a far better solution to increase the size of the pie and not make changes among the parts.”


Consolidation of the Grupo. 1975-1990

181

Jesús Serra presiding the INI (International Network of Insurance).

“It seems that at present Spain would like to change the portions of each one of these groups but if that is not carried out properly it could cause a very difficult conflict. At this time in our history as well as for the future, we must enlarge the size of the pie, in other words, increase the

total income and wealth of the Spanish people. In short, this is our main objective at Catalana Occidente: to increase the whole in order to be able to satisfy each party fairly. This is the major change that should be made in the insurance industry and in the economy.” (Without realizing


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Detail of leaded stained glass windows representing medieval characters, visible from the external side. House Pascual Pons.


Consolidation of the Grupo. 1975-1990

it, Jesús Serra was giving a highly pertinent lesson in macroeconomics which could be applied today as well.) “The wise words of Peter Drucker come to mind. He stated that it was most important not to do things right but to do the right things, which are quite different although some people may not think so. This is the basis of strategic planning.” “We know that change is not usually easy to handle, nor is it smooth and progressive through time. There is something called the “curve of change” which consists of an ascending stage which is always difficult to overcome, and a descending stage which is the one that forces us to change our course of action. Between one curve and another is the

“valley of desperation”, from where it is necessary to leave as quickly as possible, to go from losses to profits, to improve productivity and to achieve progress. Change, my friends, is inevitable and not necessarily a bad thing because very often change brings progress.” “And no matter our age or professional position, we must always remember to continue learning and studying because as some experts say, half of what we know today will be obsolete and useless in less than ten years.” Grupo Catalana Occidente closed in 1976 with the following premium, capital and profit figures, approved at the general shareholders' meetings held at the beginning of the following year:

PREMIUMS, CAPITAL AND PROFITS OF CATALANA OCCIDENTE IN 1976 (AMOUNTS IN THOUSANDS OF PESETAS) Company

Premiums

Social Capital

Surplus

La Catalana

2,181,507

150,000

70,589

Occidente

1,155,408

75,000

45,135

La Previsión Nacional

243,777

10,000

7,999

Intercontinental

168,664

12,000

5,497

Cantabria

39,082

10,000

2,144

Occidental de Capitalización

36,628

6,000

3,327

3.825,066

283,000

134,691

TOTALS Source: Catalana Occidente

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184

In the press conference held after the shareholders' meetings, Jesús Serra announced the most relevant conclusions: “The most outstanding event of the financial year has been the reestablishment of the Directorate General of Insurance in Spain, which is a formal acknowledgement of the importance of our sector. The personality, knowledge and experience of its director, Mr. Fernando del Caño, are guarantees that we have the support we require as an industry which for years has been denied to us by the Government.” “Three other important events for the sector took place in 1977: the presentation in Parliament of the draft of the new Insurance Law; the presentation of the new investments Decree for our sector; and finally the approval of new voluntary automobile insurance rates.” For the board it was essential that the new law be passed as soon as possible, as the insurance industry was the only industry regulated by a law passed in 1954 with its reglamento from 1912. The objective of the decree on investments was to resolve a short-term problem “yet the importance of the insurance sector as a financial intermediary has made it necessary to approve laws which are more liberal in order to eliminate the obstructions that are holding back the

development of the industry in detriment to the quality and the price of the service for policy holders.” The new automobile insurance rates were considered a breathing space for insurance companies although they did not solve all of the problems in this line of business. “As insurance companies, we have to maintain close contact with the Administration in order to find solutions for the problem of preventing road accidents, of individualizing risks and of maintaining companies' solvency.” “It is also worth mentioning,” said Jesús Serra, “the Strategic Plan for the Spanish Insurance Industry elaborated by ICEA with the collaboration of the Stanford Research Institute. We believe that the Spanish insurance sector has scored a point as it is the first economic activity to draw-up a long-term plan that will serve as a guideline for insurance companies when they have to prepare their own plans.” “On the other hand, the growth rate of our group was higher than the market average, with an absolute increase of 649 million pesetas in relation to 1975. In the first four months of 1977 the pace of our expansion increased to 24% compared to the same months of the previous year. Life insurance business stands out among the other lines with a 30% growth.” “We have continued our commercial


Consolidation of the Grupo. 1975-1990

185

Detail of the stairs of the House Pascual Pons. Building of the Grupo Catalana Occidente.


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186

and administrative decentralisation policy and have opened a good number of branches throughout Spain. Today the company has a total of eighty branches. We are very satisfied with being pioneers in applying this decentralisation policy, which results in better service and greater motivation of the staff. We have improved the company's general management which is reflected in the increase of our business, control of claims and a lower percentage of outstanding receipts.” Two more topics discussed at the meeting are also worth mentioning: the further development of Life insurance business and the evolution of our sister society Baqueira Beret. With regard to the former, the launching of with profit variable capital insurance policies, Proa Plans, should be mentioned. This was much needed in the market because of the high inflation rate at that time. The group's insurance portfolio increased more than the rest of the companies. For the first time growth of the sector did not exceed the inflation rate: the industry grew by 17.5 % while the cost of living rose by 19.8%. Catalana Occidente however, achieved an overall expansion of 21.2%; the individual life insurance increase was over 33%. The board pointed out that despite the bad weather conditions Baqueira Beret had improved its results both in number of skiers and in income and

"We are still awaiting a new insurance law to end this bottleneck that the current legislation means for the development of our activity.” profits, “most of which were allocated to self-financing for the development of the ski resort which is on its way to becoming one of the finest in Europe.” Catalana Occidente owned a majority of shares in the company. Three years later, in June 1979, general shareholders' meetings of the companies of the group were held to approve the accounts of the previous year. The following are some of the comments that Jesús Serra made afterwards during the press release. “We are still awaiting a new insurance law to end the obstruction that the current legislation represents for the development of our activities. It is important that the new law serves as a preparation for our integration in the Common Market, in other words, it must deal with those matters which are needed to reduce the differences between Spanish insurance companies and those of the European Community both in size and economic potential.” As we can see from these words, Jesús


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Serra did not share the view of the rest of the sector, that the Directorate of Insurance Control should lower the amount of capital proposed by the Government. “If we have to compete with the big companies, let us do so using the same rules and the same weapons.” “The Government not only has the right but it also has the duty to impose a minimum solvency margin for Spanish insurance companies. Nevertheless, this requirement must be subject to one condition: we have to be allowed to apply prices that will cover the cost of claims and necessary expenses, to be able to provide good service to policy holders, and to generate enough profit to meet the required solvency margin.” “We hope that the insurance contract law drawn-up by the Ministry of Justice without the participation of the insurance companies, will be replaced by one in which our views are taken into account. To legislate is not an end in itself but a means to efficiently solve the problems brought about by the socioeconomic development of the country.” “We believe it is time for the Government to count on private insurance to put an end to the rise in Social Security costs. The efficient management of workmen's compensation mutuals is an example which the Administration should take into consideration as these mutuals have

the double advantage of contributing to the improvement of the quality of service for policy holders and reducing costs or avoiding rapid increases.” In 1978, the insurance premiums of Grupo Catalana Occidente reached 6,462 million pesetas with an increase of 1,355 more than in 1977. The growth rate continued to be higher than the market average. The company continued to focus on life insurance, which grew more than the other lines of business, particularly individual life insurance as corporate collective life schemes continued to suffer the consequences of the general economic crisis. The board continued to think that automobile insurance was still “the black sheep” of the sector, as the amount of compensation for death or disability continued to rise without limit owing to the sentences imposed by judges, which was a constant source of debate in the sector. It should be pointed out that compulsory insurance only covered up to 300,000 pesetas per accident but many legal indemnities were much higher. The liberalization of rates for voluntary insurance was an absolute necessity, just as it was for theft coverage. The increase in crime in the country meant that rates in this line of business were completely outdated as they were based on statistics which were no longer relevant.


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190

In real estate matters, it was reported that the group had finally obtained a licence for the construction of a unique building on the Avenida Diagonal in Barcelona. As regards territorial organization, the company continued with the process of decentralization, and was in the process of installing mini computers at its branches throughout Spain so that they could start taking on some of the functions being carried out by the central computer at San Cugat. This would result in a more flexible service at a lower cost, which would increase the performance of the terminals united in the data interchange process. The amount of the agents' balances and accounts receivable constituted 9.11% of the premiums issued during the financial year, one of the lowest ratios in the Spanish insurance sector. One of the more serious problems of the insurance sector was its high general expenses. “Salaries have continued to increase much faster than the rise in productivity and this has placed us at a disadvantage in regard to European insurance. In addition while our salaries are becoming more similar to the rest of Europe, our average premium per policy is much lower and because premiums do not increase costs as policies do, this has a negative impact on our administration expenses.” Improving the relation between salaries and productivity has

been a constant objective within Grupo Catalana Occidente. The following table shows the comparative amounts of the group's main indicators: What Jesús Serra couldn't imagine while he was relating the results of the group's performance to the press (which, he would say, are “not only due to my personal effort but to the efforts of the entire organization”) was, that in less than a year, he would suffer the worst experience of his life. On March 26, 1980 he was kidnapped by an ETA commando in the garage of his home. During 66 days he was hidden away in a hole in the ground, which

ECONOMIC/FINANCIAL INDICATORS YEAR COMPARATIVE (AMOUNTS IN MILLIONS OF PESETAS) 1976

1977

1978

Capital and unrestricted reserves

1,305

1,365

1,484

Capital and total reserves

5,786

6,905

8,441

Stocks and Bonds

2,669

3,285

3,858

Real Estate

1,818

1,983

2,227

Premiums issued

3,826

5,107

6,462

Claims and redemptions

1,534

2,008

2,530

93

105

110

Profit before tax Source: Catalana Occidente


Consolidation of the Grupo. 1975-1990

President Pujol, who was a personal friend of his for many years, asked him after his kidnapping what he was going to do in the future, to which he replied: "fight to be the same fighter I used to be". hardly measured five square meters. He was kept in deplorable hygienic conditions where he had to endure the constant biting of lice, lack of water for washing and long interrogations and threats of murder. He spent moments of anguish and others of hope which he expressed through the poems he wrote on sheets of paper that he managed to hide from his kidnappers. He was given the sheets of paper for the letters that his kidnappers forced him to write to his family. ¡Qué silencio tan hondo y tan sombrío! ¡Cómo encuentro a faltar el sol, el aire y las voces amigas! Después de tantas horas de ceguera la luz fluorescente

fusila mis pupilas La cabeza me duele -¡esa venda tan prieta que oprimía mis sienes!Pero al fin veo un techo y unos muros y un suelo que me asfixian. Pero veo, y doy gracias a Dios por permitirme verlo1. On May 31 of that same year Jesús Serra was released by the terrorist group. Some time afterwards Jordi Pujol, then President of Catalonia and a personal friend for many years, asked him about his plans for the future, to which Jesús replied: “strive to be the same fighter as I have always been.” “And how will you do that?” “By combating on three fronts. In my position as CEO of Catalana Occidente we plan to construct one of the most important buildings in Barcelona on Diagonal avenue; as developer of Baqueira, we are going to invest twice as much capital to turn it into the best ski resort in the Pyrenees and as president of the Real Club de Tennis of Barcelona, we are going to finish the new section in Teià which I hope will become one of the most important clubs in Europe.” President Pujol congratulated him and

1. Silence, so deep, so dark! How I miss the light of the sun, fresh air, the sound of friendly voices! After so many hours of blindness the florescent bulb fires at my pupils, my aching head. -The tape so tight, pressing against my temples! -But at long last I see a ceiling and some walls, and a floor, smothering me. But I can see, and I thank God, for allowing me this vision.

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days later presiding at a meeting of the Catalan Chambers of Commerce, he affirmed: “Last week I met with two businessmen. The first one told me he was tired of fighting and that he wanted to close his factory and fire his entire staff. The other businessman was Jesús Serra who has just suffered through a tragic

experience in the past months. He informed me of his plans for carrying on as entrepreneur as always. If Catalan businessmen have the mentality of my first visitor, we are lost, but if instead they react like Jesús Serra, the future of our country is guaranteed.” Two years later the projects that Jesús Serra mentioned to

Jesús Serra receiving the Key of Barcelona, granted by Council. 1983.


Consolidation of the Grupo. 1975-1990

Medalla de Oro al Mérito en el Seguro (Gold Medal for Insurance Merits) granted to Jesús Serra. 1984.

President Pujol had become a reality. Years later in an article in Economía in the January 29, 1982 issue, Jesús Serra acknowledged: “In the beginning it was very difficult for me but now I feel like my normal self again, as normal as I was before that unfortunate event. I continue with work

as usual, but with the desire to be more helpful to others, making the most of my time and fighting, in my own way, against terrorists such as the ones who kidnapped me. Because of my personal beliefs I feel that increasing the wealth and prosperity of our citizens will put an end to the destabilizing factors and violence that afflict Spain. My experience has therefore left me with positive thoughts and it has made me think that we spend too much time complaining. If instead, we dedicated this time to working more, to being innovative and creative, I am sure that things would be much better than they now are.” In 1983 the Asociación de Amigos de la Llave de Barcelona (Association of Friends of the Key to the city of Barcelona) granted an award to Jesús Serra. In 1984 the Spanish Government gave him the Gold Medal for Mérito en el Seguro (Merit in the Insurance Industry). In his acceptance speech he stated, “I hope you haven't given me the medal for my accomplishments in the companies that I have managed, because that was my obligation, but for what I have done for others without expecting anything in return except for the satisfaction of having done my duty.” That same year Grupo Catalana Occidente reached an agreement with Banco de Bilbao to create the holding

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Corporaci贸n General Aseguradora. The bank contributed 96% of the shares of its company Aurora Polar and Catalana Occidente contributed 45% of its own shares. The share capital holding of the resulting group was 60% for Catalana Occidente and 40% for the bank. The ambitious plans for expanding the holding never took place due to the reluctance of Aurora Polar. Years later, in 1987, Banco Bilbao, which controlled the insurance company Aurora Polar merged with Banco Vizcaya which controlled the insurance company Plus Ultra. After merging and becoming the Banco de Bilbao Vizcaya, they proposed to integrate Plus Ultra in Corporaci贸n General Aseguradora, with the condition that the bank would be the majority stock holder of the Corporaci贸n. Catalana Occidente refused to accept the proposal and after a long negotiation it was agreed that the bank would withdraw from the Corporaci贸n recuperating Aurora Polar in exchange for an economic compensation.

More on the group's marketing strategy One of the most outstanding contributions that Grupo Catalana Occidente has made which not only benefited its own companies but also the insurance sector as a whole, was the reorganization for the first time in Spain of its commercial network. The rigid and onerous structure of the commercial network dated back to the years when the companies of the group were purchased. They were now to be replaced by a much more efficient system. In the mid 60's, the most advanced insurance companies in Spain considered it essential to incorporate new commercial organization models which would be more flexible and efficient, although owing to costs, the risks involved and its complexity, most of them were wary of making this move. Catalana Occidente took the lead and successfully carried out the restructuring of the company. Given the interest of this initiative in various European countries, L'Argus, a French publication specializing in the insurance industry,


Consolidation of the Grupo. 1975-1990

We always say to ourselves, that as we cannot be the biggest company on the market for now, we have chosen to be the best. included an extensive article in its May 1979 issue. The interview between JesĂşs Serra and the journalist began with the following question: -What are the fundamental guiding principles of Catalana Occidente? -The Spanish market is controlled by bank insurance companies and as you know the Spanish banking industry is very powerful. Therefore it is very difficult for a medium-sized insurance company to insure larger risks because they are captive. There are also government owned enterprises whose risks are held captive as well, an example of this is the government owned mutual company, Musini. Therefore, personal insurance policies and insurance for small and medium size companies is the only segment left for independent insurance companies. To give you an example, at present Grupo Catalana Occidente have the largest number of policies in force within the Spanish market and we always say that as we cannot be the biggest

company on the market for now, we have chosen to be the best. Our market is not very strong, except for certain noticeable exceptions, and it is not prepared to face the harsh competition that will come from the Common Market. Nevertheless we are firmly committed to being well prepared to avoid any surprises in the future. For us it is therefore a strategic requirement to know, before any other company in the sector, what the ratio of claims to premiums for each insurance product will be in the future. To accomplish this we have designed various scenarios and that is also why we have analytical accounts for each product we sell. Our company is organized so that we can use the “management by exception� system and so, in general, we don't have to intervene in routine matters. In our company everyone is aware of his or her responsibilities and that is why the phone doesn't have to be constantly ringing for unimportant details. With regard to our sales organization, the structure of the company is based on large areas of the Spanish territory as well as on a series of branch offices located in provinces, all of them connected by teleprocessing or with mini computers. Between the branch offices and points of sale we have what we call inspectors who play an administrative role and who supervise

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the agents' network. These inspectors receive a salary and an incentive depending on the premiums sold by the agents they control, although we think the day will soon come when their remuneration will only depend on our company's marketing strategies. -And what is your idea of marketing? -In the past our company's sales organization consisted of approximately 200 general agents, the only ones who had the right to operate in the specified geographic area. These general agents performed two important functions: on the one hand, selling insurance policies and on the other, the administrative management of their portfolios. This was the most frequent and common system used in our country. In light of this, a few years ago the group's management posed the following questions: Why do 20% of our agents sell 80% of the business? When they reach a certain amount of sales why are agents no longer interested in selling more? Why ask salesmen to carry out administrative tasks if they could sell a lot more policies and generate a lot more premium without this added responsibility? Is the profitability of a sales unit exclusively proportional to its turnover? Catalana Occidente adopted the following measures which answer these

We decided to turn the general agents into non-exclusive agents or into sub-agents depending on the case, that is, into independent workers, with a contract although without exclusivity in their area. questions: we decided to convert our general agents, who were, as I mentioned, free-lance professionals into nonexclusive agents or into sub-agents depending on the case, with a contract but without exclusivity in their geographic area. It has taken us almost fifteen years to fully achieve this objective. Territoriality and exclusivity no longer exist in the company and instead we have a great number of new agents who are independent employees and who are not on our payroll. Although agents are the owners of their portfolio, any of the parties can terminate the contract. For sales and maintenance of their policies in general business lines, the 200 general agents who were with the company before 1960, received very high commissions of 30% to 35% because a certain amount of administration work formed part of their responsibility. They


Consolidation of the Grupo. 1975-1990

have been replaced by 20,000 new agents, 6,000 who work full-time and who are paid an average of 25% commission on new sales and a much lower percentage on annual renewals. This difference in commission of ten points is used to pay the employees of our branches who carry out the administrative work, freeing the agents from this non-productive task. -But then I ask myself, said the journalist, where are the savings in all of this? -The savings result from sales and administrative decentralization adopted by the group through the opening of new branch offices in places where general agents used to operate as well as in various other cities. The studies carried out in our strategic plan, which have since proven to be true, indicated that with this change the company would achieve a great number of benefits. In fact, we are growing by several percentage points more than before. On the other hand there is no limit for sales as there once was. New agents are not lacking in ambition, a problem which existed with the old agents, who had made a large fortune by living off their commissions received for policy renewal. In addition the company now controls its sales results which before were totally in the hands of the general agents. Finally the claims rate of the business and the final results have

also improved, thanks to the control we have over the sales network. As an example I can add that premium payments are handed into the company much sooner, which is how it should be. The policy of opening branches, using our advanced computer systems, enables us to fully control the products we sell, the costs of claims and risk selection: all of this helps us to provide a much better service for our policy holders. -And what is the short term forecast for these systems which appear to be so well integrated that one could not work without the other? As you like planning so much, what can you tell us about the changes you hope to carry out in the future? -I can tell you about some of the changes we have planned, replied JesĂşs Serra. First and above all, I think it is essential that we take the necessary measures to increase the professionalism and training of our agents. Secondly, we will increase the degree of decentralisation since the results until now have been successful. Thirdly, we will consider expanding externally, in other words, growing through the purchase of other insurance companies. We believe that once the Spanish market has matured, we will be able to be less selective in our policies, and finally I can tell you that we are certain that in the future, policies will be issued at branch offices and not at the head office.

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Everything I have mentioned is contained in a medium-term, global and integrated corporate plan, in which all the parties concerned have participated. This means that it was not only elaborated from the top of the hierarchy to the bottom but from the bottom to the top as well. Furthermore, the plan is continuously being updated, adapting to changing conditions. With these words JesĂşs Serra finished his interview for L'Argus magazine. The corporate policies he mentioned are still in force today although adapted and adjusted to the necessities of the time. Other new policies have been added to the old ones although the fundamental pillars remain firm. JesĂşs Serra wanted to change his company and without realizing it, he changed the entire insurance industry.

