Zurich and Santander announce long-term alliance in Latin America |
22.02.2011
| from Zurich Insurance Group AG

22.02.2011, Zurich Financial Services Group (Zurich) today announced it has signed a Memorandum of Understanding (MOU) with Banco Santander SA (Santander) to enter into a 25-year strategic distribution arrangement in Latin America. As part of the transaction, Zurich will acquire a 51% participation in the life insurance, pension and general insurance operations of Santander in Brazil, Mexico, Chile, Argentina and Uruguay. Zurich will pay USD 1.67 billion for its 51% participation in the insurance operations including the respective distribution agreements. In addition, over the 25-year term of the distribution agreements there is an earn-out mechanism for achieving specific profit performance targets and a mechanism that would protect against possible underachievement.
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, commented Martin Senn, CEO of Zurich. Santander’s Latin American insurance operations offer a rare combination of high growth potential and strong cash flow generation.
“This alliance is clearly aligned with our strategic objectives. It will increase our share in emerging markets, significantly grow Global Life’s new business value as well as help to expand our General Insurance business in those areas where we can do so profitably. It will contribute to achieving a business operating profit after tax return on equity of 16% over the medium term, and growing cash flow to support our policy of paying an attractive and sustainable dividend,” Mr. Senn said.
In 2010, Zurich and Santander in Latin America, if combined, would have produced USD 3.9 billion in gross written premiums plus USD 2.9 billion in pension contributions. This transaction will further diversify the Group’s business mix, increasing on a pro forma basis Latin America’s contribution to the Group’s top line to about 8% from currently 4%, as well as increasing emerging markets’ contribution to Global Life’s new business value to about 35%.
The alliance with Santander provides Zurich with access to over 5,600 bank branches and an additional 36 million customers in the region. Latin America is one of the most attractive insurance markets globally as it combines a young and growing population of 590 million people with a low penetration of financial services. The insurance market in the region has shown consistent growth and profitability over recent years and is expected to continue expanding rapidly in the future. In addition, bank distribution is an important and developing distribution channel in the region. In Brazil, the largest insurance market in Latin America, bank distribution accounted for 40% of total insurance volumes in 2009.
Structure and funding of the transaction
Zurich Santander Insurance America, S.L., will be established in Madrid to serve as the new holding company for the jointly owned companies. Zurich will have management control over the joint venture, which Zurich intends to fully consolidate. Santander will continue to be a 49% shareholder. This demonstrates its commitment to and strong interest in jointly developing and growing the insurance business.
As part of the transaction, each local insurance company will enter into exclusive bank distribution agreements with Santander’s respective local banking unit, subject to local regulatory requirements. Products to be sold through Santander’s extensive distribution network include life protection, savings, pension and general insurance products. The distribution agreements will have an initial term of 25 years.
In 2010, Santander’s Latin American insurance premiums grew by 32% to USD 1.9 billion of gross written premiums, of which approximately 68% came from life protection products, 2% from savings, and 30% from general insurance products. In 2010, the Previdência pension business in Brazil reported contributions of USD 2.9 billion and assets under management of USD 10.5 billion. Santander’s Latin American insurance operations delivered a net profit in 2010 of USD 328 million. The consolidated local GAAP shareholders’ equity as of December 31, 2010 amounted to USD 1.9 billion, with a ROE 2010 of 17%.
Zurich intends to finance a majority of the up-front payment from existing cash resources, with the balance financed through the issuance of hybrid debt. The acquisition is expected to be immediately accretive to Zurich’s earnings per share. On a pro forma basis, the transaction will have a minimal impact on Zurich’s solvency calculations and will be cash flow positive. Zurich and Santander intend to complete definitive agreements in the first half of 2011. The closings will be subject to applicable antitrust and insurance regulatory approvals, and other customary closing conditions. The transaction is expected to close by the first quarter of 2012.
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“This alliance is clearly aligned with our strategic objectives. It will increase our share in emerging markets, significantly grow Global Life’s new business value as well as help to expand our General Insurance business in those areas where we can do so profitably. It will contribute to achieving a business operating profit after tax return on equity of 16% over the medium term, and growing cash flow to support our policy of paying an attractive and sustainable dividend,” Mr. Senn said.
In 2010, Zurich and Santander in Latin America, if combined, would have produced USD 3.9 billion in gross written premiums plus USD 2.9 billion in pension contributions. This transaction will further diversify the Group’s business mix, increasing on a pro forma basis Latin America’s contribution to the Group’s top line to about 8% from currently 4%, as well as increasing emerging markets’ contribution to Global Life’s new business value to about 35%.
The alliance with Santander provides Zurich with access to over 5,600 bank branches and an additional 36 million customers in the region. Latin America is one of the most attractive insurance markets globally as it combines a young and growing population of 590 million people with a low penetration of financial services. The insurance market in the region has shown consistent growth and profitability over recent years and is expected to continue expanding rapidly in the future. In addition, bank distribution is an important and developing distribution channel in the region. In Brazil, the largest insurance market in Latin America, bank distribution accounted for 40% of total insurance volumes in 2009.
Structure and funding of the transaction
Zurich Santander Insurance America, S.L., will be established in Madrid to serve as the new holding company for the jointly owned companies. Zurich will have management control over the joint venture, which Zurich intends to fully consolidate. Santander will continue to be a 49% shareholder. This demonstrates its commitment to and strong interest in jointly developing and growing the insurance business.
As part of the transaction, each local insurance company will enter into exclusive bank distribution agreements with Santander’s respective local banking unit, subject to local regulatory requirements. Products to be sold through Santander’s extensive distribution network include life protection, savings, pension and general insurance products. The distribution agreements will have an initial term of 25 years.
In 2010, Santander’s Latin American insurance premiums grew by 32% to USD 1.9 billion of gross written premiums, of which approximately 68% came from life protection products, 2% from savings, and 30% from general insurance products. In 2010, the Previdência pension business in Brazil reported contributions of USD 2.9 billion and assets under management of USD 10.5 billion. Santander’s Latin American insurance operations delivered a net profit in 2010 of USD 328 million. The consolidated local GAAP shareholders’ equity as of December 31, 2010 amounted to USD 1.9 billion, with a ROE 2010 of 17%.
Zurich intends to finance a majority of the up-front payment from existing cash resources, with the balance financed through the issuance of hybrid debt. The acquisition is expected to be immediately accretive to Zurich’s earnings per share. On a pro forma basis, the transaction will have a minimal impact on Zurich’s solvency calculations and will be cash flow positive. Zurich and Santander intend to complete definitive agreements in the first half of 2011. The closings will be subject to applicable antitrust and insurance regulatory approvals, and other customary closing conditions. The transaction is expected to close by the first quarter of 2012.
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