Zurich, the Swiss insurance giant, has agreed to acquire the Latin American insurance operations of Australia’s QBE, an Australian insurance company, for around $409m, subject to closing adjustments.
In addition to making Zurich Argentina’s largest insurance provider, the deal will also enable Zurich to “build incremental scale in Brazil, Colombia and Mexico, and become the number three insurer in Ecuador”, Zurich said in a statement on Sunday evening.
It added that the transaction was “expected to comfortably exceed Zurich’s hurdle rate of 10% return on investment in the first full year post-completion”.
The announcement comes less than three months after the insurer announced it had agreed to acquire all of Australian banking giant ANZ’s life insurance businesses for AU$2.85bn ($2.14bn), noting that it was doing so as part of a strategy aimed at making it Australia’s leading retail life insurer.
That agreement included long-term distribution arrangements with ANZ, as reported here at the time.
News of the proposed acquisition of QBE’s LatAm businesses came hours before Syndey-based QBE posted its results for the year to the end of December, which showed a record loss of A$1.6bn ($1.25bn), after having been hit by claims as a result of the devastation caused by Cyclone Debbie, and Hurricanes Harvey and Irma, as well as a write-down for deferred tax credits as a result of US corporate tax cuts introduced by the Trump administration’s recent tax reform package.
“The decision to exit Latin America is consistent with our focus on simplifying the group, reducing risk and improving the consistency of our results,” QBE chief executive Pat Regan said.
‘Argentina = 50% of acquired operations’
In the statement announcing its purchase of the QBE LatAm business, Zurich noted that Argentina represented “around 50% of the acquired operations”, and that the transaction would “approximately double Zurich’s property and casualty business in Argentina”, thus enabling it to create “the leading insurance franchise in the country across the P&C and life businesses, with [an] 8.4% market share and the third-largest stand-alone P&C business, with a similar market share”.
“The acquired operations complement Zurich’s existing businesses in Argentina, and add additional distribution and product capabilities particularly among small and medium sized commercial customers”, it added.
Claudia Dill, Zurich’s Latin American chief executive, noted in the statement that the Argentinian market is currently “demonstrating strong growth, a stable economy and a positive environment for insurance”, and that the acquisition would “deepen our capabilities in the retail and commercial businesses” there, and would support the company’s strategy “to become the preferred retail and commercial insurer in the region, protecting our customers and helping them to reach their full potential”.
“We welcome our new customers, distributors and colleagues to Zurich,” she added.
The acquired operations had combined gross written premiums of around $790m in 2017, with “a highly diversified product offering and strong distribution”, Zurich said.
Zurich said it expects the acquisition to be completed by the end of this year, and that it is expected to be fully funded from internal resources.