At the end of the 80's Several years later, in 1986, Grupo Catalana Occidente presented the following results:

1986 ECONOMIC RESULTS (AMOUNTS IN MILLIONS OF PESETAS) 1986 Life premiums

6,934

Automobile premiums

6,815

Others

9,355

Total premiums Return on investments Total income

23,104 4,827 27,931

Capital

1,968

Unrestricted reserves

7,209

Technical provisions

39,560

Total capital and reserves

48,737

Profit before tax

1,787

Net profit

1,626

To dividends

660

To unrestricted reserves

966


Consolidation of the Grupo. 1975-1990

The economic results of the financial year were once again more favourable than those of the previous year, although the meeting announced that they were not only the result of management during one year. This information was presented at the general shareholder's meeting where the retirement of Javier Villavechia y Delás was announced. Until then he had been the group's general manager for investments, united body and soul to the company since his start at La Previsión Nacional. Those who attended the meeting agreed that he should continue in the group as president of the subsidiary company CATOC S.A., an investment society. Jesús Serra's eldest son, José María Serra Farré, was appointed sole managing director of Grupo Catalana Occidente and Jesús Serra took over the position of CEO. In order to fill Javier Villavechia's position it was agreed to create a joint financial department to be managed by Jesús Serra Farré. It was also decided to legally merge various companies of the group in order

to form larger units and simplify administration. It was agreed to continue this policy in the coming years. “Computer development and innovation with regard to products”, stated the CEO, “have once again proven to be highly interdependent. We are the only Spanish company to have launched Universal life insurance which is a highly sophisticated product from a technical viewpoint, commercially attractive in many countries of the world, principally the United States.” Based on these and other achievements, Catalana Occidente was the most admired insurance company in Spain according to the magazine Actualidad Económica. 1986 was considered a very special year for the Spanish insurance sector for several reasons. There was a mass entry of foreign companies into the sector, interest rates were lowered, and many companies were closed down by the Dirección General de Seguros because of their economic situation, and finally because of mass production of the socalled single premiums which were marketed mainly by subsidiary companies of banks. The economic results of the financial year were once again more favorable than those of the previous year, although at the meeting it was clarified that the results were a consequence of

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investments made in previous years both in computing and in training, systems and commercial organization. “All these measures are now producing their expected results and it is expected they will continue to do so in the near future.” The healthy profit obtained by the companies during the year allowed the

same percentage of profits against capital despite the capital call of 1,000 million to increase equity. The shareholders however showed concern about the development of the business in the years to come, for which greater commercial competition was forecast. A large number of foreign companies would arrive in Spain with

Managing Committee presided by José Mª Serra.


Consolidation of the Grupo. 1975-1990

more competitive products that would leave very small margins and an urgent need to control expenses and increase productivity. Jesús Serra ended by saying that, “if the group has been able to adapt to the challenges it has faced up until now, there is no doubt that it will be able to face the future with confidence thanks to the company's magnificent team.” Occidente absorbed the company Occidental de Capitalización during that financial year and La Previsión Nacional did the same with Intercontinental and Cantabria, all members of the insurance group. A parallel grouping also took place in the subsidiary companies dedicated to investment which resulted in the merger of nine of the group companies. Due to these and other measures, the percentage of general expenses over premiums was significantly reduced to 19.4% when in 1985 it had been 22.9%. Management expenses on the whole, including commissions were reduced to 33.1%. “Our ambitious training and professionalization plan for the staff at the head offices and for the sales forces has undoubtedly contributed to achieve all these objectives,” said Jesús Serra at the meeting. Three years later, in 1989, Catalana Occidente celebrated its 125th anniversary. The event was commemorated with production

campaigns for sales agents, festivities inside the company and incentive trips. A book was published in honor of the anniversary and the members of the board of directors were received at the Zarzuela Palace by King Juan Carlos who was given a copy of the book together with a commemorative medal. The King delivered a few words of congratulations. At this time only two companies formally and officially constituted the insurance group: on the one hand Catalana Occidente and on the other hand La Previsión Nacional which had absorbed the rest of the companies. That year the group reached premium incomes of 37,425 million pesetas, which when added to the 9,613 million from financial investments totalled 47,038 million. The equity capital was 16,724 million that year and technical reserves 72,728 million pesetas. The net profit to be distributed as dividends amounted to 2,944 million. From the perspective of the operating results, the year had not been as easy for the insurance industry as expected, as the general loss rate of the sector increased uncontrollably due to competition from both Spanish insurance companies and the many foreign companies which had entered the market. The claims ratio of automobile insurance was even more unfavourable

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than in other lines of business, due to the increase of claims awarded in the courts for personal damages. Many companies could not include the increase of costs in the premium rates for fear of losing part of their clientele although in coming years they would have to do so. The insurance industry was frequently in contact with the Administration in order to solve some of their most urgent problems. Measures were taken to reduce the high frequency of road accidents and a system using objective criteria was established to try to control the amount of damages awarded by the courts. Both these initiatives, the reduction in the frequency of accidents and the establishment of objective compensation scales, had a very positive impact on insurance results and on customer service. In the life insurance sector, the situation caused by problems related to the downfall of single premiums began to improve, although at a very high cost to the reputation of the companies. In addition and as a consequence of these events, the Direcci贸n General de Seguros had to impose a series of important limitations to these products which up until then had been traditional for the industry. Numerous legal regulations were passed in Spain during that financial

In the Life insurance business line, the problems caused by the downfall of single premiums began to be solved, although at a very high price for the image of the sector. year. Some examples of this were the new Corporation Law, the modification of the Code of Commerce, the Business Register Regulations and an up-to date overhaul of the regulations of the Spanish stock market. Insurance companies would need a long time to adapt to these legal changes. On the commercial front, the company continued expanding its most interesting lines of business, having reached 19.7% growth in multi-risk insurance, 22% in automobile insurance and 30.1% in life insurance, whilst maintaining a reasonable balance in the composition of its portfolio, a practice traditional in Catalana Occidente. These strong business growth rates were not detrimental to the high solvency index of the group, on the contrary, they benefited it. The minimum legal solvency amount was 5,087 million pesetas of free assets; the reality was that the company had


Consolidation of the Grupo. 1975-1990

203

Manager team. JesĂşs Serra with the directors, chiefs and proxies of the Grupo.

accrued 13,981 million. This is the equivalent to a solvency ratio of 381% more than the minimum legally required. Catalana Occidente ended the year 1989 with 1,012 employees, not including the staff of its non-insurance subsidiary companies. Of these, 20 were executives, 297 were managers and

qualified staff, 677 of them were administrators or inspectors and there were 18 junior staff. The company had made a commitment to supplement the public pensions of its employees through agreements signed by each one of the companies of the group. This obligation was sufficiently covered by insurance policies and internal funds. The reserves


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204

for this purpose amounted to 2,597 million pesetas that year. The company's many branches issued 166,000 new insurance policies that financial year, managing 931,000 portfolio policies in all, handled 182,000 claims and issued 1,400,000 receipts. Throughout the year, a total of 27 million transactions were performed through the data interchange networks, which was 70% higher than the previous year. The increase in online information permitted branch offices and agents to be more efficient, improving customer service. This stage in the history of Grupo Catalana Occidente ends in 1990. Slightly over 30 years went by since La Catalana joined Occidente. Their total earnings had gone from 380 million pesetas in 1959 to 52,000 million in 1990. The objectives of the group's founder had been fulfilled, the strategies had worked and the policies were correct. From a modest, medium-sized company, which began as the dream of a young businessman, it went on to become one of the largest companies in the industry with a highly qualified technical and management staff, equity of more than 19,000 million pesetas, 84,000 million in technical reserves and profits of around 4,000 million. The company had acquired important

interests in other insurance companies, such as Crédito y Caución in Spain and Laiki Life Insurance in Greece. The latter was acquired with the intention of entering the foreign market and would be followed by other foreign purchases in the future. Additionally, in 1990 the group signed an alliance with the company, Austria, to create a new company, Cosalud, to sell health insurance. Catalana Occidente controlled 55% of the shares and the Austrian company held the remaining 45%. Jesús Serra had cause to feel satisfied professionally, for family reasons and for humane reasons in general. The success of the business was irrefutable. Moreover, his two sons held key positions within the company, José María as the group's general manager and Jesús as deputy managing director and responsible for investments. It continued to be a family-owned company throughout the years with an excellent team of directors, managers and employees. In 1991 the author of this great work decided to retire. He wrote: “In our group the entire staff, including management, retires at the age of 65 yet I was reluctant to do so and instead I have been gradually delegating the majority of my management abilities to my sons.” “I have sent a letter to the staff


Consolidation of the Grupo. 1975-1990

205

Real Audience to the Governing Board in the celebration of the 125 anniversary of the Grupo.

informing them of my decision and thanking them for their collaboration. A few days later the employees' trade union representative came to see me and gave me a document so full of praise that I could hardly hold back my tears. The employees thanked me mainly for my democratic style of management, the creation and maintenance of the sports area in the social building so appreciated by them all, the generosity of our group when negotiating agreements with the labour

union representative and my concern about training and education for the entire staff.� “A few days later, the representatives of the trade unions in Barcelona and Madrid organized a series of dinners in my honour which were attended by more than 90% of the active and retired staff. They presented me with a silver plate engraved with a very emotional dedication. There was a lot of money left over as they had collected more than what they expected from their


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206

colleagues and so they also gave me a beautiful chess set, both the board and the pieces fabricated in sterling silver.” “I had never imagined such a gratifying end to my business career: achieving the creation of a powerful group and at the same time capturing the affection and kindness of my collaborators.” In 1992 the Generalitat de Cataluña

awarded Jesús Serra the Creu de Sant Jordi (Saint George Cross) for his business career and humane actions. He also received the Medalla de Honor del Seguro en Cataluña (Medal of Honour in the Insurance Industry in Catalonia). “I must admit”, Jesús Serra continued saying, “that I have been a fortunate man because, apart from enjoying excellent

Creu de Sant Jordi granted by Generalitat de Catalunya to Jesús Serra. Year 1992.


Consolidation of the Grupo. 1975-1990

207

Medalla de Oro al Mérito en el Seguro (Gold Medal for Insurance Merits) in Catalunya, granted to Jesús Serra. Year 2003.

health, I have had a wonderful wife by my side and children who have never been a cause of any problems and who have faithfully stood by me during difficult times.” Jesús Serra Santamans continued to work in the insurance group as president of the board and later as president of honour. His professional and personal

career, his advanced ideas, his cheerful and kind character and his work were those of a leader, an efficient and unique business man, a great, intelligent and generous man.


150 YEARS CATALANA OCCIDENTE

THE COMPANY BUILDING IN SAN CUGAT DEL VALLÉS

208

The first building of La Catalana was purchased in 1894 and was located in Barcelona, at 14 Rambla de Santa Mónica; the company then had a total of seven employees. A few years later, in 1869, the head office was moved to 7 calle Dormitorio de San Francisco, which had larger premises necessary for the growing company. At the beginning of the century the head office was transferred to 15 Rambla de Cataluña and and in 1922, the building at 2 Paseo de Gracia was purchased and became the company's head office until 1970; this building was considered a historical, artistic and monumental landmark. The company Occidente had its main office at 27 calle Alcalá 27 in Madrid and years later the building on the calle Cedaceros was purchased in the capital. In 1971 the decision was made to integrate and move the head office of Catalana Occidente to the building in San Cugat del Vallés where the services of both companies and their respective subsidiary companies were united. Moving to San Cugat was a revolutionary idea in the Spanish insurance sector as the new building was to be located outside of the city, breaking with the tradition of establishing the head office in the

city centre. The first studies on the convenience of relocating began as early as 1963. A series of trips were made to different countries to study the experiences of the most prominent companies, learning the most modern and efficient forms of construction and conditioning of head offices. As a result, the decision was made to purchase a large plot of land which would be financially favourable in the longterm. The town of San Cugat del Vallés, located 16 Km from Barcelona was chosen. Work on the preparation of the grounds and infrastructure started in 1967 and two years later the building and conditioning of the sports area began. Work on the interior of the building commenced in 1970 and in September 1971, once the offices with their open plan design, the sports areas and garden landscaping had been completed, the staff moved to the new head office. In addition to situating the head office outside the city, the bold design of the building was a novelty of the time. It is an impressive concrete structure forming three enormous wings joined in the shape of a Y, supported by 44 columns giving it a modern and sleek appearance. Offices occupy


Consolidation of the Grupo. 1975-1990

three floors of the building and including the two basements, the total surface area measures 13,000 square meters. It has a glass facade with 657 windows which provide the entire interior with natural light. Apart from its unique architectural and functional characteristics, the building was constructed with a specific corporate philosophy in mind. For Catalana Occidente, a company plays a major role in the life of its employees who spend many hours carrying out their responsibilities, thinking, reflecting and creating. The new building was de-

signed so that they could perform their tasks under optimum conditions, reducing bothersome distractions and unnecessary interruptions while at the same time offering a pleasant atmosphere. The building has excellent lighting, soundproofing, warm colours both on the exterior and in the interior of the building, appropriate humidity levels, and uniform temperatures. The open plan offices provide the necessary functionality, facilitating communications between the departments and services and allowing changes as they arise. For Catalana Occidente staff has always been at 209


150 YEARS CATALANA OCCIDENTE

the forefront of the group's progress and therefore it was important to create the right atmosphere for their personal development as well as for carrying out their responsibilities. In this respect functional but elegant areas were provided: restaurants and a cafeteria, conference rooms as well as rooms for relaxing and spacious sports facilities with tennis courts, fronton courts, a swimming-pool and a gym. The building in San Cugat was ahead of its time and many of its characteristics were later adopted by other companies. The people responsible for

the project realized it was neither necessary nor profitable to build in the city centre. Decentralisation of services to the many branch offices and agencies of the group provided a more direct and more personal attention to clients and thanks to modern communication technology and information processing, both staff and policy holders continue to be well attended by the organization.

210

WORKERS' COMPENSATION INSURANCE AND ASEPEYO The research carried out by the Comisi贸n de Reformas Sociales (Commission for Social Reforms) created in Spain by the Government in the 19th century, specifically in 1884, was one of the most important influences in the creation of insurance companies specializing in workers' compensa-

tion. Asepeyo was one of the leading companies in this line of business. This commission was in charge of carrying out and analyzing a vast and thorough survey on the social problems that the country was facing during the second half of the century.


Consolidation of the Grupo. 1975-1990

A legal draft on accidents in Spain was written based on the research. Two years later the MarquĂŠs de Arlanza presented a project for the creation of Casas de Socorro (First-Aid Clinics), which would include medical attention for people injured at work. The project continued to be developed for a number of years until 1895 when Maluquer presented a proposal in the Senate to create a Casa de Socorro in every Spanish province to attend workers in the event of an accident. On December 2, 1899, Eduardo Dato, Secretary of the Interior, presented the draft of a law for workers' compensation in the Senate which was passed in January of the following year. Due to the favorable atmosphere at the time, debate on whether the Government should intervene in these matters proliferated and interest in this type of insurance and for protection of the working class in general, was slowly taking root in Spain. The idea of intervention was defended by the socialist and progressive political parties, and opposed by the more conservative and liberal political parties. The latter were adherents of the ideas which prevailed during the reigns of Isabel II and her son Alfonso XII. The protection of workers who were injured on the job due to the numerous accidents that occurred as well as the question of whether employers should be held responsible for their workers, were the focal points of the debates. The Occupational Accident Law of 1900 was the

first legal measure passed in Spain to mitigate the problems of workers who suffered an accident while performing their job, mainly those working in factories. This Law was called the Ley Dato (Dato law) as a tribute to this outstanding figure in Spanish politics at the beginning of the 20th century, who became President of the country after having served as Secretary of the Interior. The Occupational Accident Law passed on January 30, 1900 was in fact the forerunner of one of the basic pillars of the Spanish Social Security system and was the origin of current mutual companies dedicated to this line of business, although the protection offered by this new law was limited only to industrial and factory jobs. As a consequence of the regulation of November 10, 1900, industrialists and factory owners formed mutuals which expanded greatly over the years. Years later on January 10, 1922 these enterprises were newly regulated by the Ley Matos (Matos law) on Occupational Accidents, which allowed employers to buy coverage from an insurance entity. This was permitted until the passage of the Labor Code of 1926. The passage in 1932 of the Accident Law by the minister Largo Caballero, during the Second Spanish Republic, extended coverage to all sectors, including agriculture, obliging employers to insure their employees instead of the latter having to assume the risk themselves. Over the years this rule resulted in the creation of a large number of mutuals promoted by employers and factory owners

211


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212

and employee unions belonging to the same sector. Asepeyo is an example of a mutual company created by employers. On December 22, 1955, with Franco's government, the Occupational Accident Law was enacted, unifying protection for all employees, whether from industry, marine or agriculture sectors, and obliging employers of companies to insure them against a wider range of risks. Occupational disease insurance was created in 1961; at the end of that year the Social Security Law was passed, establishing the rules for the system in the whole of Spain. This law introduced coverage for occupational accidents within the state system of Social Security, subsequently prohibiting their management by private insurance companies who had been operating in this line of business until then. On April 21, 1966 the Social Security Law was approved, establishing that mutuals could operate only in workmen's compensation and not in any other line of business. In 1966 private insurance companies had to ce-

ase operating in this line of insurance, an event that was traumatic for them as their portfolios relied significantly on workers' compensation policies. From this time on those employers who wanted to buy occupational insurance for their employees and workers were able to choose whether to cover them with a “labor-managed mutual� or with an employers' mutual. The majority of companies chose this last option. The Social Security system then made it obligatory for mutual companies to limit their administration expenses, also making it mandatory to dedicate 80% of the surplus from their insurance operations to risk prevention and towards physical therapy for injured workers. Spanish Employers' Mutuals have made outstanding progress in the past years extending guarantees, coverage and services to their insured companies and employees. The company Asepeyo continues to hold a very important position within these companies.


Consolidation of the Grupo. 1975-1990

GRUPO CATALANA OCCIDENTE AND THE COMPAÑÍA ESPAÑOLA DE SEGUROS DE CRÉDITO Y CAUCIÓN The concept of insurance is an extremely old one dating from as far back in history as the Babylonian civilization, the Egyptian or the classical cultures of Greece and Rome. But the first policy for non-life general damages that we know of was signed in the Italian city of Genova in 1347. The oldest legal regulations of insurance activity, which referred to marine insurance, are probably those which were enacted in the Barcelona Ordinances of 1435. The first professional insurance companies would not appear until centuries later. Not until 1839 did credit insurance appear. The creation of this line of business is attributed to the Italian insurer and writer Sanguinetti. With the increase in trade in the 19th century this line of insurance continued to grow. Since the end of the First World War, when the victorious countries as well as Germany faced an increased need to export and import goods, credit, and with it, credit insurance, expanded at an extraordinary rate. Afterwards in the majority of developed countries, including Spain, it was decided to create companies

specializing in credit insurance. In July 1929, despite the adverse economic conditions in our country due to the world-wide recession, the Banco Exterior de España together with a group of twenty-five other companies founded the Compañía de Seguros de Crédito y Caución to cover credit risks in international commerce. Later on, adhering to the company's founding principles, it added coverage of credit risk to commerce within the country to its list of objectives, along with bonds and sureties. During the following year, 1930, the company signed a risk sharing agreement with companies in 36 countries, and in 1934 it co-founded the Unión de Berna, which grouped credit agencies from around the world. In 1942, after the Spanish Civil War and post war years of commercial inactivity, the company entered the business of reinsurance specializing in transportation coverage, as a necessary measure to continue its corporate activity. The group of companies that formed Crédito y Caución was not equipped with the sufficient technical and human resources necessary for meeting its objectives until

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1965. It was only then that territorial expansion took place, opening branch offices in the principal Spanish cities. In the year 2004, when the company celebrated its 75th anniversary, the list of shareholders included the leading companies in the Spanish insurance industry: the Consorcio de Compensación de Seguros, Grupo Catalana Occidente, España, Ges, Nacional de Reaseguros, Ocaso, Axa, Aegon, Unión Alcoyana, Cahispa and Winterthur. That same year Crédito y Caución ranked fourth world-wide among companies dedicated to this line of business. In 2003 the important decision was made to purchase shares in the Dutch company Atradius, which is the second credit insurance group in the world. Throughout its existence the company Crédito y Caución has had a decisive influence on the awareness and culture regarding the advantages of this type of insurance for Spain's economic development. Today all of the major Spanish companies and al-

most one fourth of small and medium enterprises have a credit insurance policy, while in the rest of Europe only 8% of the companies are covered. Since 1929 when it was created and throughout its history Crédito y Caución has been the indisputable leader in this type of insurance in Spain with more than 100,000 policy holders and over 3,500 professionals, agents and brokers who have collaborated with the company. La Catalana, Compañía de Seguros contra Incendios, was a shareholder of Crédito y Caución ever since it was founded. Grupo Catalana Occidente, through continuous purchases and increases of the company's capital, is now the major shareholder possessing more than 50% of the stock. Through successive take-overs of the international company Atradius, Grupo Catalana Occidente has become one of the world leaders in the credit insurance industry. Jesús Serra Santamans was president of Crédito y Caución from 1979 until 1993 when José María Serra Farré took over the position until 2004.


