In $409 Million USD Deal, Zurich Will Acquire QBE Insurance Operations in Latin America

In a $409 million USD purchase, Zurich Insurance Group (VTX:ZURN) will acquire the Latin American operations of Australian insurer QBE Insurance Group Limited (QBE:ASX) and secure its status as one of the biggest players in a regional insurance market that wrote some $145 billion USD in premiums in 2016, according to the Swiss company.

The move builds on a major push by Zurich into the market in 2011, when the carrier acquired a 51% stake in the Latin American operations of Santander for “a total consideration of $1.67 billion USD as part of a 25-year strategic distribution agreement,” according to EY.

The agreement, which Zurich said in a statement is subject to regulatory approvals, will give the Swiss company a major presence in Argentina and Ecuador while “adding incremental scale and capabilities” in Colombia, Brazil, and Mexico.

The company added that it expects the transaction to be finalized “by the end of 2018” and funded by internal sources.

In all, the Sydney-based QBE’s Latin American operations accounted for $790 million USD in gross written premiums in 2017, with around half that total ($394 million USD) coming from Argentina.

Colombia is the second largest pickup, with the Swiss firm adding QBE’s $119 million USD of gross written premiums in the Andean nation last year to the $24 million USD of Zurich’s premiums in the country in 2017. In an investor note, however, Zurich stated that it expects to reduce this volume through re-underwriting.

This move will double Zurich’s presence in Argentina to make it the leading insurer in the Southern Cone nation, according to the company. The newly combined 8.4% market share in the property/casualty and life segments will allow Zurich, which had been fourth in the market, to leapfrog Cajas Seguros, Federacian Patronal, and Sancor in Argentina.

The acquired assets in Ecuador will mark Zurich’s entry into that market, where QBE wrote $108 million USD in premiums last year. According the company, this will make it the number three player in the country’s insurance sector.

The remaining gross written premium acquisition in the region’s two largest countries (amounting to $113 million USD in Brazil and $56 million USD in Mexico) will likely be reduced through re-underwriting, stated the firm.

The insurer added that, in the first year after completion, the transaction “is expected to comfortably exceed” its “hurdle rate” of 10% return on investment.

QBE is unloading the assets after underwhelming results in 2017, largely due to a reported $1.25 billion USD loss amid major natural disaster exposure, per the Sydney Morning Herald.

In other actions to deal with the blow, according to the paper’s report, the firm also gutted its final dividend of the year to just 4¢ AUD per share — down from 33¢ AUD per share in the prior quarter — and warned that a previously announced share buyback plan may be extended over a longer timeline than originally expected.

“This transaction positions us as the leading insurer in Argentina, a market that is demonstrating strong growth, a stable economy, and a positive environment for insurance,” said Claudia Dill, Latin American chief executive officer at Zurich. “It deepens our capabilities in the retail and commercial businesses and supports our strategy to become the preferred retail and commercial insurer in the region.”

Photo: Zurich historic headquarters in Switzerland. (Credit: Zurich Insurance Group)