Investments Show Confidence in Mexican Insurance Industry

One key indicator of any country’s economic health is the confidence of investors in its commercial enterprises. By that standard Mexico is on a roll.

Since the end of the currency crisis in 1994, and the introduction of NAFTA in the same year, the country’s commercial fortunes have taken a decided upswing. While a great deal of attention focuses on transport disputes and south of the border assembly plants, the banking and insurance sector has been growing steadily, bolstered not only by investments from north of the border, but also from Europe.

Mexico accepted NAFTA’s provisions to gradually remove enterprises from state control, and to allow more foreign participation in its financial sector, which had been under the tight reign of the state and a few favored companies. These reforms were due to be fully phased in by the year 2000, and have opened the market to foreign banks and insurers across the board, from property/casualty to life, health and pension products.

On Feb. 1, Prudential Financial announced it had entered into a stock purchase agreement with IXE Grupo Financiero to purchase IXE’s stake in Afore XXI S.A. de C.V., the ninth largest private pension manager in Mexico. The acquisition puts Prudential in partnership with the Instituto Mexicano del Seguro Social (IMSS), the government agency responsible for providing health and retirement benefits for Mexican workers and their families. The new venture, coupled with Prudential’s interest in Mexico’s third largest investment firm, Prudential Apolo, will further expand its presence in the Mexican marketplace.

The market also holds promise for property/casualty insurers. On Jan. 18 GMAC Insurance Holdings (GMAC) Inc., the insurance division of General Motors Acceptance Corp., announced the acquisition of ABA Seguros S.A., one of Mexico’s largest property/casualty and auto insurers, from Abaco Grupo Financiero S.A. de C.V.

“ABA Seguros has grown steadily and profitably since 1995, and has established a reputation in Mexico for innovative and high-quality service. The company has an Internet capability that is among the most advanced in the Mexican market,” stated Ronald Judd, GMAC vice president of international operations.

By far the biggest cross-border investment occurred last year when Citigroup acquired Mexico’s Grupo Financiero Banamex Accival (Banacci) for $12.5 billion in the largest financial services transaction in Mexican history. Citigroup’s chief focus was on expanding its presence in the banking sector. By combining its operations in Mexico with Banacci, it became Mexico’s largest bank in terms of assets.

The Banacci acquisition put Citigroup into two insurance partnerships with the Netherlands’s AEGON, Seguros Banamex AEGON, a life insurance company, and Afore Banamex AEGON, a pension fund management firm. After reviewing the situation AEGON announced in January that it would sell its interests in the two companies to Citigroup for $1.24 billion.

If one Dutch company is on the sidelines, another one, the ING Group, is most decidedly present. Last October ING completed the acquisition, begun in June, of Seguros Comercial America (SCA) Mexico’s largest insurer, with an 18 percent share of the country’s life insurance market and a 39 percent share of the p/c market. Coupled with ING’s interest in a bancassurance venture with Banco Bital and its ownership of Afore Bital, one of Mexico’s fastest growing pension funds, ING is a major player in the Mexican market.

ING originally made a $555 million investment in SCA when it became a partner with its majority owner Savia Group in February 2000 by acquiring a 39 percent stake. By April it had set up a new holding company and effectively controlled a 49 percent stake. When Savia ran into financial difficulties ING offered to take over its interest for an additional $791 million, which upped its stake to 87 percent. A successful tender offer, completed in November, gave it 99.91 percent of the company. ING recently consolidated all its Mexican holdings under the name ING Comercial America as part of its global re-branding campaign.

SCA has grown at a 23 percent rate for the last 10 years, compared with around 13 percent for the rest of the Mexican market, and around 5 percent for the U.S. Ewald Kist, Chairman of ING’s Executive Board, expressed his satisfaction with the acquisition of SCA and voiced his positive vision of Mexico’s future, stating, “We are committed to this very attractive market with more than 90 million citizens; therefore, we are optimistic about the growth opportunities. There are strong synergies between SCA and ING’s existing operations in Mexico, which will contribute to build a great Mexican business.”

Most analysts continue to have upbeat projections for Mexico in general and the insurance market in particular. The combination of deregularization, coupled with economic growth, an expanding middle class and increasing political stability all point to continued opportunities for the world’s bankers and insurers.

Topics Market Property Casualty Mexico