The future begins

1991-2005


The future begins. 1991-2005

The future began for Catalana Occidente in 1991. That year José María Serra Farré, General Manager since 1982, was appointed as Chief Executive Officer of the insurance group. From the moment of his appointment, José María became the most senior executive in the company, his father having delegated all executive authority to him. For José María Serra, managing the company was not an unfamiliar task. He knew the insurance business well thanks to his years of experience in the industry and he also knew the company and its employees very well. For several years he had also managed various key areas of the entity such as the distribution network, regional management, branch offices and agents. Also, José María had inherited his father's humane and managerial qualities. For all of these reasons it is fair to conclude that Catalana Occidente had the necessary elements to continue advancing in the right direction. The style and business qualities of its new Chief Executive Officer will be revealed as we take a look at the initiatives and decisions he has made over the years. But first we will briefly review the political situation at the time.

The political situation in this period This period of history was very different to those of previous years. In 1992 Spain signed the Maastricht Treaty, confirming its interest in a united Europe. This treaty contained demanding criteria which defined the objectives for the economic and monetary union. It established strict requirements for all state members including a maximum external debt of 60% of the GDP, a public deficit of 3% of the GDP and a limit on internal price increases (a maximum of 1.5% higher than the countries with the lowest

José María knew the insurance business well thanks to his years of experience in the industry and he also knew the company and its employees very well.

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Detail of the stairs of the central offices of the Grupo in San Cugat del VallĂŠs. Barcelona.


The future begins. 1991-2005

The Spanish insurance industry was influenced by a series of European directives that were published over successive years. prices). No EU members could exceed the indicated limits under any circumstances which in the future would prove to be very difficult. This became evident years later in the context of the international financial crisis that began in 2007. From 1992 the nations that had signed the agreement would start looking at the bigger picture of a united Europe, which had chosen a more liberal and disciplined economic system, open to new members and committed to establishing common monetary policies with the ultimate goal of establishing the Euro as the official monetary unit. The Spanish insurance industry was influenced by a series of European directives that were published over successive years. The Maastricht Treaty was signed at the peak of another Spanish political and economic crisis, with a

government under a series of pressures which fortunately did not prevent the organization and celebration of three very important events for the country in 1992: the Barcelona Olympic Games, Expo 92 in Seville and Madrid as the European capital of culture. These events although highly successful, were eclipsed by the consequences of the lengthy crisis which the Government tried to mitigate by devaluing the currency and implementing other traditional measures against recession. That same year, the Partido Socialista Obrero EspaĂąol (Spanish Workers' Socialist Party) won the elections but without obtaining an absolute majority, forcing it to establish pacts with other parliamentary groups. In 1996, after committing numerous errors in the political, economic and social realms, including suffering a general strike, and besieged by corruption for misusing reserved funds and for using illegal means in fighting against terrorism, the socialist government lost the elections. Power passed to the conservatives (Partido Popular) led by JosĂŠ MarĂ­a Aznar. Towards the end of the socialist mandate in 1994, Spain's economic situation had improved although it was still plagued with a high unemployment rate of 24.5%, a high public deficit of 5.5% of the GDP and an excessive debt reaching 60 trillion pesetas.

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The newly elected government led Spain for two consecutive terms until 2004. It inherited not only important advantages such as the large sum of structural and cohesion funds received from the European Union, but also disadvantages such as having to quickly solve the macroeconomic instability of the previous period. The unemployment level was lower, the economy had expanded and the internal markets were more flexible, including employment, thanks to important liberal changes in economic policy with less government intervention and the ability of the new administration to take advantage of the beginning of the new growth cycle in 1995. A modernization programme for privatizing state owned companies was approved which affected companies such as Telefónica, Endesa, Aceralia, Argentaria, Tabacalera, Repsol and Gas Natural, among others, allowing the Government to reduce its high level of debt. In 1999 Spain officially became one of the countries to incorporate the euro, having successfully controlled prices, reducing public deficit and government expenditure. The country then underwent a period of growth which lasted until the end of the parliamentary term. However, that year and until 2003, Spain suffered the

international crisis of the “dot com” companies which took an important toll on the stock exchange listings which also affected many insurance companies. More than 5,000 internet companies disappeared from the market and the so called “New Economy”, which was mainly based on information, completely collapsed. For the first time in Spain, military service was no longer compulsory and the country joined the NATO military structure. In the elections held in the year 2000, the year of the so called “Y2K effect” which turned out to be less harmful for computer systems than feared, the Partido Popular obtained absolute majority and did not need the support of other political forces to govern. From this moment, the growth rate was positive and the public deficit almost balanced; Spain sufficiently met the requirements set forth in the Maastricht Treaty. The unemployment rate remained high although in 2004 it went down to 8.4% despite the mass arrival of immigrant workers at the beginning of the century. In June 2002, the year in which the new European currency formed part of daily transactions, the Government faced a general strike to protest against reduced labor rights. A year later, Spain was involved in the invasion of Iraq fully backing the United States and the United Kingdom. The event was


150 YEARS CATALANA OCCIDENTE

captured in a famous photo of Presidents Aznar, Bush and Blair taken in the Azores Islands. This explicit international political stance was possibly the cause of the terrorist attack in March 2004 at the Atocha train station in Madrid, which had erroneously been blamed on ETA. This caused Aznar to lose the elections that year which were won by the Socialist Party, led by JosĂŠ Luis RodrĂ­guez Zapatero.

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A year later, Spain was involved in the invasion of Iraq fully backing the United States and the United Kingdom. The event was captured in a famous photo of presidents Aznar, Bush and Blair taken in the Azores Islands.

The insurance industry For the insurance industry, the 90's started with endless forecasts, or to be more explicit, omens, which to a certain extent set the pace of the industry's performance. Although in the end not all of the predictions materialised, some of the most worrisome are listed below. Influenced by the general enthusiasm of belonging to the European Union, some industry executives declared that the 90's would be characterised by mass mergers of insurance companies. This it seemed was the only way in which


The future begins. 1991-2005

223

Head offices of the Grupo.

Spanish companies could achieve an adequate size to be able to compete with European companies. Smaller companies would therefore disappear. In addition to this consolidation process and based on a number of reports issued by consultancy firms, usually foreign, it was forecasted that the commercial borders of the Spanish insurance industry would disappear. The flood of foreign companies who would want to remain permanently in

Spain would continue to increase. It was also forecasted that in view of what was happening in the United States and the United Kingdom, the 90's would be years of deregulation for the Spanish insurance industry. This would lead to the disappearance of the traditional insurance industry, in particular life business, which would be incorporated into a new and larger financial and insurance service. As a result, there would be a strong


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224

increase in competition that would drive many Spanish companies out of the market, in particular small and medium-size companies. Corporations would recuperate the profitability that had been lost. Finally, the implementation of very strict industry control systems in Spain were forecasted which were to be

exclusively based on a company's solvency level. This circumstance would also contribute to the closing of insurance companies, especially the small and medium size ones. Nevertheless and as previously mentioned, many of these forecasts only partially materialized. Deregulation did not reach the

“Catalana Parc �. Buildings of the Grupo in San Cugat. Parque Empresarial Catalana Occidente.


The future begins. 1991-2005

As for automobile insurance, the large growth in premium volume that took place at the end of the 80's and beginning of the 90's camouflaged the inappropriate rates in force. anticipated extremes nor did it cause the disappearance of the traditional identity of the insurance business. On the contrary, in the Life Insurance business, some companies reacted to the competition from financial entities creating investment companies or agencies which offered clients products which were less insurance related and more financially related such as mutual funds, pension funds, mortgages and even credit cards. Other companies, such as the Grupo Catalana Occidente reached distribution agreements using their sales network to sell certain banking products. In this sense, the deregulation forecasted by many experts became a

reality although with the principle difference that the independent insurance industry played a strong and active role in the process. It is true, however, that many insurance companies disappeared; the Comisi贸n Liquidadora de Entidades Aseguradoras CLEA (Insurance Companies Liquidating Commission) closed down 226 companies by 1996. Nevertheless, not only did Spanish insurance companies close, but also many of the foreign companies that had entered the Spanish market ended their operations and returned to their countries of origin due mainly to the accumulated losses they incurred while doing business in our country. As we will see later on, these events were repeatedly analysed at Catalana Occidente shareholder's meetings. The forecasted mass mergers between companies were neither as numerous as expected nor did they cause the small and medium size companies to disappear. In fact, one of the first companies to close was La Uni贸n y el F茅nix Espa帽ol, the largest insurance company in Spain. The solvency ratio Law did not have the expected negative results and at the end of 2005 there were still 350 companies operating in the insurance industry. Their solvency margins were above the levels required by the supervisory authorities. Either the

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Administration's requirements were low or the insurance industry was very solid. Some studies indicated that the most renowned companies and those having the best future in different insurance lines of business, especially those that made up and still make up the backbone of Catalana Occidente's corporate strategy, would continue to be the companies controlled by Spanish savings banks, followed by those belonging to commercial banks and finally, with a large gap, the independent professional insurance companies. Looking back, these forecasts did not materialize either. Savings banks and some commercial banks, all of which had created their own insurance company, moved towards a different business model: a type of “bank assurance.� Because of the urgent need for capital to resolve their financial problems, they had to sell their captive insurance units to the traditional companies. And so what actually happened was exactly the opposite of what had been forecasted. It is now evident that it was the savings banks and some commercial banks that disappeared, and not, in fact, the insurance companies. As for automobile insurance, the large growth in premium volume that took place at the end of the 80's and

beginning of the 90's camouflaged the inappropriate rates in force. The loss ratios suffered by many companies were also hidden because compulsory insurance coverage had officially increased significantly, following the harmonization of Spanish legislation with European Community directives. The loss ratio increased alarmingly due to the high frequency of accidents and the high average cost of the claims. The losses incurred in this line of business were very significant and within a few years the accumulated amount reached 150,000 million pesetas. The insurance companies felt defenceless against the continuous increase of awards ruled by the courts for personal injuries. The same occurred regarding the costs of material damage to vehicles as a consequence of the country's high inflation rate as previously mentioned. Grupo Catalana Occidente, together with other entities, gradually adopted the appropriate risk control and growth contention measures for this line of business, enabling it to confront these challenges while maintaining acceptable business results and positive solvency levels. The insurance industry quickly developed measures to reduce the number of claims for automobile insurance. Especially worth mentioning are the creation of a data base of policy


The future begins. 1991-2005

Building of the Grupo Catalana Occidente in the Avda. Diagonal of Barcelona.

holders with many claims, the promotion of a friendly accident agreement in the event of a car accident and direct indemnity agreements with the clients. Research and car accident prevention centers were also created, such as the one in Zaragoza, and new standard criteria for personal injury awards as well as campaigns about road traffic safety and improvement were established. At the beginning of the 90's the use of seatbelts in cars and helmets for motorcyclists became compulsory and the speed limit in urban areas was reduced. These measures drastically lowered the accident rates in Spain which had been extremely high, 7,000 deaths and 100,000 injuries a year. Many of these measures were enshrined in the Law regulating private insurance, approved by the Government in 1995. As a consequence of these initiatives, car insurance results improved at the end of the last century and the beginning of the present one. This caused a considerable increase in earnings, attracting a great deal of competition in this line of business. This is when direct sales, telephone and Internet sales companies appeared, causing a reduction in insurance prices for customers. So called “comparison engines� also appeared which compared prices and conditions for

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purchasing car insurance policies online. Operating results for this business line continued to be positive at least well into this century. The other great component of family and medium-size companies was the so called multi-risk products both for homes and retail businesses. These products experienced an annual double-digit growth mainly because it was a new, very attractive insurance product that remained within acceptable result levels. These policies, encompassing many different lines of business, grew to a certain extent thanks to the cancellation and replacement of other insurance policies that formed part of the risk package that clients had already purchased. Nevertheless, the joint effect of these new contracts was very positive for the industry and by 2005 they had virtually penetrated all segments of society. Both indemnity and premium-forservices (HMO's) health insurance also grew considerably during this period. This insurance gradually extended its health benefits for its clients while simultaneously increasing its prices each year. The industry for this line of business was mainly a specialist one and during those years it fully consolidated, reducing the number of companies and insurance groups operating in the market.

Both indemnity and premium-for-services (HMO's) health insurance also grew considerably during this period. These developments prove once again that deterministic forecasts based on past tendencies and without taking into consideration the quality of management of each individual company are often erroneous. Experience has proved that companies which were small at first later became large and successful thanks to having worked efficiently and correctly. A paradigmatic example of this development was Grupo Catalana Occidente. Other events also took place during the period under consideration. Two major transformations occurred in Spain regarding life insurance and pension funds. One of them was the tremendous expansion of the so called "unit linked" life insurance (variable life insurance in the U.S.) in which the investment risk of the reserves is not born by the companies but by the client. Clients were willing to take these


The future begins. 1991-2005

risks instead of transferring them to the insurance companies because of the greater profits expected from their investment. This was effectively achieved for a few years until the stock markets started a downward trend. The expansion of these policies only lasted for a relatively short period of time because banks were offering tax benefits to their clients in this product. Over the years these advantages were eliminated by the Government. Unit linked life insurance however is still offered by life insurance companies to those investors who may be interested in such a product. Another important development affecting many Spanish citizens and companies was a new law which obliged the funds held by certain companies on their balance sheets for employee retirement benefits to be withdrawn from their accounts and externalized or transferred to specialized institutions such as insurance entities. The purpose of this law was to guarantee that private funds were sufficient both in amount and actuarial configuration to correctly meet the commitments to their clients. The sums of money collected were very significant, some experts indicate that they amounted to over two trillion pesetas; the lengthy and

complicated transfer procedure concluded successfully due to the initiatives of the Administration and the collaboration of insurance companies. These pension funds, especially those provided by companies for their employees, would be the foundations of the future Spanish welfare state, in addition to individual savings and Social Security pensions. Finally it is appropriate to mention that the insurance industry as a whole, as well as individual companies, embarked on other numerous initiatives to improve and extend the quality of their services. Some examples of these initiatives were the creation of the Insurance Ombudsman, new products such as home and travel assistance and the coverage of long and serious diseases such as cancer. Long-term care insurance policies were also available for elderly people who where not capable of looking after themselves as were reverse mortgages which allowed people to receive an income while living in their homes in exchange for leaving the dwelling to the insurance company when they passed away. From the beginning of the 90's to the start of the current century, the insurance industry's activity was actually highly productive. The following table gives an idea of the industry's expansion:

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Grupo Catalana Occidente The shareholders' meeting report of 1991 includes information of interest regarding the financial year. The group's total income that year reached 58,271 million pesetas, its shareholder's equity was 21,309 million and the technical reserves 96,518, with 15% growth

230

compared with the previous year. The net profits reached were 3,653 million and the dividends shared 1,405 million, which was only 38% of the profit. The objective to strengthen capital was still maintained. Capital and Unrestricted reserves represented almost 40% of the income and when adding the technical reserves they both amounted to almost 200%. The group had come along way since the ratios registered in 1959 when La Catalana was purchased.

INDUSTRY PREMIUM (AMOUNTS IN MILLIONS OF EUROS) YEARS

Life premiums

Rest of business

1991

4,611

8,410

1993

5,316

10,815

1995

8,306

12,448

1997

11,552

13,447

1999

17,112

15,342

2001

23,444

19,319

2003

17,818

24,157

2005

20,617

28,333

Source: Direcci贸n General de Seguros Years 1991-1997 in euros. Exchange rate 1 euro = 166,3 pesetas


The future begins. 1991-2005

The group had come along way since the ratios registered in 1959 when La Catalana was purchased. The decade of the 90's therefore started with a high solvency margin reaching 35,000 million pesetas equalling over five times the amount required by the official insurance supervisory body. The chief executive officer, José María Serra, informed the shareholders that unfortunately a certain part of the Spanish insurance industry did not behave in the same way. He referred to the large number of companies that had entered Spain applying practices that were detrimental for healthy competition. Many of them only pursued fast premium growth and market share at the expense of suffering large losses in their operating results. “According to official data, the approximately eighty foreign companies operating in Spain lost more than 25,000 million pesetas last year. This may be due to the fact that the decision-making centers of these companies are in distant countries and that they do not sufficiently know our

market. This circumstance is distorting the smooth operation of the industry as the events taking place are more like dumping than fair and free competition, setting prices far below their own costs. Time will probably put everything in its right place” said the chief executive officer. In regards to the legal aspect, the industry welcomed the new rules affecting Spanish life insurance business that year as the new income tax encouraged families to establish long-term savings. This genuinely benefited those insurance companies that encouraged regular and systematic savings compared with those that concentrated on large operations, which was more typical of the time. “Although the tax benefits of life insurance should not be placed before the true needs of covering family risks”, Serra said, “it is equally true that the tax deduction which can be applied for payment of the premium is a big incentive for many people.” Grupo Catalana Occidente grew 10% in non-life and 21% in life insurance business, the latter occupying a larger portion of the company's portfolio. The building in Seville which was going to be their main office in Andalusia was completed that year. A great hotel in San Cugat del Vallés close to the

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company's main head office was also finished that year. The company had updated its computer equipment, purchasing the most modern and advanced computers available in the market; this tradition had not been lost either. The return on investments reached 10,500 million pesetas, an amount that represented more than a 27% ratio on the premiums issued. This was achieved due to the increase in sales of life insurance. Catalana Occidente continued with its well known commercial strategy which in everyone's opinion was still the most appropriate and profitable for the company and the one with the best future prospects. This strategy gave priority to the personal and family market segments, as well as those of the small and medium-sized companies, which were more stable and solid. The company's clientele was distributed in the following lines of business: Catalonia represented almost 42% of the total production and Madrid 15%. The east coast region's business represented 17%, the north 12% and the south another 12%. The sale and distribution of insurance policies was carried out by 12,000 agents working for the company in the 281 sales offices and 94 branch offices throughout Spain.

The agents were still considered the most efficient distribution channel for providing good service to priority segments of clients. Important investments were made in training and instruction in order to raise the agents' level of professionalism, so that they could dedicate themselves full time to

CATALANA OCCIDENTE. 1991 PRODUCT PORTFOLIO Life

30%

Car

34%

Home and retail multi-risks

22%

Miscellaneous insurance

14%

Total Source: Catalana Occidente

their work. This characteristic differentiated our group from the rest of the market which still depended on agents who worked part-time. The company serviced more than 112,000 automobile, and 74,000 home and retail business claims that year. The level of satisfaction of the clients was very high. The board gave special attention to the resignation of the group's founder. “In April 1991, owing to his advanced

100%


The future begins. 1991-2005

age, the Chief Executive Officer, Jesús Serra, has presented his resignation. His work has always been defined by an innovative spirit, a high capacity to create teams and complete dedication to the company.” The board of directors agreed to appoint him vicepresident of Catalana Occidente and also president of INOCSA, a holding company within the insurance group. José María Serra was, as already mentioned, the new chief executive officer and his brother, Jesús Serra the general director of investments. Throughout 1992 Grupo Catalana Occidente continued its policy differentiated from the competition in quality of service to clients, in the high level of professionalism of its agents and a market strategy aimed at families and small and medium size businesses. One of the key products was life insurance which the company complemented with up-dated features such as bonuses for non-smokers and insurance policies for long and critical illness. Health insurance was also promoted, especially because the Government had established a 15% tax deduction on premiums. Automobile insurance also underwent a strong expansion favored by a rate up-date compensating the high loss ratio which had existed before. Once again the company's

employees were mentioned by the board. Many activities were programmed throughout the year to develop and improve work efficiency, organizational structures and technical and management training. Out of the 1,030 people working for the group, approximately 80% worked in the sales network while only 20% worked at the headquarters. This gives an idea of the high level of decentralization achieved by Catalana Occidente. As well as encouraging sales, the decentralization strategy provided a closer and improved customer service. The average age of the staff was 38 and the seniority in the company, 15 years. In this same year the group organized 120 training programmes for its employees which represented 25,000 hours of classroom education. The role of commercial inspector was gradually replaced by more efficient job positions of recent creation such as directors of agencies, as had been forecasted in the company's operational plans. As a result of these and other measures, the administration and production expenses over premiums were reduced that year to 16.70% from the 17.70% in 1991. Total expenses, including agents' commissions, were 29.90%, a ratio which was below the long-term objectives forecasted in the group's strategic plan and also below the industry's average.

