View from City Road: UAP's insurance is running out

One of the merits of being really big is that you can make big mistakes and get away with them. The same might be said of being state-owned. Union des Assurances de Paris has the luck to benefit from both advantages, though not for long - it is to be privatised in mid-1994 after Rhone-Poulenc and Elf.

Admittedly these are dark days for Continental insurance groups. Like British insurers 18 months ago, they are at the bottom of the cycle, with profits reeling from aggressive competition and recession.

True, rates are beginning to tighten. This is already feeding through to the bottom line, with UAP's net profits from insurance up 28 per cent in the first six months of the year to Fr949m ( pounds 110m).

Improvement or not, it hardly makes up yet for the dismal error of UAP's investment in Banque Worms, a French bank badly affected by the collapse in the Parisian residential property market. The insurance group managed to lose Fr615m on banking, three times as much as this time last year.

Still, with first-half net profits of Fr1.1bn and a Fr54bn market capitalisation UAP is fortunate to be big enough to absorb the pain. And, with three-quarters of its shares held by the state or tame state-dominated groups, it is under little pressure to justify its mistakes.

Indeed, UAP has just embarked on a risky investment in the third- largest German insurer, Colonia, in effect paying Fr20bn for a majority stake, an investment on which it will make nothing this year and which will probably generate returns of less than 1 per cent next year. It is bent on expanding its empire.

The UK's Sun Alliance, a quarter UAP's size, might be next on the shopping list. With Donald Gordon's Transatlantic, it already has a stake. However, once in the private sector, it will lose its present special insurance policy against mistakes - in the shape of government backing.