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.