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In view of the continuous improvement of their business results, a magazine specializing in the insurance industry requested an interview with José María Serra to find out the reasons behind the company's success. The CEO did not hesitate to accept, answering the questions with the following words: “Experiencing the revolution that business in general and the insurance business in particular are going through, our strategy is and will continue to be “growth with profitability” focusing mainly on private and family insurance, retail businesses and small and medium size companies. This is where we believe there is greatest growth potential in the insurance industry.” “Our main differentiating element is better quality of service. As I have mentioned, this is how we stand out from the rest. We will continue to be a professional company working with professional, well trained agents with the ability to provide good customer service and attention to our clients.” “To accomplish this we have also adopted two initiatives that I consider highly important. On the one hand we have a department exclusively dedicated to customer service with a toll-free phone number that clients can call to make enquiries, to provide suggestions about our service and quality and to express their opinion,

while at the same time we provide our traditional communication channels such as insurance agents.” “On the other hand, we have approved and established a decalogue of obligations and commitments with the clients that we call Quality and Service Principles. First. Maintain the quality level our clients expect from the service we provide. Second. Help and assist clients through a distribution network formed by professional agents. Third. Offer quality coverage with fair and equitable prices. Fourth. Deliver concise and understandable insurance contracts keeping clients informed throughout the period of their policies. Fifth. Provide clients with a courteous and efficient service with continuous respect. Sixth. Be fair and ethical when settling claims. Seventh. Be available to our clients through an extensive office network and competent staff.


The future begins. 1991-2005

“We will continue to be a professional company working with professional, well trained agents in conditions to provide good customer service and attention to our clients.” Eighth. Protect the confidentiality of personal information provided by clients. Ninth. Ensure the group's financial health in order to permanently guarantee the compliance of our contractual commitments. Tenth. Maintain the commitment that our quality of service concerns everyone in the company without exceptions.” He continued, “at a time when people are saying that many industries will disappear, that there will be no clear limits for different businesses, that there will be a single financial and insurance service industry, at a time when people are forecasting total globalization and deregulation,

Catalana Occidente is committed and will continue to be committed to providing quality customer service and professionalisation at all corporate levels, from the board of directors to the insurance agent struggling on a daily basis in the field, who is so important for us.” The words that José María Serra said almost twenty years ago reflect his personality and ideas and confirm the insurance group's character and identity. In light of the “great recession” in 2008, history has proved that his approaches were correct and that some tendencies which began in the financial and insurance sectors were erroneous as he had predicted. The following year, in 1993, the company obtained a consolidated income of 73,905 million pesetas. The shareholders' equity reached almost 29,000 million pesetas which was the equivalent of 45% of the premiums. Profit reached 3,814 million of which 40% was paid out as dividends. The capital level was therefore very solid. The board dedicated a heart-felt tribute to two important figures in the company who passed away that year, President José María Juncadella and Vice President Luis Olano. To succeed them Jesús Serra Santamans was appointed President and Javier Villavechia who had been director of the company since 1968 was

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236

appointed Vice President. The proportion of agents working on a full-time basis continued to increase. Full time professional agents, who accounted for 10% of the total employed by the company, were responsible for 36% of the total sales. The company continued with its expansion strategy in life insurance and related products, and created the new position of “consultant”. Consultants, who operated in the main provincial capitals, received a fixed wage in addition to commissions in order to guarantee greater levels of dedication and professionalism. This new network specializing in life insurance, pension plans, investment funds and health insurance was more than adequate to compete in the market dominated by financial institutions. New products were designed to support the consultants such as Vida Patrimonio (Life Wealth) aimed at people in a higher income bracket and Vida Universal (Universal Life) which was highly flexible, functional and attractive for certain segments of the population. The non-life business lines, such as automobile and miscellaneous insurance policies, also continued to grow. In 1993 Grupo Catalana Occidente became the national leader in multi-risk home insurance despite the unfavourable economic situation

The board dedicated a heart-felt tribute to two important figures in the company who passed away that year, President José María Juncadella and Vice President Luis Olano. faced by families and individuals. “We are fully immersed in an economic crisis,” the CEO pointed out, “although there are signs which allow us to be somewhat more optimistic for the years to come.” In fact that year the Spanish GDP fell 1%, the peseta dropped 20% with regard to the dollar and the official interest rates were positioned at 8%. Although there were signs of improvement for the future, the efforts needed to grow that year were considerable. On the other hand, at the end of the year Grupo Catalana Occidente had bought 38.5% participation in the capital of the company Crédito y Caución and maintained 35% of the Greek Laiki Insurance Company. The following year, in 1994, the company continued with its objective of being leader in the family market


The future begins. 1991-2005

237

Detail of one sculpture made in wood carved in a noble chimney of the building of Paseo de Gracia. Barcelona.


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238

segment, growing above the rest of Spanish companies because “we are convinced that without expansion there is no future profitability.” To achieve these goals changes were made in the following four corporate areas: appointing more agents especially those working full-time for the company; improving the retention of the sales force; increasing the company's general production levels; and improving persistency of policies. With the aim of increasing productivity, the company underwent a “Process Redesign” programme to improve management efficiency and at the same time reduce costs. At the project's presentation it was commented, “the situation in the insurance market as well as the product and client profile continues to change. The company has to adapt accordingly.” Regarding technology, steps were taken towards the so called “digital networks of integrated services” which would enable simultaneous voice, data and image communications. In those days this represented an avant garde technological development. The organizational changes needed to do this were implemented the following year. Despite the considerable expenditure involved, the group's general productivity continued to grow. The ratio of expenses over premiums

reached 28.30%, one point lower than the previous year. As forecasted in the strategic plan, the country's overall economic activity slowly improved over the years. In 1994 the GDP grew 2% and the prospects for the following year were better. The interest on Spanish Public Debt rose to 12%, four points higher than the previous year, so the valuation of fixed income securities and stock prices decreased. The value of the peseta improved against the dollar although the real estate market, so important for insurance companies, was still depressed. All the signs seemed to indicate, however, that the following years would be favourable for the country and the insurance industry. In fact, a few months later, in 1995, the long anticipated and necessary Law regulating insurance was enacted. This law transposed two important directives of the European Community, establishing freedom to open companies throughout the continent and freedom for provision of services between the different countries of the Union, without having to open offices in each country. The Law also included other provisions such as the minimum solvency for companies, the adjustment of capital and standard valuation criteria for automobile claims. The insurance Law of 1995 was one of the most debated and most desired


The future begins. 1991-2005

“We are fully immersed in an economic crisis,” the CEO pointed out, “although there are signs which allow us to be somewhat more optimistic for the years to come.” regulations in the history of the industry since the one enacted in 1908. That same year Catalana Occidente created a new insurance company exclusively dedicated to life insurance, CATOC Vida, with a capital of 2,200 million pesetas. Actions to improve the quality of customer service continued, this time with the addition of creativity competitions and awards which all of the company's staff could participate in. The customer service department fulfilled all the expectations placed on it. In 1995 Catalana Occidente's most valuable shareholdings were Crédito y Caución, with a participation 7,600 million pesetas, Baqueira Beret with 1,665 million and Laiki with 735 million. On the other hand, the pension fund management company

reached 1,000 million pesetas of managed funds representing a 56% growth compared with the previous year. The group also controlled other companies directly related to the insurance business. Several years later, on April 22, 1997, Catalana Occidente adopted an important decision. With the aim of broadening the capital structure, which would attract more investors and take advantage of the favourable performance of the stock markets, it launched an initial public offering, IPO, reducing the nominal share value from 1,000 pesetas to 250. At the end of the financial year and due to the success of the IPO, the share price reached 7,760 pesetas, increasing that year by 94%. The board of directors maintained control of 60% of the capital whereas the other 40% was free floated. That year the company had exceeded the barrier of 100,000 million pesetas in income with a capital of 3,000 million which would double the following year. Profits rose to 5,855 million pesetas of which 2,880 million were paid out as dividends. The execution of the programmed tasks, the achievement of the objectives and the consequent operating results had been very favourable. The insurance group's

239


150 YEARS CATALANA OCCIDENTE

240

organizational chart in 1998 is shown below. It includes the companies that formed part of the insurance group in those days, differentiating the insurance companies, other insurance related companies, investment companies and others. It also includes the percentage of their capital controlled by Catalana Occidente. The diagram shows the composition of the corporate group for 1998. Turnover reached 105,608 million pesetas and the capital was already at 6,000 million, made up of 24 million shares of 250 pesetas each. The technical reserves exceeded 230,000 million pesetas and the net worth of Catalana Occidente reached 102,000 million. From that year onwards, more detailed financial and stock exchange information was provided. Some of the data reported that year was: the PER (price earning ratio) was 13.85, the share profitability (dividend/price) 3.59%, the ROE (return on equity) 13.94% and the average trading volume of the shares was 129 million pesetas. The evolution of the premium and income from investments over the previous five years and up until 1998 was as follows:

Catalana Occidente redirects its growth strategy Everything seemed to indicate that history was repeating itself. The figures of the previous year's results were very favourable, the business was growing more than expected, the general expenses were under control and the company's solvency was one of the highest in the industry. Profits were significant as well as the dividends that were paid out. The company had motivated and well trained staff ready to fulfil their every day responsibilities and take on new and more demanding initiatives. The board of directors was satisfied. Nevertheless, in the CEO's opinion Catalana Occidente had to develop even more, faster and in greater volume, in order to become one of the largest and most profitable companies in the industry. His purpose was to compete and overtake the largest companies in the industry such as bank-assurance groups, which in the past years had revolutionized the ranking of the industry with help from


The future begins. 1991-2005

Catalana Occidente Parent company

Catoc Vida 79.2%

Tecniseguros 100%

Catoc Sim 85.42%

Cosalud 55%

Prepersa 100%

Inmobiliaria Catoc 100%

Salerno 94 100%

Depsa 100% Cr茅dito y Cauci贸n 39.35%

Catalana Cartera Simcav 3.32%

Editorial Catoc 100%

Inpisa-Dos Sim 16.15%

Baqueira Beret 49.49%

Hercasol Simcav 18.11% Mackerel Simcav 8.92% INSURANCE COMPANIES

INSURANCE COMPLEM. COMPANIES

Companies consolidated by global integration. Companies consolidated by equity method.

INVESTMENT COMPANIES

MISCELLANEOUS COMPANIES

241


150 YEARS CATALANA OCCIDENTE

their parent companies and certain multinational companies which were gaining a stronger hold in Spain especially through the purchase of Spanish companies. All the board members agreed that Catalana Occidente could and should purchase other insurance entities. Without expansion, as he had already said, there would be no further results. José María Serra was, as his father had been years before, the instigator of these ideas and the person in charge of making them happen. 242

Multinacional Aseguradora SA (MNA) In 1999 the company started searching for possible insurance companies to purchase in order to add more potential for internal growth. Possible candidates were soon found. After a careful analysis conversations began with Caixa de Cataluña which was the owner of the insurance company MNA. This company had been purchased by the savings bank just four years earlier and now its directors wanted to sell.

CATALANA OCCIDENTE PREMIUMS AND OTHER INCOME (MILLIONS OF EUROS)

Multi-risks Miscellaneous Automobile insurance TOTAL Life TOTAL Income from investments TOTAL Source: Catalana Occidente

1994

1995

1996

1997

1998

12,963

14,469

15,365

16,096

16,274

8,561

9,050

9,056

9,383

9,007

20,339

21,056

22,438

22,678

23,109

41,863

44,575

46,859

48,157

48,390

19,723

21,080

25,207

29,688

33,573

61,586

65,665

72,066

77,845

81,963

17,864

18,803

20,894

23,654

23,645

79,450

84,458

92,960

101,499

105,608


The future begins. 1991-2005

The board of directors was satisfied. Nevertheless, in the CEO's opinion Catalana Occidente had to develop even more, faster and in greater volume, in order to become one of the largest and most profitable companies in the industry. MNA had operations throughout Spain and specialized in automobile and multi-risk insurance which were products that formed the backbone of Catalana Occidente's long-term strategy. Furthermore, the group had proven it knew how to manage them efficiently and successfully. The volume of MNA's premium portfolio was 40,000 million pesetas representing approximately 34% of the group's income. MNA's expenses and profit statement was negative and its income, far from increasing over the years, had been decreasing. The company's accumulated losses from the three previous years reached

34,000 million pesetas. If Catalana Occidente could turn the company's negative results around in a short period of time and considering that MNA's accumulated losses would be tax deductible once the legal merger was carried out, the purchase made sufficient economical sense. The technical and management assessment of the company clearly showed that its negative results were not due to general problems in the automobile insurance business or in the market, but instead were due mainly to management errors. The situation was similar to the days when Occidente was purchased in 1948. The blame fell on its managers and not on the market or on external circumstances just as had happened in the past. At the end of 1999 the purchase of MNA from Caixa de Catalu単a was signed. The price was set at 1,000 million pesetas. The biggest expense came, however, when rebalancing the company's equity position. The company's management team changed almost immediately; the former managers returned to Caixa de Catalu単a and Catalana Occidente appointed new managers who were responsible for reorganizing the business, eliminating the loss-making policies and unifying management

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150 YEARS CATALANA OCCIDENTE

244

systems with a view to future corporate integration. It was obvious that the high loss ratio and disproportionate management expenses had caused the negative results on the past. To reduce the loss ratio, difficult but necessary actions were carried out such as cancellation of policies, especially those portfolio blocks belonging to agents with very high ongoing loss ratios. 20% of these premiums and policies were cancelled and a systematic business selection process similar to the process implemented in Catalana Occidente, was immediately applied. The high overhead expenses were reduced by optimizing the number of employees and adapting corporate structures. Offices and regional branches were integrated with those of Catalana Occidente, production and claim centers were created and the company's computer technology was transferred to the insurance group. The staff was also reduced by encouraging voluntary redundancies. At the time of purchase, the total amount of MNA employees was 565 people. All of these actions were carried out in the year 2000 and in 2001 the company, which no longer had losses or complications, was legally merged with Catalana Occidente. The parameters of both the acquiring

The volume of MNA's premium portfolio was 40,000 million pesetas representing approximately 34% of the group's income. and the acquired company and the sum of both, in the year of the acquisition are listed in the following table:


The future begins. 1991-2005

CATALANA OCCIDENTE MNA – STATISTICS (INCOME IN PESETAS) MNA

CATALANA OCCIDENTE

CO+MNA

Total income

40,947

116,384

157,331

Premium

38,253

91,983

130,236

Automobile insurance

28,948

28,197

57,145

Multi-risk

6,644

16,879

23,523

Miscellaneous

2,226

10,131

12,357

435

36,776

37,211

869,091

1.235,895

2,104,986

Agents

5,150

7,966

13,116

Offices

243

358

601

Number of employees

565

1,009

1,574

Premium per employee

67.7

91.2

82.7

Life Number of policies

Source: Catalana Occidente

Increasing competitiveness With a larger business volume, sales network and client data base which offered the possibility of cross sales after the purchase of MNA, the group's competitive position improved.

“Although MNA's equity position is negative today”, said José María Serra, “it is expected that by 2003 the results will have improved. This is a sufficient length of time to reorganize the entity and for it to show a profit.” The results after taxes were reduced from 4,865 million pesetas in 1998 to 3,637 in 1999, a 25% reduction. The company entered as an expense the

245


150 YEARS CATALANA OCCIDENTE

246

total purchase price of MNA, 1,137 million pesetas, for the year 1999. They made a similar account entry for the negative equity of MNA, as well as listing an additional amount towards restructuring expenses. The following years proved that the purchase had been beneficial for Catalana Occidente as well as for MNA, having satisfied the required corporate conditions of synergy. In addition an agreement was signed for the distribution of Catalana Occidente's multi-risk insurance policies through the branch offices of Caixa de Catalu単a that since the sale of MNA had been operating solely in the life insurance business. The savings bank had 884 branches throughout Spain. From then on the group had agreements with two financial institutions, Caixa de Catalu単a and Deutsche Bank. With the latter Catalana Occidente distributed some of the bank's financial products such as mortgages and personal loans through its network of agents. Catalana Occidente finished the century having carried out specific changes and having taken important measures to adapt to the new circumstances defined by the economic environment. Outstanding among the different measures adopted are the purchase of insurance

companies, the listing of the group on the stock exchange and the extension of strategic distribution agreements with other groups. Despite the changes, Grupo Catalana Occidente never lost sight of the principles and philosophy which defined it since its creation and which differentiated it from its competitors. Other initiatives are also worth mentioning. That year, 1999, was the fifth anniversary of the company's Ombudsman. This important position, held by Miguel Roca i Junyent, was fundamental for resolving discrepancies that sometimes arose between the client and the company. Approximately 63% of the claims presented that year were resolved satisfactorily for both parties within the same financial year. Only a small amount of claims were not resolved to the customer's satisfaction and had to be settled through legal or administrative channels, demonstrating the efficiency of this instrument. At the group's shareholders' meeting held on November 25,1999 the recommendations of the Corporate Governance Code which were being introduced in Spain by the Ethical Code Commission for companies' boards of directors operating in financial markets, were voluntarily accepted without having


The future begins. 1991-2005

Catalana Occidente finished the century having carried out specific changes and having taken important measures to adapt to the new circumstances defined by the economic environment. to modify the company's bylaws. The year 2000 was the start of a new century and Catalana Occidente was fully immersed in the final integration process of MNA. The group's total premiums increased outstandingly reaching 141,975 million pesetas, and the return on

CATALANA OCCIDENTE: PRODUCT PORTFOLIO. 2000 Automobile

44%

Life

29%

Total multi-risk

18%

Miscellaneous

9%

Total

100%

investments was 24,378 million. The total income for the year therefore increased to 166,173 million. The shareholder's equity reached 84,060 million and the net profits 6,909 million. MNA registered a loss of 5,398 million pesetas after deduction of the restructuring costs. On the contrary, the affiliated entity Crédito y Caución, obtained a profit of 2,885 million pesetas. In the year 2000 the national economy grew at the rate of 4.1% of the GDP, which had a healthy effect on global employment and on the public deficit. It also had a positive effect on the insurance industry and on the group's income, due to sales of the innovative insurance product “unit linked” life insurance. In addition, the purchase of MNA brought with it a huge amount of automobile insurance premiums, this line on its own amounting to 62,546 million pesetas. The breakdown of the product portfolio can be seen on the table: Catalana Occidente's commercial activity followed the lines set out in the strategic plan regarding the expansion of the distribution network, improvement of the production and service, increase of the turnover and the contention of cancellations. At the end of the year, there were 14,736

247


150 YEARS CATALANA OCCIDENTE

248


The future begins. 1991-2005

Jesús and José Mª Serra in the Convention of Agents celebrated in Rome. Year 2000.

agents, of which 1,555 worked fulltime and exclusively for the group. The company continued the tradition of organising yearly conventions and trips for the so-called "Club de Millonarios" (Millionaires' Club) and "Club de los Notables" (VIP Club) that were so appreciated by the network of collaborators and agents to whom they were addressed. This motivated the winners of the life and non-life campaigns and competitions respectively, and was an efficient tool to increase sales and business quality, and consequently the company's general productivity. At this point in time, the group had over 2,200,000 insureds and 1,482 employees. Other people that also collaborated with the company were 450 loss adjusters, 250 doctors and 500 lawyers. It also had 3,000 premises to attend customers. All of this allowed the company to continue improving its customer service and at the same time reduce the management expense ratios. Due to this favourable situation, Catalana Occidente considered the possibility of expanding the business. Encouraged by the good results after purchasing MNA, the board of directors was in favour of following the same growth method. At the request of the CEO, the company began to look for other companies that could be

integrated into the group provided there were positives synergies. Soon after, José María Serra contacted another entity with the intention of proposing its acquisition. The company Lepanto SA was based in Barcelona and formed a group with another entity called Nortehispania. Its chairman, José Valero Feliu, was a personal friend of José María for many years and the truth was that there was an amazing coincidence of ideas The commercial activity of the company followed the lines set out in the strategic plan regarding the expansion of the distribution network, improvement of productivity and service, increase in turnover and the contention of cancellations. At the end of the year, there were 14,736 agents, 1,555 of whom were full time professionals. The company continued the tradition of organizing yearly conventions and trips for the Club de Millonarios (Millionaires' Club) and Club de los Notables (VIP Club), which were greatly appreciated by the network of agents and salespersons. These were great incentives for prospective winners of the life and non-life campaigns and competitions, and were an efficient tool for increasing sales and business quality, and consequently the company's general productivity.

249


150 YEARS CATALANA OCCIDENTE

250

The group now had over 2,200,000 clients and 1,482 employees. Other professionals who collaborated with the company were 450 loss adjusters, 250 doctors and 500 lawyers. It also had 3,000 offices which offered customer service. All of this allowed the company to continue improving its customer relations and at the same time reduce expense ratios. Due to this favourable situation, Catalana Occidente considered the possibility of additional expansion. Encouraged by the good results produced with the purchase of MNA, the board of directors was in favour of continuing the same pattern. At the request of the CEO, a search began for other companies with positive synergies that could be integrated into the group. Soon after, José María Serra contacted the company Lepanto SA which together with another entity formed the group Lepanto Nortehispana based in Barcelona. Its chairman, José Valero Feliu, had been a personal friend of José María for many years. They shared a similar way of thinking regarding the challenges in the insurance market, the role the insurance industry should play in Spain and how an insurance company should be managed. Communication between the two was not difficult and in no time an

agreement was reached for the sale of the company. The strategies regarding priority market and product segments in both groups were similar and Lepanto's board of directors was convinced that the integration into an insurance group with the quality and solvency of Catalana Occidente would be good for their company, for its owners and for the employees.


