On Wednesday, Zurich Financial Services Group, Switzerland’s biggest insurer, expanded its presence in the promising South America market with the acquisition of a 51 percent stake in the life insurance, general insurance and pension operations of Banco Santander in Brazil and Argentina. The deal comes as part of a long-term distribution arrangement between Zurich and the Spanish banking giant in Latin America, which was agreed to earlier this year.
In February 2011, Zurich announced that they would pay Santander an initial US$1.67 billion to enter a 25 year strategic alliance. Santander may also receive additional annual payments over this period, provided certain performance targets are reached. As part of the deal, Zurich acquires a controlling interest, 51 percent share, in Banco Santander’s Latin American insurance arm, which covers operations in Argentina, Brazil, Chile, Mexico and Uruguay. Under the terms of the deal, each local insurance company, country by country enters into an exclusive bank distribution contract with Santander’s respective local banking unit, all subject to local regulatory requirements. The announcement of Wednesday only relates to operations in Brazil and Argentina, with regulatory approval still pending for the other aforementioned countries. Both parties expect the transaction to be fully completed, with the remaining Latin American countries in tow, before the end of the year.
The joint-venture between Santander and Zurich will make the Swiss insurer the fourth largest insurance company operating in Latin America. Zurich will gain access to Santander’s extensive distribution network, which features 5,600 bank outlets and a total of over 36 million customers throughout the region. The newly formed partnership between the Swiss insurer and Spanish financial services conglomerate will create a new company called Zurich Santander Insurance America S.L with the holding company based in Madrid. Zurich will be responsible for the management of its Latin American business. If the Swiss insurer can effectively leverage its international insurance expertise and strong capital position it should be able to maintain its position amongst the upper echelon of insurance providers in Latin America.
Martin Senn, CEO of Zurich, explained back in February that the partnership with Santander would be integral to their further development of their insurance business in the Latin American region. “This alliance with Banco Santander is another milestone in the implementation of Zurich’s emerging-market strategy in both Global Life and General Insurance. It significantly expands our presence in Latin America with a well-established insurance business,” he said.
With their expanding commodity and export-driven economies and low insurance penetration rates, Latin America’s markets offer considerable opportunity for sustainable premium growth; and none more so than Brazil. Brazil is by far the largest insurance market in South America, representing more than 40 percent of the gross written premiums in the region. Recent economic stability, positive credit trends, and regulatory reforms that have stabilized the currency and promoted domestic savings, are producing sound growth and a demand for coverage across the insurance industry in Brazil. Despite continued regulatory hurdles, large multinational insurers cannot ignore the market’s size and growth potential. In 2010 the Brazilian insurance industry outpaced the country’s GDP and grew 16.6 percent, with gross written premiums totalling R$ 99.4 billion (US$ 62.7 billion). Zurich is also planning to establish a separate reinsurance unit in the country to take advantage of the almost US$1 trillion worth of infrastructure projects now underway to host the 2014 FIFA World Cup and 2016 Olympic Games. This investment, largely made through public money, is expected to provide a huge boost to the Brazilian insurance market and boost the demand for risk coverage considerably.
Latin America is far from the only region offering pronounced investment opportunities for multinational insurers in these troubling economic times. Last week, Zurich completed the acquisition of Malaysian composite insurer Malaysian Assurance Alliance Berhad (MAAB) to reaffirm the firm’s commitment to the lucrative Asia Pacific region. MAAB features a strong management team and a robust distribution platform with over 7,800 multi-tied agents distributing life and general insurance products throughout Malaysia. By the end of 2010 MAAB reported gross written premiums of US$ 476 million. Through the acquisition of MAAB, Zurich has gained a valued presence in one of the most productive insurance markets in the Asia Pacific region, one that could help position the Group for sustained premium growth in the future.
Going forward, Zurich has also expressed interest in expanding its insurance operations in neighboring Indonesia, taking advantage of the country’s steady economic growth, rising household incomes and demand for coverage against risk. Zurich is currently ranked 20 on the list of Indonesia’s top 50 insurance companies with a 1.2 percent market share and Rp 407 billion (US$46.4 million) in gross written premiums. The firms expects to triple its market share and become one of the country’s top insurance providers within the next 5 years, with premium income topping Rp 2 trillion (US$234 million). To achieve these performance targets, Zurich are focusing on both individual and small and medium-sized business lines in Indonesia to generate quick premium income. The Swiss insurer also has plans to use its recent acquisition of an 80 percent stake in local life insurance firm Mayapada Life to further develop its operations in the Asian country.
Zurich will face competition in Indonesia from Manulife, Canada’s largest insurer, who are undertaking their own expansion plan for the country. This week, Manulife Indonesia opened a new marketing branch in Jakarta. The new marketing office is part of Manulife strategy to support future business growth in Indonesia. Manulife’s Indonesian subsidiary has a presence in 24 cities in Indonesia and has 1.5 million in-force insurance policies. In addition to a new expansive customer service centre, the marketing office also features a state-of-the-art education facility to support the insurer’s growing domestic agency force. The number of licensed agents has increased by 32 percent in the past year; from 5,214 agents in the second quarter of 2010, to almost 7,000 agents by the end of June 2011. Manulife Indonesia’s human resources have risen in accordance with the firm’s remarkable business activity. Premium income has risen by 51 percent to Rp 3.5 trillion in the first half from the corresponding period last year. Manulife’s businees in Indonesia operations now account for one-third of their cumulative premium income for the entire Asian region.
Many multinational insurers have been shifting their focus away from western hemisphere countries to the growth markets in Asia in order to capitalize on the increasing affluence in the region. China and India are leading the charge in economic expansion, with both Asian powerhouses reporting bumper growth in demand for insurance and investment-linked products; countries such as Malaysia, Vietnam and Indonesia are also developing quickly in concert with their regional powerhouse neighbors.