Zurich set to acquire QBE’s Latin American operations

Zurich Insurance has entered into an agreement to acquire the Latin American operations (Argentina, Brazil, Colombia, Ecuador and Mexico) of QBE for $409m. According to Zurich, the deal will position Zurich as the leading insurer in Argentina and the number three insurer in Ecuador. Zurich said it will also build incremental scale in Brazil, Colombia and Mexico. The transaction is subject to regulatory approvals.

“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. 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, protecting our customers and helping them to reach their full potential,” said Claudia Dill, Zurich’s CEO for Latin America.

The acquired operations had combined gross written premiums of about $790m in 2017. Argentina represents about 50% of the acquired operations. The transaction will approximately double Zurich’s property and casualty (P&C) business in Argentina and create the leading insurance franchise in the country across the P&C and life businesses with an 8.4% market share, and the third-largest standalone P&C business with a similar market share.

Zurich said it expects to achieve an overall return on investment comfortably in excess of the group’s indicated hurdle rate of 10% within the first full year post-completion of the transaction. It added that the acquisition is expected to be completed by the end of 2018 and is expected to be funded from internal resources.

QBE said that Puerto Rico operation will be retained by QBE to facilitate the servicing of claims resulting from Hurricane Maria and will become part of QBE’s North American operations.

QBE group CEO, Pat Regan, said: “The decision to exit Latin America is consistent with our focus on simplifying the group, reducing risk and improving the consistency of our results. Following a detailed review of our Latin American operations, we determined that QBE was no longer the best strategic owner of these businesses. Zurich has a significant presence in Latin America and a strong commitment to the region. Following the completion of the sale, we look forward to cooperating with Zurich to service the needs of our multinational customers operating in Latin America.”

QBE announced the sale while revealing its annual results, which saw the insurer report a statutory 2017 net loss after tax of $1.25bn, compared with a net profit after tax of $844m in 2016. This includes the significant non-cash impairment of goodwill ($700m) and write down of the deferred tax asset following the reduction in the US corporate tax rate ($230m) in its North American operations.

Gross written premium increased marginally to $14.19bn, compared with $14.09bn in 2016. The adjusted combined operating ratio was 104.1% for 2017, compared with 93.7% in the previous year, the increase primarily reflecting extreme catastrophe experience and a significantly reduced level of positive prior accident year claims development, which more than offset an improved combined commission and expense ratio, according to QBE. The net cost of catastrophes for QBE (after reinsurance) was $1.23bn, compared with $439m in 2016.

“Natural disasters were not the only challenge confronted by QBE during the year, with the performance of the emerging markets division a major disappointment due to adverse claims experience in numerous portfolios,” said W Marston Becker, chairman, QBE Group. “Prompt action was taken when declining performance became evident around the middle of the year, with two separate operating divisions formed to facilitate a more granular focus on each of the Asia-Pacific and Latin American regions. Detailed performance improvement plans have been developed for Asia-Pacific operations, while we have made the decision to exit Latin America as part of a broader strategy to simplify our global footprint and improve the quality and consistency of our results.”

He added: “There are now signs of a modest recovery in the commercial insurance market in the northern hemisphere after years of weakness, with premium rates in some classes starting to adjust for the catastrophe losses of 2017. At the same time, there are tangible signs of rising global interest rates which, if sustained, bode well for future investment returns.”