The future begins. 1991-2005

Lepanto and Nortehispana insurance companies The insurance company Lepanto was founded on February 3, 1948, when it was registered at the office of the public notary, TomĂĄs Caminal, in Barcelona. The company established its headquarters at number 615 Avenida de JosĂŠ Antonio. From the beginning, it operated in different lines of business, both life and

Old plate of Lepanto.

general insurance, such as fire, automobile, workers' compensation, and civil liability, among others. At the time of its creation its capital was 20 million pesetas. In 1952 the shares of Lepanto SA were listed on the Barcelona Stock Exchange and years later, in 1960, its capital base was increased to 25 million pesetas. It had a national sales network formed by approximately fifty percent of exclusive agents and fifty percent brokers. In 1965, the board of directors decided to incorporate a new insurance company, Nortehispana SA, with an initial capital of 3 million pesetas and mainly dedicated

251


150 YEARS CATALANA OCCIDENTE

252

to underwriting pre-paid burial insurance. A year later, it increased its capital to 25 million and several years later Lepanto raised its capital to 37.5 million. In 1973, on occasion of its 25th anniversary, the Lepanto group moved to new headquarters located on Avenida Pau Claris, where it remained until July 2001 when its sale to Catalana Occidente took place and it moved to San Cugat. In the year 2000 corresponding to Lepanto's 53rd financial year, premiums reached 7,856 million pesetas, automobile insurance 3,157 million, multi-risk insurance 1,985 and life and accident insurance more than 1,200 million pesetas. The company's solvency margin reached 2,560 million, greatly exceeding the minimum legal amount of 800 million pesetas. The profit that financial year exceeded 138 million. That same year Nortehispana reached premiums of 7,555 million pesetas with a profit of 537 million. The pre-paid burial insurance business was the most significant with 3,600 million in revenue, followed by the life business with 1,539 million and multi-risk with 1,200 million. The solvency margin climbed to 3,830 million pesetas, representing three times the amount required by the Administration. The documentation presented to the

In 1973, on occasion of its 25th anniversary, Lepanto moved to new headquarters located on Avenida Pau Claris, where it remained until July 2001 CNMV (Spanish Securities and Exchange Commission) on March 9, 2001, on occasion of the takeover bid by Catalana Occidente, stated that certain Lepanto shareholders, representing 627,699 shares, 81.73% of its capital, agreed that the purchasing company could acquire the majority of shares in the company. Among the Lepanto shareholders who signed the commitment were the company's directors, whose names and share holdings are listed below: In 2001, the company's premiums were approximately 51 million euros and the income from investment 3.7 million, a total income of more than 54 million euros. The operating results were 19,552 euros and the portfolio was very similar to that of Catalana Occidente, but containing a smaller percentage of life insurance policies. Nortehispana's premiums reached 48.5 million euros. Lepanto was formally and legally integrated into Grupo Catalana


The future begins. 1991-2005

Occidente in 2006. The year before, it had obtained an operating profit of 4,271,898 euros, but if the extraordinary dividends from its subsidiary company Nortehispana were included, the profit was somewhat more than 24 million euros. The premium issued in 2005 by Lepanto was almost 80 million euros and the returns on investments exceeded 25 million. Grupo Catalana Occidente paid 84.3 million euros for the purchase of both companies, the equivalent of 14,035 million pesetas, whereas 5,177 million

euros was consolidated accounting value; 3,410 were unregistered capital gains and 5,450 million, goodwill. The share price of Lepanto that controlled 93.08% of Nortehispana, was set at 109.83 euros representing 755.12% of the par value. The payment was made in cash without Catalana Occidente needing any external funding. One month after the purchase, a convergence process was carried out, resulting in the integration of almost all of Lepanto's employees into 253

LEPANTO COMPANY'S DIRECTORS SHARES COMMITTED

CAPITAL %

4,147

0.539%

917

0.119%

José María Costa Rivas

16,802

2.187%

Fevato SA

74,720

9.729%

Manuel Foj Calatayud

52,140

6.789%

2,948

0.383%

31,656

4.121%

José Valero Feliu

161,504

21.029%

Jaime Valero Feliu

27,027

3.519%

371,861

48.419%

DIRECTORS Franciso Javier Andreu Batlló Espectáculos Balaña SA

Tomás Pelayo Ros María Assumpta Soler Serra

TOTAL


150 YEARS CATALANA OCCIDENTE

Catalana Occidente. Nortehispana, however, was not included in the integration progress as it was not efficient to use the same distribution network for the different products. In any case, the company formed part of Grupo Catalana Occidente and its operating results continued to be favourable. The former chairman of Lepanto, José Valero, became a member of the board of Catalana Occidente having invested part of his earnings from the sale of his companies in the purchase of shares. 254

New chairman of Catalana Occidente In 2002 José María Serra was elected chairman of Catalana Occidente and his father Jesús Serra became honorary chairman. On this important occasion José María wrote a letter directed to the shareholders expressing his opinions on matters affecting the insurance business and especially those of Grupo Catalana Occidente. He started his letter referring to his father, to his role in the foundation and development of the group and the admiration he inspired among the directors and shareholders. He then referred to the slowing down of the Spanish economy since 2001 and the negative behaviour of stock markets affected by the downfall of technological companies. “Nevertheless Catalana Occidente has experienced a positive development in many sectors such as multi-risk, group life and the rest of non-life and nonautomobile lines.” He pointed out that the outsourcing of pension commitments carried out in Spain had a positive influence on group life insurance. He commented that the company's financial results had been affected by the poor development of


150 YEARS CATALANA OCCIDENTE

256

Detail of a modernist lamp of iron and glass located in the lobby of the building of Paseo de Gracia.


The future begins. 1991-2005

JosĂŠ MÂŞ Serra FarrĂŠ. President of the Grupo Catalana Occidente.

capital markets, forcing the company to allocate reserves of 31.2 million euros for asset depreciation with its consequent negative impact on the income statement. The result reached 41 million euros, only 12 million less than the previous year. It was decided to

raise the pay out that year to 76%. Catalana Occidente's premium income increased to 1,298 million euros and the return on investments to 165 million. The total income amounted to 1,463 million, 16.2% more than the previous year. The ROE (return on equity) was 11.4%. The economy advanced at a slower pace than in the previous financial year. The poor development of the stock market due to the technological crisis, in addition to lower public debt rates and the parity of the euro with the American dollar, had negatively affected all types of business. These problems increased with the September 11 terrorist attacks in New York, complicated further by the beginning of the Iraq War and the financial scandals of international corporations such as Enron, World.com and Arthur Andersen in the United States. The general concern had other specific effects on the insurance industry and on Catalana Occidente, in particular, causing many clients to focus once again on traditional life insurance products guaranteed by the companies, which caused them to avoid the risks associated with unit linked policies. On the other hand, in 2002, the technical results of automobile insurance business were negative with a loss of 17 million euros, an amount that although high, was less than the

257


150 YEARS CATALANA OCCIDENTE

258

previous year. It was decided to take this opportunity to reorganize the portfolio, especially those policies from the company MNA. Fortunately, the group's general expenses continued to diminish until reaching a 26.6% ratio, an improvement from the year before. The balance of accounts receivables had also improved. Catalana Occidente also took advantage of the macroeconomic slowdown to carry out important investments in technological and operational development. The convergence of methods, conditions and systems of the recently acquired companies, Lepanto, Nortehispana and MNA was accelerated. 2004 started with fresh ideas and a renewed spirit. In February Catalana Occidente acquired 99.69% of the company Seguros Bilbao. Some months later, at the end of October, it also acquired the remaining 45% of the insurance company Cosalud, now controlling 100%. The shares it held in Cr茅dito y Cauci贸n increased to 39.35%. This company was still operating independently from the group. The following diagram provides information on the companies that formed the consolidated Grupo Catalana Occidente in 2004, listing the percentages of holdings for each of them, their activities and the type of

integration within the group: In 1999 Grupo Catalana Occidente purchased MNA, an insurance company that belonged to a financial institution. Two years later, it purchased Lepanto, a small Spanish insurance company. Afterwards it was decided to purchase Seguros Bilbao, a larger Spanish insurance company than the other two and owned by a foreign entity. With these three initiatives Catalana Occidente took an active role in corporate acquisitions of the three major company types in which the Spanish insurance industry was divided: bank assurance, foreign companies and Spanish companies. The purchase of Seguros Bilbao was to a certain extent different than those previously undertaken. To begin with, the owner of the company was the Belgian/Dutch group Fortis International, also owner of various banks and insurance companies in other European and American countries. The Fortis group was an example of a company that actively supported deregulation and globalization in financial and insurance markets. A few years earlier it had formed a strategic alliance in Spain with the Caja de Ahorros de Barcelona, La Caixa, although it later fell through. The vision of Fortis can be summarized with the following North American expression quoted by one of its


The future begins. 1991-2005

Grupo Catalana Occidente Parent Company Seg. Cat. Occidente 100% Depsa 100% Lepanto 99,69% Nortehispana 99.4%

Tecniseguros 100%

Menéndez Pelayo Simcav 100%

Prepersa 100%

Catoc Sim 82.93%

Salerno 94 100%

Seguros Bilbao 99.63% Catoc Vida 79.20% Cosalud 55% Crédito y Caución 39.35% Hercasol Simcav 33.72%

Baqueira Beret 49.49%

Mackerel Simcav 15.06% Inpisa Dos Simcav 16.15% Fersa 14.60% Beta Tech Simcav 12.92% Catalana Cartera Simcav 7.42% INSURANCE COMPANIES

INSURANCE COMPLEM. COMPANIES

Companies consolidated by global integration. Companies consolidated by equity method.

INVESTMENT COMPANIES

MISCELLANEOUS COMPANIES

259


150 YEARS CATALANA OCCIDENTE

260

directors: “One Stop Shopping” or financial supermarket, which ultimately meant the possibility and convenience for clients to purchase any type of investment, savings or insurance product from one place (from one company) avoiding the bother of going to many different companies. The principle directors at Fortis were convinced that this was the best, if not the only strategy for attaining success in the insurance and financial world. Following up on this idea, in the 90's it purchased Seguros Bilbao. Subsequent events proved that the strategy of globalization did not necessarily lead to the success that they expected.

Seguros Bilbao SA The crisis in the international markets owing to the downfall of the dot.com companies and its effect on the world's stock markets, together with Fortis' strong expansion in the past years, led this international group to a dead end situation. The control and supervising institutions in several countries, as well as the international rating agencies forced it to raise its capital base as the condition necessary to continue operating in the financial and insurance markets. In view of this situation and after studying different alternatives, Fortis International decided to sell its company in Spain which was in a healthy economic situation and was well managed, allowing them to ask for a good price. The management in Spain was ordered by the head office to start looking for possible buyers. The general manager for Seguros Bilbao at that time, Iñaki Álvarez Juste, started to contact potential buyers and the first initiative led him to meet with the chairman of Catalana Occidente, José María Serra. They knew each other from coinciding in industry related events.


The future begins. 1991-2005

261

Residencia Rosales. Head office of Seguros Bilbao. Getxo, Vizcaya.


150 YEARS CATALANA OCCIDENTE

262

Álvarez had a positive opinion of Catalana Occidente as both companies shared the same strategic and moral philosophy as well as its market focus and priority segment of clients. Nevertheless, he also contacted executives of other national and foreign insurance companies. The sales operation accelerated notably when it was confirmed that Grupo Catalana Occidente was firmly interested in purchasing the company. The conditions of sale were on the chairman's desk, and after a careful analysis with his closest board members and executives, José María requested a short period of time to consider the proposal and offer a specific price for the company. José María Serra knew Seguros Bilbao's principal characteristics, its products, strategy and executive team. Twenty-four hours later Catalana Occidente made a provisional offer subject to the results of a detailed technical and economic analysis. Bilbao, Compañía Anónima de Seguros y Reaseguros SA was a longestablished company in the Spanish market. It was incorporated on September 5, 1918, when Europe was immersed in the First World War in which Spain had declared its neutrality. Its founders were a group of

Basque industrialists, Luis del Barco Oñate, José Gallano Bengoechea and Ramón Urlézaga Bilbao, among others. At the company's first general meeting they agreed to rent several rooms at No. 1 Plaza Circular de la Villa where they would install the company's first head office. The initial subscribed capital was 1,000,000 pesetas and its activity focused on marine insurance, which was quite adventurous given the war taking place throughout Europe. A few years later it extended its activity to the rest of the insurance business lines. In 1947 the company moved to the Gran Vía in Bilbao and ten years later to the new building at 1 Rodríguez Arias. Since 1988 its offices have been located in the town of Getxo. The company's total assets in 2003, the year prior to its acquisition were 1,082 million euros and its capital and unrestricted reserves 82,659,000. The year's operating results were 12,350,000 euros, an amount that was not distributed and was fully transferred to voluntary reserves. The premium generated amounted to 390 million euros and the solvency margin to 134.8 million, vastly exceeding the minimum amount required by the control body. The company sold insurance throughout the whole of Spain


The future begins. 1991-2005

through an extensive network of offices and agents. In 2004 the number of offices was 423 of which 55 were branch offices and 368 agency offices. The number of policies in force rose from 944,000 in 2003 to 960,000 in 2004 and the number of claims handled that year to almost 200,000. Other important company figures are shown on the following table and include the year of purchase of Seguros Bilbao and the two subsequent years:

Once the economic and financial situation and favourable forecasts of Seguros Bilbao had been confirmed, Catalan Occidente submitted its purchase offer. The slight price differences were discussed and the director of Seguros Bilbao informed Jesús Serra that there were other purchasers also interested in his group. The following day José María made a final offer which complied with the conditions established in the sales memorandum and an agreement was immediately reached. 263

DEVELOPMENT OF RESULTS. SEGUROS BILBAO (IN MILLIONS OF EUROS) 2004

2005

2006

412

429

449

58

47

52

Total income

470

477

501

Social Capital

28

28

28

Reserve assets

71

59

59

Net assets

99

87

87

Technical provisions

1,047

1,111

1,168

Solvency excess

265%

329%

261%

16.4

34.1

43.8

Premiums Returns on investments

Result of the financial year Source: Catalana Occidente


150 YEARS CATALANA OCCIDENTE

The corporate identity of Seguros Bilbao remained independent although it now formed part of the insurance group, which reached a high volume of income and an even greater organizational complexity.

264

Seguros Bilbao was purchased by Catalana Occidente then and there, both parties satisfied with the conditions. The company was purchased for 254.6 million euros; all of the 600 employees of Seguros Bilbao maintained their jobs.

An insurance group of greater dimensions Income from premium and contributions to pension plans at Grupo Catalana Occidente after purchasing Seguros Bilbao, once again took an important leap forward. They reached 1,790 million euros increasing from 1,331 million the previous year. The investment earnings rose to 238 million euros and the total income to 2,028 million. The shareholder's equity reached 360 million euros, the technical reserves 4,447 and the net worth amounted to 863 million euros. The net profit was 113.9 million and the dividend pay out to shareholders was 29.7%. Grupo Catalana Occidente had reached a considerable size with the


The future begins. 1991-2005

purchase; it had shares in important Spanish companies and was starting the integration process of the organizational structure and technical systems of the new insurance company. The corporate identity of Seguros Bilbao remained independent although it formed part of the insurance group, which reached a high volume of income and an even greater organizational complexity. The breakdown of the group's product portfolio, after purchasing Seguros Bilbao, was as follows: multi-risk 17.4%, car insurance 25.8% and life 23.3% and the rest 31.2%. The contributions to pension plans represented 2.3%. The number of sales and service offices was 1,005 distributed throughout the country, of which 325 were branch and 680 agency offices. The number of agents that year reached 20,533 and was

GRUPO CATALANA OCCIDENTE. NETWORK OF INTERMEDIARIES. 2004 Full-time exclusive agents

1,082

Brokers

3,096

Traditional agents

3,046

Specific networks

3,214

Rest of part-time agents

9,195

Total Source: Catalana Occidente

20,533

classified as shown in the following table: The ratio of total expenses to premiums decreased to 25.8% and the outstanding accounts receivable to 3.4%. Grupo Catalana Occidente's annual report for 2004 included the following information: “We would like to mention the increase of the group's investment made through our companies Crédito y Caución and Catalana Occidente, in the Dutch incorporated company, Atradius, the second credit insurance operator in the world. The joint holding has increased from 7.14% at the end of 2003 to 17.96% in 2004. There is also the possibility of exercising a purchase option equivalent to 7.01% of the remaining shares, which would increase the company's participation to 24.97%, in the case of our exercising the option.” This stage in the history of Grupo Catalana Occidente ends in 2005. One of the most relevant events of the year was the purchase of 7.01% of shares in the Dutch company Atradius which had been announced in 2004. A few months later, in 2006, a new agreement was reached with the shareholders of Atradius and an additional 25% of the capital was purchased reaching a total holding of 49% in the Dutch group. The purchase of companies continued to take place over the following years and will be dealt with in the next chapter.

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2005 ended with a premium volume of 1,862 million euros, pension plan contributions of 97 million euros and investment returns of 261 million. The total income was therefore 2,220 million euros and the total volume of funds managed by the company was approximately 6,000 million euros. The consolidated results amounted to 175.5 million and the dividend per share was 30.4% higher than the previous year. Grupo Catalana Occidente now had over 4,000,000 clients; it had a network of more than 20,000 agents and consultants and had over 1,000 branch offices. As well as being one of the most solvent, it was also the largest independent company in the Spanish insurance industry. It also had one of the most sophisticated risk control systems in the market allowing it to comply with the most stringent international solvency regulations, providing their policy holders with a greater sense of safety and confidence. These international regulations which apply to all of the activities carried out by an insurance company, included both controlling technical risks and operational risks. Examples of this were possible computer failures, human resources errors, commercial practice risks and possible frauds committed by employees as well as financial and investment risks. Despite the ever increasing legal

requirements, the significant changes in the environment and the economic challenges throughout its long history, Catalana Occidente was able to continue advancing and expanding yet always remaining faithful to its corporate culture and to its founding principles. One of its traditional signs of identity was the priority it always gave to corporate planning. Planning provided the company with great organizational discipline; it encouraged successful team work and promoted training and motivation of its employees. From the 1960's when the Grupo was just being formed, Catalana Occidente continued to use a formal planning system in which the entire staff participated. This systematic planning culminated in a Strategic Plan with guidelines and budgets for all of the departments, enabling Catalana Occidente to maintain its identity as a modern, innovative and efficient company and at the same time continue faithful to its roots.

Death of JesĂşs Serra Santamans JesĂşs Serra, the founder of Grupo Catalana Occidente passed away on December 18, 2005. He was an outstanding businessmen


The future begins. 1991-2005

The objective of the Fundación is to help develop a more responsible society where values such as initiative, effort, competition, generosity and continuous improvement prevail. and a generous and honest person. This great man will always be remembered by those who knew him. He left behind a large, consolidated and efficient corporate group. To honour his memory the Fundación Catalana Occidente changed its name to the Fundación Jesús Serra. The Fundación wishes to give back to society part of what Jesús Serra received from his dedication to the company in his lifetime.

The Fundación Jesús Serra The Fundación Jesús Serra which began as the Fundación Catalana Occidente was created in 2006, and from the beginning was dedicated to channelling the insurance group's humanitarian actions. It was created based on the personal values that defined Jesús Serra and with the explicit mission of encouraging the professional values that characterized its founder. Its activities focused on those areas

which most interested him: the business world, innovation, poetry, sport, music, the arts in general and solidarity with others. Its objective is to help develop a more responsible society where values such as initiative, effort, competition, generosity and continuous improvement prevail. With the purpose of continuing the human and entrepreneurial spirit of Jesús Serra and that of Grupo Catalana Occidente, it encourages activities that promote the group's traditional values. It is financed through funds provided by the companies that form the group as well as through private and voluntary contributions from other companies and institutions.

Art and culture The Fundación Jesús Serra and the Bilbao Insurance Company have renewed their patronage of the Guggenheim Museum in the Basque capital creating an even stronger relationship than it once had. This modern and contemporary art museum was designed by the Canadian-American architect. Frank O. Ghery. The building is a 20th century arquitectural wonder renown for its innovative design. In 2013 the San Cugat Auditorium commemorated its 20th anniversary with a cultural program of concerts and entertainment which include the play, Husbands and Wives, the Victor Ullate Ballet and other representations, concerts

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for children such as the festival of Le Petits Camealeons Prokofiev's Peter and the Wolf and the musical Gerónimo Stilton. The Fundación helps finance the Auditorium, which has become one of the important cultural centers of the city since it was founded in 1993. The Orfeo foundation and the Fundación Jesús Serra collaborate with the Government to organize the Certamen Nacional de Interpretación Intercentros Melómano (National Music Competition) which has taken place for 11 years. Besides promoting classical music, its aim is to help young musicians deal with drug addiction in cooperation with the Plan Nacional de Lucha contra las Drogas (National Plan against Drugs). Since 2008 the Fundación helps organize the Concurso Maria Canals (Maria Canals Competition) which provides a tour throughout Spain for the winner. This competition, created in 1954 by the pianist Maria Canals and her husband, Rossend Llates, aims to extend musical and artistic excellence by providing an opportunity for young pianists from all over the world. Since it began, more than 7,000 musicians from the 5 continents have participated. Among its activities, “Pianos en la Calle” (Pianos in the Street) was initiated in 2013 in the cities of Madrid, Barcelona and Bilbao. It is logical that poetry plays a relevant role in the activities of the Fundación. Every year the Jesús Serra poetry competition is

organized with the collaboration of the Palafrugell town government to promote this important art form.

Innovation In collaboration with the Fundación de Investigación Cardiovascular (Cardiovascular Research Foundation), the Fundación Jesús Serra organizes a daylong conference on the importance of diet and physical exercise. Since 2007 it also collaborates with the Instituto Biomédico de Lleida (Biomedical Institute of Lleida) which promotes research projects in the medical field. For years the Fundación has cooperated with the Centro Nacional de Investigaciones Oncológicas, CNIO, (National Cancer Research Centre), by contributing funds for the Programa de Investigadores Visitantes (Program for Visiting Researchers) which every year invites an internationally renowned researcher to work for a time in our country. The Fundación maintains an agreement with the Department of Family Business of IESE to promote this subject within the business school. It helps finance scholarships for doctorates and supports research which analyzes the longevity of family-owned businesses. La Fundación also cooperates with the scholarship program of ESADE to enable talented


The future begins. 1991-2005

269

Fundación Jesús Serra with Concurso Maria Canals-. In the image, Vestard Shimkus, winner of the edition 2009.

students who cannot afford to pay for their studies to continue with their education. Together with the Bilbao Insurance Company supports the project ALUMNI of the Deusto Business School, promoting reunions between professionals and offering scholarships in the form of jobs or on the job training.

Sport The Fundación organizes the Jesús Serra Trophy in Baqueira. Participants compete

hoping to win the monetary prize that will enable them to continue in the world of skiing competition. In collaboration with Abat Oliba University and the Federation of Tennis, the Student Tennis Championship of Catalonia is organized for students of ESO and Bachillerato (secondary school). This championship promotes the values of sportsmanship, personal effort and team work. Also referring to the world of tennis, the Fundación and Quico Tour who is considered the best professional player in wheelchair tennis, collaborate in the


150 YEARS CATALANA OCCIDENTE

270

patronage of persons with physical disabilities in the world of sports. Together with the Fundación Theodora, the Fundación helps promote a beneficent golf tournament in order to raise funds for hospital visits to children from the Doctores Sonrisa (clown doctors). The Fundación also supports the two associations Apadema, an association of Parents for the development and attention of adults who are intellectually disabled and Prodis, an association dedicated to family, school and social integration of children and youngsters who are intellectually disabled. Through beneficent paddle tournaments we help raise funds for these worthy institutions. Also collaborates with the Fundación Deporte y Desafío (Sports and Challenge Foundation) to promote sports and other activities among boys and girls with disabilities.

Solidarity For many years now the Fundación has collaborated in various projects together with Manos Unidas which include the construction of a primary school in India, the construction and provisioning of a nursery school and primary school in Haiti and at present, the renovation of a maternity school in Madagascar. Also contributes to the Balia Foundation whose many pedagogical projects help

Spanish youngsters in precarious situations who are in need of social integration. Since 2002 the Fundación Jesús Serra has collaborated with the Spanish Red Cross helping to recruit volunteers, a very important activity for this type of organization. Through its agreement with Doctors without Borders, the Fundación helps extend their humanitarian work in far off countries. Currently is dedicated to correcting the serious infantile malnutrition in Niger. To help alleviate the suffering of children with chronic or terminal illnesses and bring them some happiness, the Fundación supports the Pequeño Deseo (Small Wish) Foundation. Also collaborates with the organization Pallapupas-Payasos de Hospital (Hospital Clowns) whose laughter therapy tries to alleviate the fear and anxiety experienced by hospitalized children. The Fundación cooperates with the social action program of Caritas de Barcelona, offering shelters for women and their children who are victims of domestic violence or who are socially marginalized, through the project Companies with a Heart. Since 2003 is been contributing to several projects such as El Servicio de Mediación de la Vivienda (Housing Mediation Service) whose objective is to advise and help families who have been dispossessed.


Catalana Occidente becomes international

2006-2014


Catalana Occidente becomes international. 2006-2014

José María Serra. Biography of an insurance professional “I am not saying it out of false modesty or because it may sound good,” the chairman of Grupo Catalana Occidente said in a recent interview, “but I believe that to get on in life we have to be convinced that there is always a great deal more to learn and much more to be accomplished. We have to be convinced that our work must continuously improve and I honestly think that this has been and still is the reason behind our corporate success. At

“At Catalana Occidente we are always looking for better ways of doing things and we feel that humility and the desire to improve are two of the most important virtues of humankind …”

Catalana Occidente we are always looking for better ways of doing things and we feel that humility and the desire to improve are two of the most important virtues of humankind …” With this mind-set, José María Serra Farré took the reins of Grupo Asegurador Catalana Occidente in 1991. The total sales that year were 58,271 million pesetas with a profit of 3,653 million. Fifteen years later, there would be a turnover of 2,419 million euros and a profit of 250 million, an increase of seven and eleven times, respectively. The first two paragraphs of this section describe the personality and achievements of a professional insurer who as a young man made his debut as manager at the side of his father, Jesús Serra, and who has currently achieved well earned prestige as a businessperson and leader in his own right in the insurance world. He continued, “But in business, just as in any other activity, luck plays an important role. Throughout the long history of our group, we are fortunate to have been presented with many opportunities, although it is also true that we have known how to use these opportunities to our advantage.” “I think that those of us who manage companies have to be honest and admit these things. There are those who go through life like the archer who, instead

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274

of aiming for the bull's eye, shoots the arrow and afterward places the target where it most suits him. They then say they have hit the target, that they are tremendously clever and that they do everything extraordinarily well. I call that cheating; in fact, it is a very common way of cheating. The truth is that as businessmen we sometimes do things right and sometimes we don't; on many occasions it is a bit of luck that makes all of the difference.” “This is what happened to us when we bought MNA. The Bank of Spain ordered Caixa de Cataluña to rapidly sell its insurance company on a specific date. We were there at the right place, at the right time and acted accordingly. Something similar happened when we bought Seguros Bilbao; it was not only due to our purchasing skills that the operation went through. Luck was with us on both occasions.” “To manage an enterprise, as well as being prepared and alert, we have to be humble, continually striving to improve in order to avoid bad luck as much as possible and make the most of good luck. We have to be honest with ourselves and recognize these circumstances so we are not like that archer that I mentioned earlier.” José María Serra Farré was born on June, 5 1944 in Manresa, the cradle of the Grupo Asegurador Catalana Occidente. He is married to Elena and they have a son and a daughter, Hugo and Pía, and

four grandchildren. From the age of 8 until he was 22 José María lived in Madrid, where his family had moved in 1952 from Barcelona when the company Occidente was purchased. He studied Business Management and Law at ICADE and later received on the job training at an insurance company in the United States where he learned about directing and commercial management. In the United States, he also attended different management training programs organized by LIMRA and LOMA, North American insurance associations of the time. After returning to Spain he graduated from the Executive Business Management Program at IESE in Barcelona. His first managerial position was not in the insurance industry but at the Baqueira Beret ski resort, which belonged to the insurance Grupo Catalana Occidente. In 1970, he went on to manage the strategic planning department of the insurance group, and was appointed director of some of its companies. In 1980 he was appointed managing director and chief executive officer of Baqueira Beret, a position that he resigned from two years later, in 1982, to become managing director of the insurance division at Catalana Occidente. In 1986 he was made sole general manager. Three years later he became director of the insurance company Crédito y Caución, holding different positions in the company including


Catalana Occidente becomes international. 2006-2014

“To manage an enterprise, as well as being prepared and alert, we have to be humble, continually striving to improve in order to avoid bad luck as much as possible and make the most of good luck.” chairman until 2008. In 1991 he became chief executive officer of the group, in October 2002, chairman of Catalana Occidente and in 2004, chairman of Seguros Bilbao. With regard to his activities in the industry, in 1996 he became chairman of the Instituto de la Empresa Familiar (Family-Owned Spanish Association), an employers' association for family-owned businesses. He held this position for two years, afterwards continuing as a member of the board of directors. Other positions that he held in the insurance sector include member of the executive committee and board of directors of the employers' association Unespa until 2005, director of the Consorcio de Compensación de Seguros (Insurance Compensation Consortium), member of the board of ICEA until 2006 and chairman of the association from 1996

to 1999. He is a member of Fomento del Trabajo, a lobbying group in Catalonia. On the occasion of the purchase of an important package of shares of the Dutch insurance company Atradius and when asked the reason for the purchase, José María Serra stated the following: “There are several elements that play an important role in our corporate decisions and one of them is to be perfectly aware of which economic sector we belong to. Catalana Occidente specializes in insurance activities and for us it is very clear that our best investment is to purchase insurance companies. This has always been the case and it makes perfect sense to continue doing so. With the purchase of this company we have grown considerably although the increase in size has not provided important economies of scale as we more or less have the same expense levels as we had prior to the purchase. However, it has given us better results and higher profits.” “Above all we are an insurance company and we like being one, and we therefore invest the majority of our profits in the insurance industry. We believe that it is mainly in this sector where we can do and must do things better every day and in the most efficient way possible. It is in this industry where we strive to improve and excel.” “The acquisition of Atradius is an example of what I am saying,” added José María Serra. “First of all we have to keep

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276

in mind that it is exclusively an insurance company. It specializes in a unique type of activity, a type of insurance that is very sensitive to economic and financial crises like the one we have been suffering over the past few years and which greatly affect its loss ratio. Nevertheless this company has great qualities and great advantages for us.” “First of all it is one of the most important leaders in credit insurance, an industry with only three or four significant players in the world. Secondly, this business has major entrance barriers, the most important being the need for high quality information regarding the solvency of client companies all over the world. How could we insure the credit of a company without having this information? This indispensable data will be provided with the purchase of Atradius. And thirdly, with this purchase we have taken an important step in our strategic objective of internationalization.” “And if we are going to become international,” said Serra, “we want to choose a business where we can be protagonists, if not it would be a waste of our time and resources. This company will serve as a means to learn about new businesses and to experience first hand, the particularities, benefits and advantages of being a true international

insurance group (...) because, although we enjoy working and developing in Spain, a company such as Catalana Occidente must also be present in other countries.” Catalana Occidente needed to break away from some old moulds and habits, as both employees and executives were accustomed to working and managing a very organized and orderly company in which no major surprises ever occurred. Acquiring other insurance companies was a safe way of accomplishing this. “Our staff were used to cautious and quality management, to organizational discipline and to a culture of order and stability. Our people have always liked corporate efficiency and were accustomed to everything functioning like clockwork. But for some time now we have been insisting on the need for more rapid growth and this is not only to be achieved internally but also externally, through the acquisition of other insurance companies.” “We needed to learn how to manage these changes and initiatives, in the same way that our founders had learned to do. We decided to rise to the challenge and the experience has been satisfactory. If we had not changed our ideas or habits, it would have been impossible to purchase a company such as MNA with its delicate equity position. Another example was the acquisition of the company COSALUD


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278

whose ownership we shared with an important Austrian insurance group. We started out cautiously when we entered this new line of business, but when we learned how to manage it with our standards of quality, we ended up purchasing 100% of the company.” Catalana Occidente has traditionally believed in the advantages of cautious management although it is convinced of the need to adapt to change, at times making decisions that are somewhat riskier. Performing cautiously and with determination has defined the culture of our insurance group from its beginnings. Qualities related to human resources also make our company unique. “In this aspect we have also learned a great deal from the lessons taught by my father,” said Serra. “Many years ago at his request, we incorporated some management tools named “Model-netics”, which he had discovered on one of his trips to the United States and found fascinating. They are based on true stories that took place in companies and are structured and related so that they are pleasant to read with the aim of teaching executives at all corporate levels. My father became a good friend of the program's creator, who was chairman of an important North American insurance company. He liked it so much that we purchased the copyrights to use

and operate the program in Spain.” “We often remember some of the stories. One of them refers to those terribly busy high executives who spend their life solving their company's problems without realizing that they were the ones who caused the problems in the first place.” “We prefer our executives to be well prepared, to work in teams and to manage by objectives. We do not like bosses who are so good that they constantly have to fix the problems that they themselves caused. It would be better if they did not cause the problems in the first place and then they would not have to fix them.” “This has nothing to do with freedom of decision or motivation to perform a good task and innovation. It has nothing to do with to an executive's right to making mistakes either, which in our company is not only accepted but also praised. It means that we have to accomplish it all, make decisions, innovate, make appropriate changes and manage well, although within a discipline that leads us to success and profit, not to disorder.” “Another of the models we like to recall is the “indispensable employee syndrome”. Not long ago I had lunch with a director of a very well known Spanish company. He told me about some of his most recent successes, I have done… I decided… I risked… I


Catalana Occidente becomes international. 2006-2014

José Mª Serra Farré.

dealt with, I, and so on and so forth.” “We are not too fond of the “I” culture at Catalana Occidente. Nobody is that indispensable, not one single person. We all need other people in order to meet our goals. Nobody works alone, in a bubble. We work in teams and therefore depend on other people and on the organization as a whole.” “Although here at Catalana Occidente everyone believes in team work, we must always be aware of the dangers that the indispensable employee represents for a company. Our training models state this very

graphically, even harshly: in companies, there are usually very indispensable people. Find them and then do not hesitate to fire them. No company should depend on a specific person, whoever that person may be.” “I refer to this frequently. Not long ago IESE asked me to speak at a conference for the students of a management programme. What I told them was that their goal should be to make their company larger and more successful, whether it was a small or a large corporation, but they should not try to become indispensable.” José María Serra is an important corporate executive, but above all, he is an insurance executive. Catalana Occidente knows very well that it is an insurance company that works in the insurance sector, not only in the Spanish insurance industry but internationally as well. He is convinced that there is a great future ahead for the industry, a future of expansion, profitability and service. Finally, he is aware that it is a family-owned company and therefore it is managed in a style that is family oriented. The founder of the Grupo, José María's father, from whom he learned so much, was a great businessman from a young age. Afterwards he learned how to be an exceptional manager. And he succeeded. He liked to tell stories about his beginnings and about his dreams

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and his endeavors. His son, José María, on the contrary, started managing companies from a young age and afterwards, through hands-on experience and his own initiatives, became a great businessman. And he succeeded. Father and son followed different paths, both paths leading to the same destination. We are now going to take a quick look at the complicated period in the history of Spain between 2006 and 2014, the year in which Grupo Catalana Occidente celebrates its 150th anniversary. 280

An environment of international crisis If we had to define this stage in the history of Spain and the world in just a few words, these would undoubtedly be “international economic and financial crisis”, and although some say this crisis was not evident until the beginning of 2008, the fact is that alarms went off a few years before. Since the beginning of the century the high levels of liquidity of the economic system, the low interest rates in force and the great optimism prevalent in the economy and business (factors that truly encouraged investment and spending) as well as the active role of the international banking system with its sophisticated, highly profitable products lacking official control, all presented alarming warning signs. The unbalanced conditions of family economies, the ever-increasing amount of individual and company debt and the formation of financial bubbles which occurred principally, but not exclusively in the real estate sector, all contributed greatly to the crisis. The overall idea was that there would be no limit to global economic growth and therefore everyone should enjoy the infinite advantages of progress.


Catalana Occidente becomes international. 2006-2014

The overall idea was that there would be no limit to global economic growth and therefore everyone should enjoy the infinite advantages of progress. Something similar happened, but in the opposite direction, once the crisis had been acknowledged. When the crisis became evident, the idea of some heads of state, especially in Spain, was that the economic problems would subside and only be short-term matters, lasting more or less about a year. Reality has proved otherwise however, as the crisis still continued six years later. The boundless optimism and lack of awareness of the past played a trick on the developed world. The outcome of these circumstances could not be other than a serious crisis, initially of a financial nature although later it moved on to the real economy. And although it did not take on the dimensions of a world depression due to rapid government intervention, it has been the most serious economic crisis suffered since 1929. Moreover, this has been a complex

crisis and therefore it has been difficult to predict its outcome or to find adequate solutions. The consequences it has had on companies and families have been devastating; it has caused the disappearance or transformation of some of the world's major investment and financial service banks, both in North America and other countries, such as Merrill Lynch, JP Morgan, Lehman Brothers, Bear Stearns, Hypo Bank, Northern Rock and a long etcetera. Other important banks of a more commercial nature such as Citigroup, Washington Mutual or RBS have been bailed out, merged or saved in extremis by the government. The investment banking industry, Wall Street, no longer exists, at least in the same way as it once did. The North American insurance company AIG, one of the largest in the world, went bankrupt and had to be bailed-out by the public sector. The main cause of its failure was that it had sold massive quantities of speculative insurance, moving away from its traditional business. This company was one of the principle entities which offered “credit default swaps� (CDS), derivative products to cover the risk of default on certain security issuances that played such an important role in the development of the crisis. As well as the large number of important private companies

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specializing in real estate loans that disappeared from the market, semipublic institutions of outstanding prestige in this type of operations, such as Fannie Mae and Freddy Mac in the United States were also affected. These long standing institutions required urgent government intervention to save the real estate industry. Some of the most important car companies in the United States also needed bailing out from taxpayers in order to continue operations. The world's economy underwent an unprecedented recession as a consequence of the price bubble burst, the rapid spread of the crisis internationally and the continuous corporate bankruptcies. Stock markets fell and so did prices of real estate. What began as a liquidity and solvency problem of the financial institutions due to grave errors made in mortgage loans and their securitization (subprime mortgages) had become a world wide recession which destroyed millions of jobs as well as the people's trust in banks and companies. This situation affected governments all over the world, including Spain, which were also suspected of insolvency. It became difficult to finance Public Debt due to high deficit; Public Debt in various countries reached prohibitive rates. Greece, Ireland and Portugal had to be bailed-

out with funds from the European Union and the International Monetary Fund. In 2011 it was even debated whether the Euro would continue as the official monetary currency. In Spain, the crisis imported from abroad was complicated by several internal problems such as the unbridled granting of credit to the construction sector and the inadequate administration of public institutions. This led to a situation in which an important part of the financial system was swept away taking with it traditional institutions such as savings banks. Their imprudence and over exposure to real estate credit were two of the reasons for the generalized bankruptcy. On the other hand, mass unemployment, a natural consequence of the credit cut backs from companies closing down and the contraction of private and public spending, had a particular impact on our country. Unemployment rates climbed to almost five million people in 2011, 22% of the active population, and reached more than 24% at the beginning of 2012 causing a lowering of the standard of living to levels unknown in our society for decades. At the end of 2011 amid this environment of uncertainty and pessimism, the socialist government had to call for elections. The results spoke for themselves: they had lost the

Detail of the sculpture located in the entry of the buildings “Catalana Parc �.


Catalana Occidente becomes international. 2006-2014

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The professional insurance industry as well as other industries, both international and Spanish, have been very affected by the crisis. 284

trust of the people and the Partido Popular won by an overwhelming majority. The professional insurance industry as well as other industries, both international and Spanish, have been very affected by the crisis. Although, it did not originate in the insurance industry, it suffered the consequences. More on this topic will be mentioned in the following pages.

Grupo Catalana Occidente The group's Annual Report regarding the 2006 financial year informed that since January, Catalana Occidente had been including the business of the international insurance company Atradius NV in its accounts. This company, present in more than forty countries, was and still is the second credit insurance operator in the world having a turnover of 1,100 million euros at the end of 2006. As already mentioned, Catalana Occidente, which had a share capital holding of 24.48%, increased its investment through successive purchases, and now possessed 49.99% of the shares. The group also increased its participation in Cr茅dito y Cauci贸n to 43.18%, becoming the leading shareholder in the company. It also increased its share in other subsidiary companies, Nortehispana and the investment company Inpisa Dos. The investment activity of Catalana Occidente was very significant that financial year. From an economic point of view, the year 2006 was one of the best in the history of the group. Consolidated profits reached 250 million euros with a 42.2% growth over the already


Catalana Occidente becomes international. 2006-2014

favourable results in 2005. The technical reserves stayed at similar levels as the previous financial year due to a positive business performance and the profitability achieved in general insurance lines. The incorporation of the company Atradius largely explains the increase in the over all profits. The total income volume exceeded 2,419 million euros with a 9% increase compared with the previous year. Out of this amount, 1,936 million corresponded to insurance premium turnover, 138 to

GROUP INCOME 2004-2006 (MILLION EUROS) LINES OF BUSINESS

2004

2005

2006

Multi-risks

292.4

324.2

346.9

Miscellaneous

559.0

601.1

635.5

Car insurance

461.9

448.2

445.9

Life

416.6

488.7

507.8

TOTAL PREMIUMS

1,729.9

1,862.2

1,936.1

Pensions and Funds

60.4

96.6

138.1

1,790.3

1,958.8

2,074.2

253.2

260.7

345.2

2,043.5

2,219.5

2,419.4

TOTAL BUSINESS Returns on investments TOTAL INCOME Source: Catalana Occidente

contributions to pension plans and investment funds and 345 to reserve investment earnings. The price of the listed shares of Catalan Occidente reflected these positive results, despite undergoing a nominal value split and a correlative increase of the number of shares up to 120 million. The share price at the end of the financial year was 27.45 euros, which represented a stock market profit of more than 86%. It was agreed that similar policies would be followed for 2007, focusing on increasing internal results through continuous professionalization of insurance agents, maintenance of technical margins and control of expenses. This could be accomplished by taking advantage of the synergies between the different companies of the group. At the expense of future development of the financial markets (Catalana Occidente had forcast possible market tensions) it was expected that in 2007 the economic results would improve and margins would be maintained, despite the possible recovery of insurance combined ratios. The development of the group's income between 2004 and 2006 was as follows:

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The product portfolio that year was as follows: multi-risk represented 16.7% of the total premiums, rest of lines 30.6%, car insurance business 21.5%, life insurance 24.5% and pensions and investment funds 6.6%. The dynamic solvency margin in 2006 rose 494%, that is, five times more than what was required by the industry's control body. This surplus reached 1,330 million euros. The funds managed reached almost 7,000 million. The distribution of the group's investments that year is shown on the following graph: Intense investment activity continued throughout 2007, as the share participation in Atradius and Crédito y Caución was reorganized and finally completed in February 2008. The group now controlled 70.34% of the newly created corporate holding Grupo Crédito y Caución, which in turn owned 64.3% of the Dutch company, Atradius. Due to this reorganization, Atradius owned 100% of the Spanish insurance company Crédito y Caución. With the incorporation of the Dutch company into Grupo Catalana Occidente that year, the pro-forma turnover in 2007 exceeded 3,900 million euros, making the group the second credit insurance

DISTRIBUTION OF INVESTMENTS Other investments 16% Fixed income 48% Deposits and Treasury 11%

Equities 9%

Outside entities 9%

operator in the world with a 30% share of the global market. Shares increased in the companies Hercasol and Inpisa Dos, reaching 33.82% and 25.48% respectively.

Property 7%


Catalana Occidente becomes international. 2006-2014

Atradius NV In order to understand the reason for the purchase of this company, which as previously mentioned was and is one of the world leaders in credit insurance, we must consider the fact that Catalana Occidente had become the main shareholder of the Spanish company, Crédito y Caución. This company was, and still is, the market leader in Spain in this type of contracts, with roughly 60% of the market share. Crédito y Caución was a leading company in Spain and the most prestigious one in this line of business. This fact influenced the shareholders to expand outside of Spain just as the majority of their client companies had been doing. In fact, Crédito y Caución was already operating in other countries that did business with Spain, such as Portugal in Europe and Brazil in Latin America. The world market for credit insurance was mainly controlled by three companies, COFACE with headquarters in France, Euler-Hermes with headquarters in Germany and Atradius in Holland, three countries that, as we know, were involved with international trade before Spain. It therefore seemed evident that Crédito y Caución would achieve an

important international presence through the purchase of one of these three companies. A strategy based exclusively on internal growth had been discarded because to achieve the same results would have taken too long, required too much money and entailed too many risks. Contacts were made with Atradius, the company chosen by Catalana Occidente for the initial conversations. Some time before, the company had been owned by Gerling Konzern an important German industrial and insurance group that had grown to large dimensions, controlling various important companies. At the end of the last century its financial results deteriorated to the point of having to close some of its subsidiaries and sell others to different international groups. The new owners of the company were Swiss Re, one of the world's reinsurance leaders, Deutsche Bank, one of the greatest banks in Europe and the finance company Sal Oppenheim. These three owners, none of whom were direct insurance professionals, were not sufficiently stable shareholders despite having 100% control, given that their intention was to dispose of it either through selling or by listing it on the stock exchange. Crédito y Caución had always

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maintained friendly, commercial relations with the company as they both operated in the same line of business. When it found out that the company was for sale, Grupo Catalana Occidente expressed their interest: “Let's value Crédito y Caución and Atradius and carry out a fair exchange,” was the offer made by Catalana Occidente to the owners of the Dutch company. As majority shareholder of Crédito y Caución and Grupo Catalana Occidente, José María Serra, was convinced that it was the right time to purchase the company for different reasons: it fit in with the company's plans to start operating abroad, the situation the Dutch company was going through, the owners' wish to sell and the secure position that Crédito y Caución had reached in Spain. The timing was right for both the selling and the purchasing parties. “We needed to reach a considerable size in our own country before thinking of operating abroad,” said Serra, and Crédito y Caución and Catalana Occidente had both already accomplished this. The price of the company was significant but did not constitute a problem. Several legal operations had to be carried out and on January 25, 2008 the integration agreement subscribed in 2007 between Compañía Española

Crédito y Caución had always maintained friendly, commercial relations with the company as they both operated in the same line of business. de Seguros Crédito y Caución and Atradius was carried out. The integration of these two companies was accomplished by trading the total amount of shares of Crédito and Caución to Atradius, and the issuance of 22,522,422 new shares valued at 20.65 euros each by Atradius which were simultaneously subscribed by Grupo Crédito y Caución. In this way Atradius became the sole shareholder of Crédito y Caución. Because the Spanish “Insurance Compensation Consortium” sold part of its shares in Atradius, Grupo Catalana Occidente became the owner of 73.84% of the recently created Grupo Crédito y Caución, which in turn held 64.25% of Atradius. From that time on Catalana Occidente had the legal capacity to manage and control the Dutch company, as well as earn the profits


Catalana Occidente becomes international. 2006-2014

arising from the new business now integrated within the insurance group. Grupo Catalana Occidente had control of over 90% of the shares. The total investment for the purchase reached 935 million euros.

The diagram below shows Grupo Catalana Occidente's participation in the ownership of the company during the two final years of the process: In 2008 our group reached an income volume of 3,855 million euros of which

DATA GRUPO CATALANA OCCIDENTE 9M 2010 PURCHASE OF ATRADIUS

SITUATION 2009

SITUATION 2010

INOC, S.A.

INOC, S.A.

56.71% CCS

9.88%

GES + NAC

11.28%

ESA

56.71%

GCO

5.00%

CCS

73.84%

9.88%

S Re

GRUPO CRÉDITO Y CAUCIÓN, S.L.

DB

SO

GES + NAC

11.28%

ESA

GCO

5.00%

73.84%

GRUPO CRÉDITO Y CAUCIÓN, S.L.

289 64.23%

25.0%

9.1%

1.7%

26.66%

64.23%

ATRADIUS, NV

100% CRÉDITO Y CAUCIÓN

Economic participation of 47.43%

9.11%

ATRADIUS, NV TOTAL INVESTMENT 535 + 400

100% CRÉDITO Y CAUCIÓN

Economic participation of 74.09%


150 YEARS CATALANA OCCIDENTE

290

3,231 corresponded to insurance premiums, 225.4 to incomes from services and 398.4 to investment income, with an overall increase of 55.2% with regard to the previous year. This increase in income was due to Atradius business which contributed 1,032.8 million euros from the business credit line. Other income was also added to this amount and is shown in the following table: It is important to point out that in the year 2008 the results from the investments of reserves of the Spanish insurance sector, including Catalana Occidente, were especially negative owing to the international financial crisis already mentioned. The Public Debt acted as a shelter for the majority of companies; profitability throughout the world was significantly reduced. Debt in the United States fell from 4.0% to about 2.0%, German bonds fell to 2.95% while Spanish Debt went from 4.43% to 3.81%. Credit differentials increased to historical levels and the issuance was reduced to a minimum. The performance of the equity market was equally very negative. The IBEX 35 and the Eurostoxx 50 lost 40% and 44% of their value respectively, and there was a general collapse of bank quotations in countries such as Iceland, Ireland, Belgium and the United Kingdom, because of required public

CATALANA OCCIDENTE. INCOME 2007-2008 (MILLION EUROS) LINES OF BUSINESS

2007

2008

Multi-risks

352.3

366.6

Business credit

422.3

1,540.7

Miscellaneous

272.7

273.9

Car insurance

445.6

439.6

Life

542.6

610.0

2,035.5

3,231.1

42.3

225.4

2,077.8

3,456.5

405.6

398.4

2,483.4

3,854.9

TOTAL PREMIUMS Income from services TOTAL BUSINESS Rest of investments TOTAL INCOME Source: Catalana Occidente

bail-outs and nationalizations. In these conditions the total investment profits of our group decreased by 36.1%. The financial results, net of expenses, including subsidiary companies, were 276.6 million euros, representing a decrease of 6.8%. Finally, capital losses were 11.9 million euros as a result of the recognized loss of 17.2 million euros from the closing of the North American


Catalana Occidente becomes international. 2006-2014

The measures adopted throughout the entire group aim to achieve a more flexible, competitive position as well as the reduction of expenses and loss ratios. Lehman Brothers Bank on September 15th. Despite these circumstances, the technical reserves of Grupo Catalana Occidente continued to have a significant excess coverage, which reached 1,438 million euros and a solvency margin of 377.8%, a ratio far above what the official controlling body required. Both amounts (coverage and solvency) were lower than during the previous year although they were still a sufficient guarantee of the group's strength. The financial report in 2009 started with an expressive letter from José María Serra to all of the shareholders. Below are some of his reflections. “The financial year 2009 will be remembered by everyone as a year marked by the economic crisis. For the group it has been especially intense

due to the fact of having to adapt traditional business to the current economic situation and for the need to redirect both the Spanish and the international credit insurance results. The measures adopted throughout the entire group aim to achieve a more flexible, competitive position as well as the reduction of expenses and loss ratios. These measures allow us to view the future development of the business with certain optimism. We will continue to act according to the principles that have always governed our group: profitability, solvency and growth.” “In this context, our traditional business has maintained a total turnover volume in some of the different lines of business. Multi-risks and life have increased their sales while car insurance and the rest closed the financial year with reductions. Despite the difficulties, very positive trends were also registered throughout the year resulting in a significant increase of commercial activity. Despite containing technical costs and expenses, the lack of overall premium growth has deteriorated the combined ratios that together with the tighter financial margins have had a negative effect on the results.” “In current circumstances it is also important to point out how carefully we have managed our investments,

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which in addition to the historic capitalization of profit, enables us to maintain an excellent solvency (over 400%). Although the A- rating by Standard and Poor contains a negative perspective, it also acknowledges the strength of our results, our robust financial flexibility and our cautious investment strategy.” Some additional changes took place in 2009 such as the incorporation of the company Catalana Occidente de Servicios Tecnológicos. The companies DEPSA, Servicios de Gestión Legal and Catalana de Talleres y Reparaciones, all controlled 100% by Grupo Catalana Occidente, were also incorporated. On the other hand, on May 4 of that year, the group proceeded to sell SICAV Inpisa Dos, subsequently recognizing the corresponding capital gains. A week later Seguros Catalana Occidente transferred 37.76% of Baqueira Beret, thereby excluding it from its consolidation perimeter, although it still held 11.73% of the shares in that company. In regard to the process of internationalization it is worth mentioning the new distribution of the different products after 2009. The following tables and graphs show the figures of the new distribution:

The credit insurance business in Catalana Occidente which represented almost 43% of the group's sales in 2009, had 125 offices and 2,811 insurance agents located in different countries. The main markets in which it operated were Spain, Germany, France, United Kingdom, the Netherlands and Italy, and the company continued working to

CLASSIFICATION BY LINES OF BUSINESS IN % LINES OF BUSINESS

2007

2008

2009

Multi-risk

16.5

11.1

12.5

Credit insurance

19.8

46.8

42.8

Miscellaneous

12.8

8.3

8.2

Car insurance

20.8

13.4

13.6

Life

25.4

18.5

21.4

4.8

1.8

1.5

100.0

100.0

100.0

Pensions and Funds TOTAL Source: Catalana Occidente

consolidate and increase its presence in other markets with significant growth perspectives. In Spain and regarding traditional insurance, the group had 1,179 offices and approximately 2,000 agents located in


Catalana Occidente becomes international. 2006-2014

GEOGRAPHIC DIVERSIFICATION Italy 2%

United Kingdom 3%

France 4%

The Netherlands 3% Germany 5%

Rest countries 5%

Spain 72% Rest EEC 6%

Source: Catalana Occidente

principle towns and cities in order to maintain close contact with clients and to offer efficient and quality customer service. 2010 began for Catalana Occidente with the acknowledgement that the world economy had undergone a positive reactivation. The global economic output grew 4.7% with regard to the previous year although with different results depending on the geographic regions. The emerging countries, China, India, and Brazil, among others, grew on the average 6%,

the United States raised its gross national product by 2.7% and the European average achieved an improvement of 1.5% although with losses in some countries, including the so-called peripheral countries: Spain, Ireland, Portugal and Greece. However, 2010 was also the year in which the great crisis of the sovereign debt began in some European countries. Spain was one of the countries that most suffered its consequences, up to the point of having its GDP reduced by 0.1%. The Government eliminated some of the measures to stimulate consumption and simultaneously adopted others with the aim of achieving fiscal consolidation and expense reduction. Unemployment increased and the government had to initiate a strong restructuring process of the financial sector. The stock exchange markets fell (The IBEX 35 by -17%) within a general atmosphere of strong volatility and financial insecurity. The premium income from the national insurance industry fell by 3.9%; the life insurance line alone was reduced by 8.5%, motivated by aggressive high-interest bank deposits. General insurance on the whole maintained a flat evolution except for the multi-risk segment that grew by 3.1%. The loss ratio of the market on the whole rose by a few decimal points and the combined ratio reached 94%.

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Despite this changing atmosphere and due to the measures adopted by the group to reinforce the general business model, the year 2010 ended with favourable perspectives in Catalana Occidente. Some of the most representative figures that year were the following. The profit attributed to the company reached 181.3 million euros, and the total consolidated result was 209 million. The traditional insurance business obtained optimum operating results and the credit insurance business recovered, both on the national and international level. The combined ratio was lowered by 12.7 percentage points decreasing to 88,4%, the solvency margin rose to 470.9%, above the minimum required and equity resources increased 8.6% reaching 1,545 million euros. Dividends increased by 2.04%. “All of these figures,” stated the chairman in a letter to the shareholders, “will encourage future growth and consolidate Catalana Occidente as an independent insurance company on a national and global level. The financial year has concluded in a reasonably satisfactory manner for all and with the certainty that we will be able to continue to successfully meet any new challenges which may arise in the future.” The company's financial results were

The company's financial results were once again favourable in 2011 despite the fact that it was a very uncertain financial year for the global economy and a very negative year politically. once again favourable in 2011 despite the fact that it had been a very uncertain financial year for the global economy and a very negative year politically, both for Spain and for other European countries. The profits amounted to 210.5 million euros, which represented 16.1% growth with regard to the previous year. Total premium reached 3,066 million, which represented an increase of 3.2%, an outstanding amount considering that the insurance industry as a whole had a reduction in income in the non-life business lines. The company also increased its permanent resources and its solvency margin, maintaining a stable outlook. This was confirmed by the Standard and Poor rating. Dividends to shareholders increased by 10% and participation in the international


Catalana Occidente becomes international. 2006-2014

company Atradius also had increased, by 2.63%. The evaluation of the year was clearly positive due to the effort made by everyone involved in the company and to

INCOME CATALANA OCCIDENTE 2010 AND 2011

INCOME

2010

2011

VARIATION %

Traditional business

1,638.5

1,657.7

1.2%

Credit insurance business

1,333.2

1,409.0

5.7%

2,971.7 3,066.7

3.2%

Total premiums Other income Total insurance income

104.1

101.3

-2.7%

3,075.8 3,167.9

3.0%

Source: Catalana Occidente

the strength of the business maintained by Catalana Occidente. The following tables summarize in numbers the objectives achieved during 2010 and 2011 and the company's financial structure. Other important indicators on the company's balance sheet are summarized in the following table: Catalana Occidente arrived at its 147th financial year in 1864 having achieved its objectives as shown by the figures in the table. Throughout this long period the company had successfully solved the many challenges encountered by the insurance industry. It also met the challenges presented by events that had occurred in the country. In the past Spain had suffered the consequences of isolation from the

RESULTS CATALANA OCCIDENTE 2010 AND 2011 PROFIT

2010

2011

VARIATION %

Traditional recurring business

111.9

119.9

7.1%

Credit insurance recurrent business

126.3

118.3

-6.3%

Non-recurrent profit

-29.0%

3.4

--

Consolidated profit

209.2

241.6

15.5%

Attributed profit

181.3

210.5

16.1%

Source: Catalana Occidente

295


150 YEARS CATALANA OCCIDENTE

FINANCIAL INDICATORS PERMANENT RESOURCES

2010

2011

VARIATION %

2,134.6

2,230.8

4.5%

16.0%

17.1%

1.0%

Administered funds

7,276.8

7,518.2

3.3%

Solvency excess

1,557.2

1,667.4

5.7%

% Over capital required

470.9%

489.7%

18.80%

A-

A estable

Permanent resources ROE

Rating Source: Catalana Occidente 296

rest of Europe; it was then separated from most of the countries in the world due to the political ups and downs of the Spanish civil war and the post-war period. Afterwards it formed part of the European Union, passing through phases of optimism as well as periods of uncertainty and crisis. But despite the innumerable challenges encountered, the values promoted years before by the group's founder, JesĂşs Serra Santamans, still stand firm. Catalana Occidente continues to be independent from other economic and financial groups. It is an outstanding insurance company, internationally as well as nationally, maintaining its services and products

with a high level of efficiency and quality, all due to the professionalism of its commercial network, of its management teams and of its 5,811 employees.

But despite the innumerable challenges encountered, the values promoted years before by the group's founder, JesĂşs Serra Santamans, still stand firm.


Catalana Occidente becomes international. 2006-2014

INAUGURATION OF JESÚS SERRA SANTAMANS STREET Recognition to the human and business career of the founder of Catalana Occidente The inauguration of Jesús Serra Santamans Street took place on 30th June 2011 in an event celebrated together with the City Council of San Cugat. The event was attended by the Mayor Mrs. Mercè Conesa and the Honourable Mr. Lluis Recoder, Councillor for Environment and Territorial policy. Catalana Parc, the new business area of San Cugat, was also inaugurated. Catalana Parc is a center

for the location of leading companies of renowned prestige. The current president of Grupo Catalana Occidente, José María Serra Farré, stated, “Today the career of our founder has once again been recognized with the inauguration of this new project, Catalana Parc in San Cugat. It is a special day for all of us who form part of the group.”

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Our book concludes relating some of most outstanding events that took place during 2012 which ended at the same time as the book was edited. This was an important yet difficult year for the country, from different points of view such as the internal public order, the macroeconomic and international point of view and those specific of the national insurance and of our insurance group in particular. Indeed, 2012 was not a good year for Spain from an economic point of view. The GDP had reduced by 1.4% compared to the previous year due to the lethargy of global demand for investment and consumer goods. This circumstance caused an excessive increase of unemployment rates reaching levels in the order of 26% of the workforce, a rate never reached before in our modern history. However the Sate deficit was reduced regarding that of the beginning of the year, although less than what expected as the Government estimated that by December this would be 6.7% of the GDP, not including the amount from the European aid to the Spanish banking. Not the changes in the national policy carried out through the reforms undertaken by the new government of the Partido Popular of Mariano Rajoy, who won the general elections at the end of 2011, nor the achievements

reached in the reduction of the labour costs in order to improve the country's competitiveness, the cuts in social benefits which were generally adopted, and not even the increase in the export of goods and employees, managed to increase the vital tone of the Spanish economy in 2013, and unfortunately all the reliable sources forecast also a negative outlook for 2013. On the one hand, the data for the year of the Spanish insurance sector as a whole was a true reflection of what had happened with the general economy, as might be expected. The income from Non Life insurance premiums of Spanish insurance companies fell by 1.93% in 2012 compared to the previous year, passing from 31,733 million euros to 31,119. This decent was general for all lines of business except for health, and to a less extent, the multi-risk business. The volume of this large range of

The data for the year of the Spanish insurance sector as a whole was a true reflection of what had happened with the general economy, as might be expected.


Catalana Occidente becomes international. 2006-2014

insurance lines was reduced by a real 11.9% (discounting inflation) in the period from 2007 up to 2012 due mainly to the general crisis suffered by the Spanish economy. The fall in the Life insurance was even higher than in the other lines of business, reaching 9.04% of the premiums, losing more than 2,600 million euros in just one year. The overall facts showed indeed a complicated general scenario for the Spanish insurance sector as a whole, although it is also true that it was not the same for all companies. At least it wasn't for our group, as in a way it went behind the business saying: "Never waste a crisis no matter how serious it is..."

Acquisition of the company Groupama Indeed our group did not miss the opportunity and in autumn 2011 it started its path towards growth by purchasing new insurance companies; the times offered good opportunities. In those dates, the chairman of Catalana Occidente took the reigns to take advantage of these opportunities and contacted one of the main insurance companies in Europe, the French company Groupama, which had its head offices in Paris. The objective was very specific: to show its firm interest in purchasing the company of the same name that this company had in Spain. Several steps or stages defined the purchasing process which subsequently took place with the French group. From November to February 2012 the works were focused on the bilateral negotiation for the company's direct purchasing. Then, the French insurance company decided to open the operation to other possible candidates other than Catalana Occidente. Subsequently, at the end of May, our company put forward a firm purchase offer for the company. As a result of these decisions, the 19th of June 2012 the purchase

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150 YEARS CATALANA OCCIDENTE

300


Catalana Occidente becomes international. 2006-2014

Head office from Plus Ultra Seguros in Madrid.

agreement was signed by Catalana Occidente and the insurance company with head offices in Madrid. This agreement was then submitted to the official regulatory authorisations. What are the main guidelines that define Groupama Paris and its Spanish subsidiary? The leading French entity had become, in only a few years, one of the main insurance companies in Europe. Of mainly an agricultural origin and with a mutual association nature, from its beginnings Groupama insured most of the French agriculture entrepreneurship, both in specific agricultural operating risks and in the rest of personal and material coverages of small, medium and large farmers. This allowed it to increase its size and efficiency that ran parallel to those of this economic sector in France, which as already known, is the most important in Europe. Once it had reached this favourable position in its own country, the company began an accelerated national and international expansion throughout Europe, extending its objectives and personality to the rest of insurance products and the different forms of distribution and sale. Groupama grow in France and in different countries in the world, not only though internal growth but also by purchasing other insurance companies, thereby changing

its traditional corporate structure which was exclusively mutual. In fact, entering the Spanish market was one of the company's first initiatives in this direction. We would then have to ask, -Why did Groupama, which was so important nationally and internationally, decide to sell its Spanish subsidiary? The reply to this question is as specific as justified. It sold its Spanish subsidiary with the aim of restoring its solvency level as international insurance group, which was seriously affected by the aforementioned worldwide financial crisis of the last years (crisis of the Greek Debt in danger of "reduction" or non-payment, the international stock exchanges, economic uncertainty in Europe...). To face these issues, the company drafted a divestments plan in several countries placing on sale its most profitable subsidiary companies and therefore the most likely to find a purchaser as fast as possible. One of the most profitable was the Spanish subsidiary. For Catalana Occidente and for its chairman, JosĂŠ MarĂ­a Serra, the opportunity could not be clearer or more favourable. Catalana Occidente maintained its objective of obtaining market share in Spain and at the same time of maximising the positive synergies caused on some occasions by external acquisitions. At the same time it also wanted to compensate the importance

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that the credit insurance had gained in the group, and balance the use of the different distribution channels. Equally important was the fact that the purchase allowed it to compensate the geographic distribution within Spain improving at the same time the weight of the products

in its portfolio, such as companies' risks, the health and miscellaneous lines of business, including the most popular sectors in times of crisis such as the so called "low-cost" through the Internet company Click Seguros owned by Groupama.

Detail of the carillon of the extreme building of Plus Ultra Seguros.


Catalana Occidente becomes international. 2006-2014

The company began an accelerated national and international expansion throughout Europe, extending its objectives and personality to the rest of insurance products and the different forms of distribution and sale. In the end, the accounts and the conditions for the agreement were once more in line with the long history of acquisitions by our company, both for the selling party and for the buyer. Consequently and based on the evaluations carried out and agreed, our group paid for the company Groupama Espa単a 404,5 million euros which it delivered on the spot to the vendor. The operation was thereby formalised. The income from premiums of the purchased company reached 940 million euros in 2011, of which 38% were for car insurance, 29% for multi-risks, 18% for miscellaneous and 15% for life. The day of the purchase by Catalana Occidente, Groupama Seguros went on to be called Plus Ultra Seguros, thereby recovering the former name of the

company purchased by the French in 2002. Groupama had a well defined image and personality in the Spanish insurance market. The company grew in size and consolidated in Spain also through a vast process of purchasing other insurance companies operating in our country. An example of which was the above mentioned Plus Ultra, company founded in 1887, and which many years later, in 1990, after the merger of Banco Bilbao with Banco de Vizcaya, which was the owner of the company, was sold to the British company Norwich Union which when merged with Commercial Union formed CGNU that later became AVIVA. As already mentioned, CGNU sold Plus Ultra to Groupama in 2002. At the time of the acquisition by Catalana Occidente, in 2012, the company had 1.5 million clients, almost 1,000 employees and 6,000 mediators, among insurance brokers and agents. It established in Spain in 1988 with the name of Groupama. Certain aspects of interest defined the personality of this company in our country, emphasising its innovative spirit in management styles, the clearly differentiating policy opposite its competitors regarding products and services, and the advanced management and close communication with its clients and staff, considering the modern

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information technologies more than just a mere instrument, that is, mainly as the expression of its proximity and closeness with the insured. Outstanding regarding its brand image were the concepts of humanism and sustainability that it applied to the insurance business. This set of philosophies and principles increased the interest, value and management synergies for Grupo Catalana Occidente. The decision to purchase Grupana was therefore prudent and correct, as were the previous acquisitions. The company's functional and operational integration in our group could as a result be gentle and well planned, respecting the permanence of staff of the acquired company within the Grupo asegurador as well as that of its management team.

Grupo Catalana Occidente after the last acquisition In 2012 our group obtained 3,236.8 million euros, and forecast for 2013 to maintain the business volume and a level of profits similar to those of the year just ended. It was therefore planned to improve the profitability of the recently acquired Plus Ultra. Catalana Occidente obtained 200.2 million profits in 2012, 4.9% less than the previous year, although the income as mentioned was 0.5% higher than in the previous years. The Governing Board appointed IĂąaki Ă lvarez Group CEO. The Director General, Francisco Arregui said in a press briefing that the joint income of the insurance industry (Life and Non-Life) in 2012 fell by 5.3% and forecast a year 2013 equally complicated for the sector. Nevertheless, he forecast a moderate growth for our group in the foreign Credit business through the company Atradius. He pointed out however that the group's main corporate operation was the purchase of Groupama, today Plus Ultra, as although he did not detail the specific operating objectives for 2013 he firmly

Marquee of the main entrance to the headquarters of Catalana Occidente in San Cugat del VallĂŠs (Barcelona).


Catalana Occidente becomes international. 2006-2014

In 2012 our group obtained 3,236.8 million euros, and forecast for 2013 to maintain the business volume and a level of profits similar to those of the year just ended.

stated that the intention was to clearly improve the overall combined ratio of the new company, specially in the Car line of business, in order to approach it to the group's ratios. Furthermore, Plus Ultra ended the year with 24.8 million euros profit although its contribution to the group was only of 3.4 million in the last quarter of the year, as the ownership of the company was

305


150 YEARS CATALANA OCCIDENTE

Thanks to Catalana Occidente's traditionally wise investment policy, the level of permanent resources increased by 5% up to 2,343 million euros.

306

divided into 49% which was directly held by Catalana Occidente and by 51% owned by INOCSA, which as already known is the group's parent company, controlled by the Serra family. Of the total income, the turnover of the traditional business fell in 2012 by 2.7%, reaching 1,612.5 million euros, whilst the total credit business grew by 3.9% until 1,624.3 million, yet although the Spanish business fell by 5% owing to the weak financial situation. The dividends on account of the 2012 profits were the same as in 2011, that is, 0.57 euros per share. On the other hand, and thanks to Catalana Occidente's traditionally wise investment policy, the level of permanent resources increased by 5% up to 2,343 million euros. The solvency margin reached 497.5% that is, 1,752 million above the official requirements. Finally it is worth pointing out that by adding the income from Plus Ultra, Grupo Asegurador Catalana Occidente climbed up to the sixth position in the general ranking of Spanish insurance companies, with a market share above

5%. Therefore, it was still the Spanish family-owned company of reference within the whole of the national insurance industry. The corporate vision and mission of the founder, JesĂşs Serra Santamans, were hence broadly achieved and fulfilled.


Annex


Annex

Social responsibility and corporate governance at Catalana Occidente The United Nations Global Compact Since 2006 Grupo Catalana Occidente has been a member of the United Nations Global Compact promoted in 1999 by the General Secretary Kofi Annan and presented in Spain in 2002. The Compact includes a series of principles which cover four large areas of action, human rights, employment rights, the environment and the fight against corruption in the business world. They are principles for good governance, many of which were already followed by Catalana Occidente since its beginning as they coincided with the policies promoted

by its founder, JesĂşs Serra. They are based on transparent corporate management, with a spirit of ongoing improvement and a special sensitivity towards human resources, customers and the company. Every year Catalana Occidente has made further advances in its commitment to these policies. With regard to its most recent rules, such as those referring to preservation of the environment, the group has implemented energy efficiency criteria in all of its new constructions and has made alterations in its buildings, making use of river and underground water, installing solar panels, ACS, using LED lighting in common areas, installing photo-sensitive lighting, gardens with less watering requirements and using special insulation in buildings. The achievements are outstanding. Energy consumption in the group's buildings and installations has been controlled as well as the emission of carbon dioxide, the company's water consumption has been reduced by 17.5% and up to 22.52% of the paper consumed in the company is recycled. In collaboration with the entity Enisola the use of electric vehicles is being promoted. The company also began implementing a waste recycling management system both for the head

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150 YEARS CATALANA OCCIDENTE

310

Many of the company's The group's activities dedicated values and to solidarity, one of mission its most important All of Grupo Catalana Occidente's areas of corporate actions are guided by ethics transparency, necessary for building humanitarian work, and trust inside and outside the company. Its activities are based on ethical and are carried out moral principles in search of a balance between what is received and what is through the offered to stakeholders. Transparency is charitable of the a vitally important element in order for the different collectives to be able to Fundaci贸n identify with corporate objectives. Other essential principles are integrity, Jes煤s Serra. responsibility and safety in work office building and for the head offices of the rest of the companies in the group. Also worth mentioning is the effort made to improve transparency of information among the different social groups interested in the company such as investors, clients, employees, suppliers and shareholders. Many of the company's activities dedicated to solidarity, one of its most important areas of humanitarian work, are carried out through the charitable efforts of the Fundaci贸n Jes煤s Serra .These have been described in preceding pages.

processes and in installations and services, with special attention given to the protection of employees, suppliers and clients. The competitive advantages of Catalana Occidente are defined by four professional values. These values are shared by the company's employees. They make it possible to achieve the strategic mission, to comply with its commitments to its clients and to achieve excellence in management. -Leadership: a style of management based on staff motivation, delegation of responsibilities, participation in decisions and team work.


Annex

-Focus on results: through a professional, objective, flexible and efficient management. -Innovation: with an attitude of continuous improvement, ensuring that the staff has access to relevant information, managing professional knowledge, and promoting human and technical development. -Client orientation: anticipating the clients' requirements rapidly and efficiently in order to provide good service. Catalana Occidente is committed to maintaining a significant role in society. It acts as a facilitator and multiplier of the activity of different economic and social groups, contributing to the production of wealth, both locally and nationally.

Information transparency Audits Catalana Occidente has implemented a detailed auditing plan which is approved at the beginning of every financial year. This plan, which must be approved by the Audit Corporate Committee, refers to all the group's companies. The independent audit companies are chosen based on their merits and capacities and their reports are available for clients and the public upon request. External audits are complemented with internal audits and inspections at the request of the company's executive management and usually refer to specific processes within the group companies. These are carried out both at the head offices and at the regional branches and offices.

Financial markets The group has increased its efforts to provide clear and honest information to the financial markets regarding development of the business.The material is updated every three months and consists of performance reports,

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150 YEARS CATALANA OCCIDENTE

All relevant information is registered with the Spanish Securities and Exchange Commission as well as with other equivalent institutions abroad; in this way corporate information is made available to all interested parties. presentations of relevant facts and different press releases and notes.

312

The following table summarizes the company's principle formal contacts with analysts and investors:

Communications with analysts and investors Catalana Occidente has different <communication channels and tools to guarantee the principles of integrity and equality in its relations with shareholders. These are listed in the Board of Directors' Regulations which establish the channels through which this is carried out. All relevant information is registered with the Spanish Securities and Exchange Commission as well as with other equivalent institutions abroad; in this way corporate information is made available to all interested parties. The company website (www.catalanaoccidente.com) includes updated information on general, economic and commercial aspects of the company.

THE COMPANY'S MAIN FORMAL CONTACTS WITH ANALYSTS AND INVESTORS RELATION WITH ANALYSTS ANS INVESTORS 2009 Number of meetings with investors

2010

156

203

Number of forums

3

3

Number of road showsâ&#x20AC;?

5

8

Number of meetings with analysts

190

238

Number of analysts' reports published

105

111


Annex

Human Resources Management

TOTAL STAFF TRADITIONAL BUSINESS 2010 2,559 EMPLOYEES

Men 59%

The company's social responsibility is expressed through its relations with the people it employs. Its lines of action with the staff are described in the following sections.

Training Management of human resources aims at improving the training and professional development of employees which contributes to service excellence and promotes competitiveness both inside and outside of the company. A total of 1,604 training courses were carried out in 2010, representing more than 105,000 training hours, equivalent to 25.44 hours per employee. The training programmes have covered both technical insurance subjects and management improvement aspects. The financial budget for training in 2010 was 1,150,804 euros.

Women 41%

TOTAL STAFF TRADITIONAL BUSINESS 2010 2,559 EMPLOYEES AVERAGE SENIORITY (IN YEARS)

14.63

AVERAGE AGE (IN YEARS)

42.3

0

5

10

15

20

25

30

35

40

45

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150 YEARS CATALANA OCCIDENTE

Health and safety at work The group has an occupational risk prevention plan and regularly carries out general health tests, preventive tests and vaccination campaigns for employees. On the premises there also exist self-protection plans in departments which have over 20 people. Building evacuation simulations are regularly carried out.

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Conciliation of professional and personal life According to the commitment to equal opportunities and to work-life balance, the company offers its employees a flexible schedule system.

2009

2010

Absenteeism %

4.00

4.40

Accident rate

0.15

0.58

Rate of professional illnesses

0.00

0.00

WOMEN'S PARTICIPATION IN QUALIFIED POSITIONS High Management Department managers Regional managers Branch managers Women in qualified positions

Integration and equality

Social benefits

The participation of women in qualified positions is shown on the following chart: At Grupo Catalana Occidente men and women receive the same salary as all employees are governed by the same rules and agreements.

The company has a large social benefits program for employees, including pensions plans, accident insurance, health insurance, family insurance, company dining room and the financing of professional and academic training at all levels.

2010 1 62 7 29 401


Annex

BUDGET SOCIAL BENEFITS PROGRAMME 2009

2010

2,514,945

2,648,716

Staff insurance premiums/(Savings/ Retirement)

421,313

370,513

Staff insurance premiums /Life

549,296

627,607

Other insurance for staff

117,267

159,395

471,483

453,046

2,023,861

2.527,180

380,988

468,735

6,479,152

7,255,192

Social welfare system Contributions to pension plans

Food subsidies Company dining room Other formulas Other social benefits Other social benefits TOTAL

Credit insurance staff profile

Women 45%

Men 55%

There are 3,241 employees at Catalana Occidente. The distribution between men and women is shown on the following chart. The budget for staff training in 2010 was 2,079,098 euros. Both in its traditional insurance business and its commercial credit business, more than 97% of the staff at Catalana Occidente had permanent contracts.

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150 YEARS CATALANA OCCIDENTE

Excellent relations are maintained with trade unions and the company committee. Communication with employees

316

Communication with employees is based on ongoing information regarding the targeted corporate objectives and the strategies implemented to meet those objectives. Each year management provides the staff with a copy of the Strategic Plan which includes the general guidelines and policies of the group. This information can also be accessed on the Intranet which is available to all employees and agents. Every six months several corporates magazines are published, so that employees and agents can be informed about activities that take place in the company. Excellent relations are maintained with trade unions and the company committee. Decisions affecting the staff are made with their union representatives and regulated through agreements and covenants.

Distribution network The professional and personal quality of the distribution network is one of Grupo Catalana Occidente's main competitive advantages. The staff selection process and the continuous training programs are aimed at guaranteeing a high degree of service for the client. Analysis of the real needs of our clients, revision of the guarantees that they have purchased, accurate information about the different options available, advice given according to their interests and assistance in view of any emergency, are all essential values which provide customer satisfaction and strengthen their relationship with the company. More than 20,000 agents make up Catalana Occidente's distribution network which forms part of the different channels and networks of the traditional business of the company, adapting to the different products and markets. Three networks are distinguished in


Annex

Companies 7% Women 40%

Men 53%

this business: Catalana Occidente's, the network of Seguros Bilbao, Nortehispana and that of Plus Ultra Seguros. Some characteristics of these networks are shown in the following graph. The group's objective in this area is to achieve a network of professional agents who assess the client with quality, transparency and solvency. For this reason exclusive agents are offered a “Career plan” for the purpose of receiving training and resources in order to develop as a professional with the necessary quality and independence. The “Career plan” has been in operation in Catalana Occidente for more than 25 years, and has proved to be a successful professional model. It

not only provides a stable and profitable profession for those agents who complete it but it also establishes a strong bond with the company.

Responsibility regarding services Catalana Occidente is committed to maintain its excellent customer service and high quality of products through innovative measures which are adapted according to changes that take place in the market. Rates are regularly revised and the company continues to remain one of the most competitive in the industry. The group was pioneer in eliminating the so-called small print from policies and other information given to clients. Despite the complexity of insurance products, documents and information are designed so that they can be read and understood as easily as possible. The company has always been committed to providing professional and personalized advice through its agents and consultants; it is convinced that customers need the direct

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150 YEARS CATALANA OCCIDENTE

SETTLING OF CLAIMS - CUSTOMER SERVICE COMPANY

Received

Not accepted

Evaluated

In favour of the company

Pending

757

44

713

80

68

451

114

Depsaa

37

2

35

0

0

35

0

Cosalud

10

2

8

0

0

5

3

2

0

2

0

0

0

2

TOTAL

807

48

759

80

68

491

120

Nortehispana

721

-

721

149

243

329

0

Seguros Bilbao

321

1

320

102

2

213

3

1,849

49

1,800

331

313

1,033

123

In favour of the company

Pending

Catalana Occidente

Catoc Vida

318

TOTAL

In favour Agreement of the client between the parties

The function of the Ombudsman is shown in the following table:

SETTLEMENT OF CLAIMS IN CLIENT OMBUDSMAN COMPANY

Received

Not accepted

Evaluated

262

102

160

13

15

83

49

0

0

0

0

0

0

0

262

102

160

13

15

83

49

NorteHispana

22

0

22

3

2

12

5

Seguros Bilbao

0

0

0

0

0

0

0

284

102

182

16

17

95

54

Client ombudsman Participant ombudsman TOTAL SCO

TOTAL

In favour Agreement of the client between the parties


Annex

The company was always committed to a professional and personalised management and advice through its agents and consultants; it is convinced that the insured person needs the direct intervention of a professional who can understand his/her insurance needs and problems. intervention of a professional who can understand their insurance needs and problems. In this respect Catalana Occidente has established a customer service department that incorporates the principles of transparency and protection which are so important to the company. The “Ombudsman” also plays an important role in customer service as he operates independently from the company's criteria and demands. The following table includes the data regarding the activity of the customer service department in 2010: Perhaps these initiatives are why Catalana Occidente has been regularly distinguished with so many awards and acknowledgements. The company received the “Leaders in Excellence 2010” award in the category of Plans and Pension Funds. This prize is considered one of the most prestigious in Spain regarding services and consumer satisfaction.

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150 years of Catalana Occidente